Tax & Accounting Blog

Louisiana Enacts Sweeping Sales Tax Changes

Indirect Tax, ONESOURCE, Sales and Use Tax March 21, 2016

In the waning hours of Louisiana’s recent 25 day special session, the Louisiana Legislature enacted HB 61 and HB 62, overhauling the already complicated state sales tax. In part a result of Moody’s recent downgrading of Louisiana’s credit rating, these bills are an attempt to shore up the state’s $900 million budget shortfall before the end of the fiscal year. HB 61 removes dozens of the State’s previous sales tax exemptions including non-residential purchases of natural gas and other utilities. La. Rev. Stat. 47:331 (P). Residential utilities will remain exempt under the Louisiana Constitution. Several exemptions from 47:305 no longer apply including sales of artwork and breastfeeding items.

In addition to removing exemptions, the legislature has also passed HB 62 which enacts an additional 1% sales and use tax rate effective April 1, 2016. La. Rev. Stat. 47:321.1. This 1% rate will also apply to rentals and leases of tangible personal property and the same services as the current 4% tax. La. Rev. Stat. 47:321.1 (B-C). This additional tax shall be collected in the same manner as the existing 4% tax and has a different set of exemptions than the 4% tax. La. Rev. Stat. 47:321.1 (D). In addition to the limited enumerated exemptions, the definitions of ‘sale at retail’, ‘cost price’, ‘sale of services’, and ‘sales price’ have been modified to exclude this 1% tax. In effect the state has defined a sale of retail for the 4% tax differently than it has for the additional 1% tax to expand the base of the tax. E.g. La. Rev. Stat. 47:301(10)(l). Food for home consumption, prescription drugs, and residential utilities remain exempt from the additional 1% tax. The 1% sales tax is scheduled to expire July 1, 2018.

Additionally, the legislature has re-enacted a short term automobile rental tax, increased cigarette and alcohol excise taxes, and short-term rentals.

These bills do not affect Louisiana’s complex local sales and use taxes and, when combined with those local rates, will likely create the highest average state sales and use tax rates in the country.