Candice Horbacz
In 2024, through a special legislative session, Louisiana enacted comprehensive, pro-growth tax reform, significantly reshaping its fiscal landscape. These landmark changes saw individual and corporate income now taxed through flat rates of 3 percent and 5.5 percent, respectively, a move lauded by advocates for its simplicity and competitive edge. The state also ushered in permanent full expensing, making Louisiana the third state to fully decouple from federal phasedowns that existed prior to the One Big Beautiful Bill Act. This crucial provision allows businesses to immediately deduct the full cost of certain investments in new or improved technology, equipment, or buildings, thereby alleviating a bias in the tax code and incentivizing companies to invest more, which, in the long run, is expected to raise worker productivity, boost wages, and create more jobs. Further enhancing its business-friendly environment, effective in 2026, Louisiana will recognize S corporation status, no longer requiring these businesses to file taxes as C corporations but rather as pass-through entities, a change that aligns the state with national best practices and reduces the tax burden on numerous small and medium-sized enterprises. Additionally, effective this year, the state has repealed the uncompetitive franchise (capital stock) tax, a levy historically criticized for discouraging investment and penalizing businesses for merely existing in the state. Taken together, these reforms have helped to substantially improve Louisiana’s competitiveness regionally and nationally, signaling a clear commitment from policymakers to foster economic growth and attract new investment. However, despite this significant progress, a critical area for further improvement remains: the modernization of its sales tax collection and administration system.
The Genesis of Reform: A Drive for Economic Competitiveness
Louisiana’s journey toward these significant tax reforms did not happen in a vacuum. For years, the state grappled with a complex and often criticized tax code that many argued hindered its economic potential. Prior to the 2024 special legislative session, the state’s tax structure featured a multi-bracket individual income tax system and a corporate income tax that, while not the highest, still presented complexities. The franchise tax, in particular, was a perennial target for reform advocates, seen as an outdated and economically inefficient levy that disproportionately impacted capital-intensive businesses. The impetus for the 2024 reforms stemmed from a combination of factors, including a desire to capitalize on budget surpluses, a strategic push to diversify the state’s economy beyond its traditional energy sector, and an acknowledgment that a streamlined, competitive tax environment was essential for attracting businesses and retaining talent in an increasingly mobile national economy. Lawmakers, often guided by economic analyses from organizations like the Tax Foundation, sought to implement policies that would not only simplify the tax system but also incentivize capital investment and job creation. The move to flat individual and corporate income tax rates, for instance, represents a shift towards greater predictability and fairness, reducing the compliance burden for both individuals and corporations while signaling a clear, stable tax environment for prospective investors. The permanent full expensing provision, a cornerstone of pro-growth tax policy, is expected to stimulate significant capital formation by removing the penalty of having to depreciate investments over many years, allowing businesses to immediately expense these costs and thus making new projects more attractive. Business organizations across the state, including the Louisiana Association of Business and Industry (LABI), largely applauded these reforms, characterizing them as long-overdue steps that would make Louisiana a more attractive place to do business and create jobs.
A Persistent Anomaly: Louisiana’s Decentralized Sales Tax System
While the 2024 reforms addressed many structural issues within the income and franchise tax codes, Louisiana remains a national outlier in lacking central collection and administration of its sales taxes. This decentralized approach, characterized by a fragmented system where numerous local jurisdictions define their own tax bases and administer taxes separately from the state, imposes exceptionally high compliance costs on businesses, particularly for remote sellers. The state has made some progress with an alternative remote sellers’ regime, but the fundamental problem of jurisdictional complexity persists. Remote sellers eligible for centralized remittance still face the daunting task of determining the local sales tax rates and bases for each sale, a challenge exacerbated by the fact that a single product can be included in one sales tax base and excluded from another within the same jurisdiction. This labyrinthine level of complexity often exceeds the capabilities of standard sales tax compliance tools and software, forcing businesses to invest significant resources in navigating the state’s patchwork system.
For example, consider an out-of-state e-commerce business selling various goods to customers across Louisiana. Under the current system, this business might have to register with, collect, and remit sales taxes to over 300 different taxing jurisdictions—parishes, municipalities, and special districts—each potentially having its own unique tax base definitions and audit procedures. This means a single product like a soft drink could be taxable in one parish but exempt in another, or subject to different rates based on specific local ordinances. This administrative burden is not merely an inconvenience; it represents a substantial barrier to entry for many businesses, particularly small and midsize remote sellers, effectively disincentivizing them from doing business in the state. Furthermore, the high burden of compliance may, in fact, leave sales tax revenue on the table, as businesses might struggle to accurately collect and remit all due taxes, or the opportunity cost of compliance becomes unduly high, leading to under-collection.
