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Louisiana has increased its sales tax rate and broadened the sales tax base to include more transactions and taxpayers. The new revenues will pay for other tax reforms that include the repeal of the franchise tax, reductions in the corporate income tax rate, a flat personal income tax rate, and the repeal of certain income tax credits.
The following changes in sales and use tax laws under Act 10 (HB 8) and Act 11 (HB 10) take effect January 1, 2025:
- State Sales Tax Rate Increase: Louisiana's state sales and use tax rate will increase from 4.45% to 5%.
- Additional Sales Tax on Telecommunications and Media Services: Telecommunications, cable TV, direct-to-home satellite services, video programming, and satellite digital audio radio services will now be subject to the 5% state sales tax, but will remain exempt from local sales taxes.
- Taxation of Digital Products and Services: Digital products and services, including streaming and Software as a Service (“SaaS”), will be subject to Louisiana’s sales and use tax.
- Repeal of Certain Exemptions: Exemptions for items such as manufacturing machinery and equipment for named industries will be repealed, making these items taxable.
- Permanently Resumes Taxing Previously Suspended Exemptions/Exclusions: The state will permanently tax previously suspended exempt and excluded transactions, including labor charges on out-of-state repairs, custom software, and several other items and services.
- Reorganization of Exemption Statutes: Exemption statutes will be reorganized for improved clarity, with no changes to their substantive application.
- Vendor’s Compensation Reduction: The maximum vendor's compensation for timely filing state returns will be reduced to $750 per month, and vendor’s compensation for local taxes will be eliminated.
- Modifications to Parish Tax Returns: Parish tax returns must include new line items for prescription drug sales and manufacturing machinery.
Taxation of Digital Products and Services, Including Custom Computer Software, SaaS and Information Services
The legislation expands Louisiana’s sales and use tax to include digital products such as digital audiovisual works, digital audio works, digital books, digital codes, applications, digital games, periodicals, and other electronically transferred tangible property. This tax applies to products delivered digitally, streamed, or accessed, as well as related services such as maintenance and support, with some limited exclusions and exemptions.
The legislation also expands taxable services to include "prewritten computer software access services" (e.g., SaaS) and "information services," such as electronic data retrieval and the delivery of information via electronic methods. Additionally, the exemption for custom computer software has been repealed and it will now be subject to sales tax, aligning it with prewritten computer software and other digital services.
Several exemptions or exclusions remain for certain digital products and services used in select business processes, including:
- Digital products
- Prewritten software access services; and,
- Information services purchased exclusively for commercial use in producing taxable services or products, by FDIC-insured financial institutions for data and transaction processing, or by licensed healthcare providers for managing healthcare information and medical diagnoses or treatments.
Sales and use taxes imposed by local political subdivisions will also apply to digital products following the same definitions, exemptions, and exclusions outlined in the bill.
Taxability Changes for Existing and Suspended Exemptions and Exclusions
The legislation repeals several exemptions and exclusions, including separately stated transportation charges, crane leases with operators, charges for repaired property delivered out of state, and machinery used by motor vehicle or glass container manufacturers. The exclusion for coin-operated vending machine sales is also repealed. Other affected transactions include the reduction of the cost price for news publications distributed for free.
The legislation permanently resumes the taxation of transactions where taxability had previously been suspended, including labor charges on out-of-state repairs, machinery used in biodiesel production, pollution control devices, and custom computer software. It also impacts transactions like pallet leases for packaging, energy for paper and wood products manufacturing, and sales of storm shutter devices.
Additionally, the legislation consolidates and reorganizes exclusions and exemptions into new statutes for easier application. These include agricultural, medical, and manufacturing exemptions, as well as provisions for religious institutions and nonprofits. The restructuring aligns with the Streamlined Sales and Use Tax Agreement, providing clearer guidance for state and local taxing authorities.
Sales Tax Nexus and Filing Requirements
Taxpayers without a physical presence or other connection to Louisiana may still be required to collect and remit both state and parish sales tax if their retail sales in the state exceed $100,000 (excluding sales for resale and marketplace sales). Taxpayers who have not been filing in Louisiana or its parishes should review their nexus footprint and product taxability to ensure compliance.
What do I need to do?
Taxpayers selling to customers in Louisiana should review their current operations to ensure they are properly filing and reporting sales tax in the state. Please contact Eide Bailly's State and Local Tax team for assistance in navigating these changes.