Income tax lowered; sales tax hike OK'd
BATON ROUGE — Republican Gov. Jeff Landry got the Louisiana Legislature to back his bet of lowering individual and corporate income taxes to stimulate growth in the state.
The Legislature adopted a 3 percent flat tax for individuals, trimmed corporate taxes and will make up some of the lost revenue by temporarily extending and increasing to 5 percent the state sales tax. Louisiana will now have the highest combined local and state sales tax in the nation at 10.6 percent.
The tax package, passed Friday with the required two-thirds votes in both chambers, received bipartisan support by aligning Louisiana’s taxes with successful neighboring states. The bills now go to the governor for his signature. The action Friday closed a special session of the Legislature that opened on Nov. 6.
“When we came to Baton Rouge, our goal was to have a long overdue conversation on our tax package,” said state Sen. William Wheat, R-Ponchatoula. “This will put Louisiana in a better competitive space to compete with our surrounding states.”
In a closed-door session, Senate lawmakers merged the politically-palatable income tax cut with the steep sales tax increase to win support for the package as a whole. The idea was to flatten the personal income tax from a tiered-rate system with a top rate of 4.25 percent, which would have created over a billion dollars in deficits, prompting lawmakers to raise the sales tax and find other sources of revenue to offset the cuts.
The bill passed the Senate 38-1 vote, with state Sen. Royce Duplessis, D-New Orleans, casting the sole dissenting vote. House approval was 80-18, with state Rep. Beryl Amedee, R-Gray, as the only dissenting Republican.
Still, it was not clear that all the revenue lost by cutting taxes would be made up.
“You’re creating a budget shortfall to provide a tax break for people who don’t need it, and creating another fiscal cliff,” said Jan Moller, executive director of Invest in Louisiana, a nonpartisan group in Baton Rouge that represents lower-income citizens.
This proposed sales tax increase mirrors one pushed by former Democratic Gov. John Bel Edwards in 2016, when Louisiana faced a significant deficit. However, Landry’s sales tax hike is intended to offset his plan to flatten income taxes, a step toward his long-term goal of eliminating income taxes entirely. To gain support, the income and sales tax measures were combined, enabling Republican legislators to stomach raising the sales tax to the highest rate in the nation.
“We are not expanding sales tax into any new services,” state Sen. Blake Miguez, R-New Iberia, said. However, the package will for the first time tax digital services such as streaming services and games.
The Senate approved a significant reduction in the corporate income tax and the complete elimination of the corporate franchise tax. The corporate income tax rate was lowered from 7.5 percent, one of the highest in the nation, to a flat 5.5 percent, a move legislators believe will make Louisiana more attractive to business. The bill was passed with a 38-1 vote in the Senate and a 90-9 vote in the House.
The corporate franchise tax, a levy on owning property or conducting business in the state, will be fully eliminated starting Jan. 1, 2026. As part of this change, certain business tax credits will expire on June 30, 2025. Louisiana was previously one of only 17 states with a corporate franchise tax. The bill was passed unanimously in the Senate and by an 84-16 vote in the House.
“Most states around us have eliminated the franchise tax,” said state Sen. Jeremy Stine, R-Lake Charles, former marketing director for his family business, Stine Home and Yard. ”As a business owner this tax is a punishing tax.”
The Senate also approved a bill to make permanent the $2,000 annual stipend teachers have received over the past two years. With Louisiana facing a shortage of some 2,500 teachers, this measure aims to retain current educators and attract new talent. The raise will be partially funded by reallocating $2 billion from the state’s Millennium Trust Fund, managed by the Louisiana Education Department, to reduce debt in the teachers' retirement system.
However, teachers at charter schools and other institutions that have not contributed to the retirement system will not qualify for the raise. Additionally, some school districts may have leftover funds after receiving this state funding. Any surplus must be directed toward other school employees rather than expenses like textbooks. The bill was unanimously passed in both houses.
Two subsidies the Landry wanted to eliminate were partially preserved after protests at the Capitol; tax credits for movie-making and historic preservation of buildings.
“They can fill a room or two or three,” said state Sen. Cameron Henry, R- Metairie, the president of the Senate.
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