BATON ROUGE, La. (Louisiana Illuminator) — Gov. Jeff Landry scored one of the biggest victories of his political career Friday when he managed to push major corporate and personal income tax cuts through the Louisiana Legislature, apparently without leaving the state chronically underfunded.
“I didn’t get a big win, the state of Louisiana got a big win,” Landry said in an interview Friday at the close of a 13-day special session.
But the governor’s tax reductions come at the expense of moving Louisiana’s highest-in-the-nation average sales tax to an even higher rate that will disproportionately burden poor people. It will also apply to a new list of digital products.
“The last-minute decision to increase the state sales tax from 4.45% to 5% was made in closed-door negotiations, without any opportunity for public testimony and without an analysis of the bill’s impact on state revenues and on people at different income levels,” said Jan Moller, executive director of Invest in Louisiana, a policy group that advocates for the interests of moderate and low-income people.
Landry’s high-minded goal of simplifying Louisiana’s complicated tax structure and imposing more fairness on the state tax system also wasn’t achieved. State lawmakers resisted the governor’s efforts to eliminate expensive state tax breaks that favor certain industries.
They also refused to significantly expand the sales tax base by applying it to several so-called luxury services such as lawn care and personal training. Had they agreed to such a plan, it would have allowed the sales tax rate to remain lower.
A large chunk of Landry’s plan is also technically on hold until voters statewide consider a lengthy, tax-and-budget oriented constitutional amendment March 29.
The governor hopes to motivate the public to vote for the amendment by linking it to public school teacher pay. If voters approve it, a $2,000 stipend public school teachers have received for the past two years will become a permanent part of their salary.
The income tax cuts and sales tax hike will take effect Jan. 1 regardless of whether the amendment passes.
A flat rate of 3% will replace all three personal income tax brackets that top out at a high rate of 4.25%. The current sales tax rate of 4.45% will move to 5% for five years, and then lower to 4.75% in 2030.
A state corporate franchise tax has been eliminated, and the corporate income tax rate – which now tops out at 7.5% – has been moved to a flat rate of 5.5%.
Landry’s plan received bipartisan support in spite of Democrats expressing reservations about passing a higher sales tax rate that will be more difficult for low-income households.
Only one of Louisiana’s 39 senators, Democrat Royce Duplessis of New Orleans, voted against House Bill 10 to cut income taxes and raise the sales tax rate. The vote in the House was 80-18 in favor.
Among the lawmakers who opposed the plan in the House was Rep. Matthew Willard, D-New Orleans, who said the theory of states competing with income tax rates often leads to an elimination of the income tax. If all states in a given region achieve the same goal, the next thing to compete over will be sales tax rates, he said.
Earlier in the session, a handful of conservative Republicans had also balked at the notion of hiking the sales tax without adopting any significant government spending reductions. Those objections fell by the wayside under political pressure from the governor’s office.
In the end, only one Republican legislator, Rep. Beryl Amedee, R-Gray, voted against the bill that included the sales tax hike. Three other Republicans – Reps. Stephanie Hilferty of New Orleans, Danny McCormick of Oil City and Joe Stagni of Kenner – were absent for the vote.
Legislative leaders also minimized the Republican fallout over having to vote for a sales tax hike by merging the legislation to increase the sales tax rate with the one to lower the income tax. Conservatives were able to vote for the combined bill without having to say they had voted for a tax increase.
Landry and lawmakers were also able to avoid higher tax rates across the board by dissolving statutory dedications that require certain kinds of state revenue to be spent on certain projects.
For example, vehicle sales tax funding that has been allocated to paying for a new Mississippi River bridge south of Baton Rouge and Interstate 49 expansions in Shreveport and Lafayette will be used for other government services, such as higher education and health care, for the next two years.
The state will also be putting less money into savings accounts. The corporate franchise tax eliminated under Landry’s plan has been used to build up Louisiana’s reserves and won’t be replaced with a new stream of revenue.
While the final numbers aren’t in, legislators said the tax cuts imposed should not send Louisiana’s budget off a cliff. Any budget deficit that results from the plan is supposed to be modest and manageable without massive spending reductions to health programs or higher education.
Senate President Cameron Henry, R-Metairie, said the Legislature will likely be cleaning up parts of the tax legislation during its regular session that starts in April.
“Maybe we’re taxing something we weren’t supposed to [by accident]. People may also go back home and realize there are other changes they want to make,” Henry said.
Landry and lawmakers believe their overhaul of Louisiana’s tax structure will lead to a higher ranking from the Tax Foundation, a national think tank that typically opposes higher business taxes.
“We’re more competitive now. We’ve lowered our rates to stay in line with our Southeastern neighboring states, and we’re just excited with hopefully bringing our people home and bringing more business to this state,” Rep. Julie Emerson, R-Carencro, who carried the bulk of the bills for Landry’s tax package.
“The public relations of the state are greatly improved because of what we have done today,” Henry said.
Income taxes
For individuals, House Bill 10 eliminates Louisiana’s three income tax brackets that max out at 4.25% and replaces them with a single flat rate of 3% for all filers.
This is coupled with a $12,500 standard deduction per filer, much higher than the current $4,500. The increased standard deduction means that no earners will face increased income taxes.
For corporations, lawmakers adopted a slimmed down version of the corporate flat tax bill, which replaced the three graduated corporate income tax rates that top out at 7.5% with a flat 5.5% rate.
Sales taxes
When combined with local parish sales taxes, the total sales tax rate many people will pay in Louisiana will be up over 10% starting next year.
The state sales tax is currently 4.45% and was scheduled to automatically drop to 4% next July. Instead, House Bill 10 moves the sales tax rate to 5% on Jan. 1 and then drops it to 4.75% in 2030.
Both local and states will also apply to a range of digital goods, such as Netflix accounts and other streaming services, for the first time thanks to House Bill 8 from Rep. Ken Brass, D-Vacherie.
Local governments will retain the option to charge a sales tax on prescription drugs.
Business tax breaks
Some business tax breaks such as the Quality Jobs program, which gives employers a break on payroll taxes, and Enterprise Zone tax credits, which can offset company income taxes, will be scrapped entirely.
But three state tax credits that Landry had originally pushed to end will remain in place. They benefit movie and television productions filmed in Louisiana, historic building preservation and digital and software companies. Though these credits survived, they have all been capped at lower levels, meaning the state will spend less money on the programs than they do now.
The state inventory tax credit, which helps businesses recoup money they pay in local government taxes, will also end for some industrial users and larger companies in 2026. But it will remain in place for more modest businesses, such as car dealerships, indefinitely.
by Julie O’Donoghue and Wesley Muller.
Piper Hutchinson and Greg LaRose contributed to this report.
