NEW ORLEANS (Nov. 14, 2024) — As Louisiana Governor Jeff Landry’s tax reform session unfolds, one key component of his plan is a proposed overhaul of the state’s two main savings accounts: the Budget Stabilization Fund and the Revenue Stabilization Trust Fund. According to Stone Pigman tax attorney Sanders Colbert, these funds are designed to maintain budget stability. The Budget Stabilization Fund, which currently holds around $1 billion, helps cushion the state during periods of budget deficit. Meanwhile, the Revenue Stabilization Trust Fund, holding approximately $2.7 billion, currently smooths out fluctuations in volatile business tax revenues.
Colbert explained that the Governor’s proposal to use a portion of the Revenue Stabilization Trust Fund to incentivize local parishes to exempt business inventory from personal property taxes is part of a broader strategy to streamline the state’s tax system and eliminate specific types of taxes which discourage investment in Louisiana. Ultimately, the plan calls for consolidating these accounts into the Budget Stabilization Fund.
“The Governor is proposing to use a small portion of the Revenue Stabilization Trust Fund to make one-time payments to parishes that elect to exempt business inventory from personal property taxes. Although this looks like a giveaway to certain parishes, it is actually part of an overall revenue savings strategy under the Governor’s combined tax reform plan, because the one-time incentive payments made to parishes to encourage them to exempt business inventory from personal property taxes would be more than offset by the elimination of the inventory tax credit,” explains Colbert.
“After accounting for the combined proposed changes to both income and sales taxes, the average working-class Louisiana resident is expected to see a small net tax decrease under the Governor’s tax reform plan, while wealthier residents are expected to see a slight overall increase. First, nearly all Louisiana residents (working-class, middle class and higher-income households) would see immediate income tax decreases under his plan. Second, the decrease in income taxes would largely be offset by increases in new sales taxes that would be imposed on several services which are not currently subject to sales tax, such as landscaping services or personal fitness trainers as examples, as well as through the elimination of a large number of piecemeal exemptions that are currently scattered throughout our existing sales tax code,” he says.
The plan also targets business tax reform, says Colbert, aiming to make Louisiana more competitive by:
Eliminating the Corporate Franchise Tax: This tax, currently one of the highest in the United States, is a direct tax levied on companies operating in Louisiana regardless of whether they make a profit, which discourages business investment into the state. Its removal is expected to attract more businesses to Louisiana.
Simplifying Sales Tax Collection: Louisiana’s complex system of multiple local sales tax collectors is a burden for businesses. The Governor’s plan seeks to reduce these complexities by aligning state and local exemptions.
Cutting the Corporate Income Tax Rate: Reducing Louisiana’s top corporate income tax rate from 7.5% to 3.5% will help the state compete with tax-free Texas and other neighboring states.
Encouraging Local Parishes to Eliminate Business Inventory Taxes: Louisiana’s local taxes on business inventory discourage investment in warehouses, fulfillment centers and other inventory heavy industrial and commercial business activities. The plan seeks to incentivize parishes to remove these taxes.
While the Governor’s tax plan focuses on income and business taxes, property taxes are also a key part of the conversation. Colbert explains that the proposed changes could have significant implications for how property taxes, particularly on business inventory, are handled at the local level. Under Governor Landry’s tax reform plan, many constitutional provisions related to property taxes would be replaced by regular statutory laws, offering the legislature more flexibility for future changes. For example, the current constitutional provisions that set land and building property tax rates at 10% for residential and 15% for commercial properties would be rewritten as regular laws, allowing easier adjustments in the future, according to Colbert.
The most significant change, however, would be to business inventory taxes. Colbert explains that Louisiana is one of the few states that imposes personal property taxes on business inventory, which has discouraged companies from building warehouses and fulfillment centers in the state.
Beyond property taxes, two other areas of significant interest to Louisiana residents—digital service taxation and the state’s film industry—are also addressed in the Governor’s proposed reforms. Colbert weighed in on these issues, which have generated considerable curiosity and concern among Louisianans.
“Most US states have introduced similar types of sales taxes on streaming services and other digital products, and the number of states that have begun imposing taxes on streaming services has been growing further in recent years. That said, the actual impact of the digital services bill is expected to be relatively minor compared to the individual income tax cut received by most consumers,” he says. “The Louisiana Department of Revenue’s projections currently estimate increased sales tax collections in future years of approximately $92 million attributable to the proposed legislation extending the imposition of sales tax onto digital products, compared to a projected decrease of $1.2 billion on individual Louisiana income taxpayers under the Department of Revenue’s same projections for future years.”
Another area of major focus for Louisiana’s economy is the state’s film industry, which has long benefited from generous tax incentives.
Ultimately, he states that individuals do not pay higher Louisiana state income taxes than corporations under current law, and would not pay higher taxes than corporations under the Governor’s proposed changes either.
“The Governor’s reform plan would lower tax rates on individuals to a flat 3.0%, and would eventually lower tax rates on C-Corporations to a flat 3.5%, so even under the proposed tax reform plan, the actual income tax rate would ultimately be 0.5% higher on C-Corporations compared to individuals. That said, it should be noted that corporations are juridical entities, and when operating through a corporation, the overall tax consequences need to take into account how the money eventually gets out of the corporation to individual shareholders.”
To illustrate the impact of the Governor’s tax reform, Colbert points out that under current law, qualifying corporations can choose to be taxed as S-Corporations, which allows their taxable income to pass directly to individual shareholders and avoid double taxation. For corporations that remain taxed as C-Corporations, they face “double taxation”—first at the corporate level, then again at the individual shareholder level when profits are eventually distributed as dividends. Colbert emphasizes that while this distinction is generally more important at the federal level, the Governor’s proposal to lower the state corporate income tax rate to a flat 3.5% is the more relevant change for Louisiana businesses.
“More relevant to the Governor’s proposed tax reform plan is the proposed lowering of the corporate income tax rate to a flat 3.5%. This will likely make Louisiana much more competitive compared to our current highest corporate income tax rate of 7.5%, which is currently the highest in the South, and particularly puts us at a disadvantage compared to our neighboring state of Texas, which has no corporate or individual income tax.”