Legislative Efforts Towards Centralization: HB620 and HB658
Recognizing these systemic inefficiencies, two bills currently pending before the legislature, HB620 and HB658, aim to address this critical issue by centralizing sales tax collection at the state level. The transition to state-level centralized sales tax collection would require an amendment to the state’s constitution, reflecting the deeply entrenched nature of local control over sales tax revenues. However, proponents argue that such a change represents sound tax policy, bringing Louisiana in line with the vast majority of other U.S. states that have long since adopted centralized systems. HB658, in particular, includes carefully crafted language designed to alleviate any concerns that local monies would be commingled with state revenue. It provides robust mechanisms for the timely and transparent remittance of local sales taxes directly to local coffers, ensuring that municipalities and parishes retain their revenue streams without the administrative headache for businesses.
The centralized sales tax collection issue is not new to Louisiana; lawmakers have debated this problem for decades, often declining to address it due to strong opposition from local government entities keen on preserving their fiscal autonomy. Historically, local control over sales tax collection was an important feature of the state, and for many years, it may have worked adequately, particularly before the widespread adoption of e-commerce. In a predominantly brick-and-mortar economy, businesses primarily served local customers and interacted with a limited number of local tax authorities. However, the economy has fundamentally changed. Customers now use online marketplaces more than ever, and remote sellers operate across state lines, interacting with numerous jurisdictions simultaneously. This digital transformation has rendered Louisiana’s decentralized system obsolete and economically detrimental. State Treasurer John Schroder has been a vocal advocate for sales tax centralization, often highlighting the millions of dollars in compliance costs businesses face annually. Similarly, various business associations have consistently lobbied for this reform, emphasizing its potential to unlock economic growth and simplify operations for both in-state and out-of-state companies. Opponents, typically local government associations, often express concerns about potential loss of control over revenue and the timing of disbursements, though proponents argue that bills like HB658 directly address these fears with clear statutory guarantees.
Previous Steps Towards Simplification and the Path Ahead
Lawmakers have, to their credit, recognized the need for simplification within the state’s sales tax code in other areas. In 2023, they removed the transaction threshold from the marketplace facilitator and remote seller rules, leaving only a dollar threshold. Previously, if a remote seller made 200 sales of a $5 item into the state, they were required to collect and remit sales taxes, despite the fact that the $1,000 in transactions fell far below the $100,000 sales threshold. This transaction threshold tended to create disproportionately burdensome obligations on those sellers that did not meet the sales threshold, particularly smaller enterprises, forcing them into compliance for minimal revenue. Simplifying this system by relying solely on a dollar threshold was a sound tax policy judgment, and this same rational, modernizing policy judgment should now be extended to the broader issue of centralization.
Despite the recent income tax reforms, Louisiana’s sales tax code remains one of the least competitive in the country. Louisianans currently pay the highest combined state and average local sales tax rate in the nation, with the statewide rate at 4.45% and an average local rate that pushes the combined average to over 9.5%, significantly higher than the national average. This high rate is partly a consequence of a sales tax base that exempts a number of services, rendering it unnecessarily narrow and making it difficult to lower rates without significant revenue loss. The state also lacks base alignment for local and statewide sales taxes, meaning what is taxable at the state level may not be taxable at the local level, further compounding complexity. Add to this the staggering compliance burdens posed by the lack of centralized sales tax collection, and it is easy to see why the sales tax code continues to hinder Louisiana’s ability to break into the ranks of the most competitive states for business.
As Louisiana policymakers continue their ambitious quest to make the state a premier destination for residents and businesses, comprehensive tax reform must remain a central component of their toolkit. A great deal of positive work has been done in recent years, particularly with the 2024 income and franchise tax reforms, and that momentum could and should inform the next round of needed reforms. The electorate will also have a direct say on aspects of the state’s tax structure, with voters set to consider the repeal of the inventory tax at the ballot this spring, a move that would further enhance the state’s manufacturing and retail sectors. For their part, lawmakers have a clear opportunity to further help the state’s economy by finally addressing the persistent challenge of sales tax centralization. By adopting a modern, centralized sales tax system, Louisiana can build upon its recent successes, attract more businesses, foster economic diversification, and ultimately create a more prosperous future for all its citizens.
