At the conclusion of the 3rd Extraordinary Session of 2024, the Louisiana Legislature passed a series of bills aimed at reforming the Louisiana tax code. The bills were signed into law by Governor Jeff Landry and a constitutional amendment will be on the ballot on March 29, 2025. Some of the highlights include eliminating the corporate franchise tax, replacing the marginal individual income tax rate with a flat 3% rate and a higher standard deduction, replacing the marginal corporate income tax rate with a flat 5.5% rate and a $20,000 standard deduction per corporate taxpayer, and increasing the state sales tax rate to 5%, to be reduced to 4.75% on January 1, 2030. All of these changes will be effective January 1, 2025. Some of the other important changes are discussed below.
Digital Products
Digital products have been added to the sales and use tax base under Act 10 and will be taxed on par with tangible personal property. Digital products include digital audiovisual works, digital audio works, digital books, digital codes, digital applications and games, and digital periodicals and discussion forums. Act 10 specifically excludes the following from taxation:
- Intangibles like patents, stocks, bonds, trademarks, and franchises;
- telecommunications services and ancillary services;
- internet access service charges;
- work product from professional services in an electronic form (such as an electronic copy of an engineering report);
- digital products where the purchaser holds an intellectual property interest and where the digital product is used exclusively for commercial purposes (such as copyrighted images used in marketing); and
- cable, satellite, video programing, and satellite radio services.
Act 10 also creates exclusions for digital products consumed or used to produce a new product where the digital product becomes a component part of the new product and digital products that are made available free of charge.
Finally, Act 10 creates three exemptions from tax:
- Digital products that are (1) purchased exclusively for commercial purposes, (2) used directly in the production of goods and services for sale to customers, and (3) the goods or services produced and sold are subject to sales and use tax or insurance premium tax;
- Certain digital products purchased and used by FDIC insured financial institutions will also be exempt; and
- Digital products used by licensed healthcare facilities and providers for storing or transmitting healthcare information or for the diagnosis or treatment of a medical condition.
Sourcing Rules
House Bill 10 establishes new sourcing rules for determining which jurisdictions may tax a sale of tangible personal property, digital products, or taxable services and employs a tiered structure. First, if the sale is received by the purchaser at a business location of the seller, the sale is sourced to that business location. If the sale is not received by the purchaser at a business location of the seller, the sale is sourced to the location where receipt by the purchaser occurs. If the first two rules do not apply, the sale is sourced to the location indicated by an address for the purchaser that is available from the seller’s business records kept in the ordinary course of business (unless the record is kept in bad faith).
If those rules do not apply, the sale is sourced to the location indicated by an address for the purchaser obtained during the sale (unless the address is obtained in bad faith). Finally, if none of those rules apply, the sale is sourced to the location (1) indicated by the address from which the tangible personal property was shipped, (2) from which the digital product was first available for transmission by the seller, or (3) from which the service was provided.
When computer software and other digital products are used in more than one parish, the sale shall be sourced pro rata based on the number of users in each parish throughout the taxable period, if the seller knows this information at the time of the sale. If the seller does not have enough information to make the allocation, the seller shall source the transaction using the rules for the lease or rental of tangible personal property.
Exclusions and Exemptions
House Bill 10 eliminated many tax exclusions, exemptions, rebates and credits including, but not limited to property purchased for lease or rental (unless an equipment dealer), pollution control devices and systems and manufacturer rebates paid directly to a dealer. . However, a few key exclusions remain: (1) installation charges when billed separately, (2) sale for resale, (3) trade-in exclusion, (4) other constructions permanently attached to the ground, (5) work product of certain professionals, and (6) cash discounts or rebates on new motor vehicles.
Other exclusions were converted to exemptions, including those related to manufacturing machinery and equipment, tangible personal property consumed in manufacturing process, medical devices, equipment and drugs, agricultural inputs and other agricultural tangible personal property, governmental and intergovernmental transactions and news publications distributed at no cost to readers. The distinction between exclusions and exemptions is important because the taxpayer bears the burden of proving a sale is exempt from sales and use tax, but the tax collector bears the burden of proving that a sale is not excluded when the sale appears to meet the exclusion.
Vendor compensation
HB 10 reduces the aggregate maximum vendor compensation from $1,500 to $750 per month, for tax periods beginning on or after January 1, 2025.
Contact Bob Angelico, Leon Rittenberg III, Caroline Lafourcade, or Kevin Naccari, Jr. for additional information or questions regarding how these changes might impact your tax payment or collection obligations in Louisiana, and visit our Tax practice page.
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