News and Insights

Louisiana Enacts Revenue-Raising Bills

Tax Development Mar 17, 2016

The Louisiana Legislature has increased certain taxes, temporarily eliminated exemptions, and reduced timely filing discounts to address a looming deficit in the state’s budget. Effective April 1, the state will impose an additional 1% state sales tax, raising the state rate to 5%, for a 27-month period that will end June 30, 2018. Some—but not all—of the exemptions that currently apply to the state’s 4% tax will apply to the additional 1% tax. For example, groceries, residential utilities, prescription drugs, and goods purchased for resale will be exempt from both the 4% and the 1% taxes.

In addition, the Legislature temporarily suspended numerous exemptions from the 4% state sales tax.  The suspension will be in effect for a three-month period beginning April 1, 2016 and ending July 1, 2016. In July, the exemptions will be partially reinstated, and the state will continue to tax these items at a reduced rate of 2% until July 1, 2018. This partial exemption will apply to all sales except for the following:

  • Groceries
  • Residential utilities (natural gas, electricity, water)
  • Prescription drugs
  • Motor fuel subject to excise tax
  • Lease or rentals of railroad rolling stock, piggyback trailers, and certain trucks and trailers used in interstate commerce
  • Personal property for resale
  • Materials sold for further processing
  • Feed for animals held for business purposes
  • Farm products produced and used by farmers
  • Agricultural products
  • Drugs administered to livestock for agricultural purposes
  • The first $50,000 of farm equipment and farm equipment used in poultry production
  • Fuel used on the farm
  • Livestock, poultry, and other farm products sold at public livestock auctions
  • Seeds, pesticides, fertilizers, and containers sold to farmers
  • 50-ton vessels, new component parts, and certain materials and services for vessels operating in interstate commerce
  • Materials used in the production of crawfish and catfish
  • Property sold to the government (federal, state, and local)
  • Personal property imported, produced, or manufactured in Louisiana for export
  • Property sold to electric cooperatives and parish councils on aging
  • Factory-built homes

Please note, however, that these items may also be subject to the new 1% tax, which has its own list of exemptions.

Manufacturing machinery and equipment and business utilities will be treated differently. For the three-month period beginning April 1, 2016, manufacturing machinery and equipment will be taxed at 2%, and business utilities will be taxed at the combined state rate of 5%. After July 1, 2016, manufacturing machinery and equipment will be subject to a 1% state sales tax, and business utilities will be subject to a 4% state tax. Then, after July 1, 2018, manufacturing machinery and equipment will be exempt from the state tax, and business utilities will be subject to 1% tax until April 1, 2019. (Please note that some sections of House Bill 61 and House Bill 62 appear to be in conflict regarding the treatment of manufacturing machinery and equipment. We will share any clarifications as soon as they are issued.)

The following changes are also effective April 1, 2016:

  • The state discount for timely filing sales tax reports will be capped at $1,500 per month
  • The timely filing discount for tobacco and stamping reports will be reduced to 5%
  • The cigarette tax will increase to $1.08 per pack
  • The excise tax on alcohol, liquors, malt beverages, and sparkling wines will increase
  • The timely filing discount for taxes on low-alcoholic-content beverages will decrease to 1.5%

In addition, the state sales tax on interstate telecommunications services was scheduled to decrease to 1%, but the Legislature repealed the decrease. As a result, interstate telecommunications will continue to be subject to the 2% state tax.

In addition to the sales tax changes referenced above, effective January 1, 2016, a company’s net operating loss (NOL) deduction may not exceed 72% of its Louisiana net income. For all tax periods beginning on or after January 1, 2016, a business will be required to take a refundable credit before it uses any credit that can be carried forward. Additionally, a refundable credit allowed against both income and corporate franchise taxes must be applied to corporate income tax liabilities and then to franchise tax liabilities. Also effective for tax years beginning on or after January 1, 2016, corporations will be required to add-back certain otherwise deductible expenses incurred in connection with a transaction with related entities if the principal purpose of the transaction was to avoid Louisiana income tax.

For tax periods beginning on or after January 1, 2017, businesses must apply the most recent NOL first (rather than in order of the year of the loss). Depending on the results of a November vote to adopt a constitutional amendment that would eliminate the state corporate income tax deduction for federal income taxes paid, the Louisiana corporate income tax rate may be revised to a flat 6.5%.

In addition, effective for tax years beginning on or after January 1, 2017, any entity electing to be taxed as a corporation for federal tax purposes will owe the state franchise tax. This provision, however, does not apply to a limited liability company eligible to be taxed under Subchapter S or to any other entity acquired between January 1, 2012 and January 1, 2014 by an entity that was taxed under Subchapter S.


Jason DeCuir