By: Brian Sengson | 03/31/25
Louisiana has recently enacted significant tax reforms aimed at modernizing its tax structure and enhancing competitiveness. These changes, signed into law by Governor Jeff Landry on December 4, 2024, encompass a range of adjustments affecting corporate income tax, sales tax, and deductions for research and experimental expenses. This article explores the implications of these reforms for businesses operating in Louisiana, providing insights into SaaS taxation, franchise tax reforms, and strategies to navigate the evolving tax landscape.
One of the most notable reforms includes the expansion of Louisiana’s sales tax base to encompass digital products and Software-as-a-Service (SaaS). Effective January 1, 2025, Louisiana will apply sales tax to prewritten computer software access services, reflecting a broader interpretation of taxable digital services. This adjustment aims to capture revenue from increasingly digital business models, aligning Louisiana’s tax policy with technological advancements in commerce. The law specifies that charges made for the right to access and use prewritten computer software, regardless of the pricing model, will now be subject to the state’s sales tax. This includes services offered on a per-use, per-user, or subscription basis, marking a significant shift in how digital products are taxed.
However, there are some B2B exceptions to this rule where SaaS is for business use. The prongs for exemption include: (1) The service or product is purchased or licensed exclusively for commercial purposes. (2) The service or product is used by the business directly in the production of goods or services for sale to its customers. (3) The goods or services produced and sold by the business are subject to sales and use tax or to the insurance premium tax (La. Rev. Stat. Ann. § 47:305.12(A)). See a related webinar on how state taxes play into exit planning here.
In addition to SaaS, Louisiana’s tax reforms also extend to other digital services under the broader category of “information services.” Information services are defined as the electronic retrieval, collection, compilation, and analysis of various types of information, including general or specialized news, financial data, and other current information. This can include methods of transmitting this information such as through wires, cable, radio waves, microwaves, satellites, fiber optics, or any future transmission methods. For businesses providing access to databases or subscription-based information, these services will now also be subject to the state’s sales tax, making it essential for companies to reassess their tax obligations under these new definitions.
The definition of digital products has also expanded under the new reforms. This category includes digital audiovisual works, digital audio works, digital books, digital codes, and digital applications and games, among others. Essentially, any tangible personal property that is delivered electronically, whether streamed, downloaded, or accessed through a subscription, will now be taxed under Louisiana’s sales tax regulations. Furthermore, this includes products that are digitally delivered with ongoing updates and maintenance, which previously might have been excluded from taxation. This broadening of the sales tax base to include these digital goods marks a significant shift in how the state taxes digital commerce and will have a considerable impact on businesses involved in the creation, sale, or distribution of digital products.
Arguably the most groundbreaking change is the repeal of Louisiana’s corporate franchise tax, slated to take effect from January 1, 2026. Previously, this tax imposed a financial burden on businesses, especially small and medium enterprises (SMEs). Its repeal marks a strategic shift towards fostering a more business-friendly environment, encouraging entrepreneurship and investment within the state. The corporate franchise tax was based on a company’s balance sheet or property values, creating challenges for firms in asset-heavy industries. With this tax now on track to be fully repealed by 2026, businesses can expect greater predictability in their tax liability, especially for those that previously faced high costs due to their capital base. Businesses will still need to file their final franchise tax returns based on their 2024 financials, after which the tax will no longer apply. See information on the 2017 Tax Cuts and Jobs Act as well as the 2021 Tax Reform.
Effective for tax years beginning on or after January 1, 2025, Louisiana’s corporate income tax rate will transition to a flat 5.5%, replacing the previous tiered-rate structure. Previously, the corporate income tax was a progressive system, with rates of 3.5% on the first $50,000 of taxable income, 5.5% on income between $50,000 and $150,000, and 7.5% on income greater than $150,000. The new flat 5.5% rate simplifies compliance for businesses of all sizes, providing more predictable tax outcomes for corporations operating in the state. Additionally, businesses will benefit from a $20,000 deduction that further enhances tax savings, making the new structure attractive for both existing and new businesses. Furthermore, Louisiana has introduced the option for businesses to elect bonus depreciation and amortization on certain property and research costs, which allows businesses to deduct these expenses immediately. This bonus depreciation can be claimed for qualified property placed in service in the taxable year, as well as for certain research and experimental expenses under IRC Section 174.
Louisiana’s tax reforms position it among states proactively adjusting tax policies to stimulate economic growth and attract businesses. By repealing the franchise tax and expanding the sales tax base, Louisiana aims to maintain competitiveness amidst evolving economic landscapes. Many states have taken similar steps to eliminate or reduce burdensome business taxes, making Louisiana an attractive alternative for businesses considering expansion. In comparison, many states still maintain complex and tiered corporate tax systems, which can create significant compliance burdens.
Navigating Louisiana’s evolving tax policies necessitates proactive engagement and strategic planning. Businesses are advised to consult with experienced tax advisors, such as Bennett Thrasher’s State and Local Tax (SALT) team, to assess the impact of these reforms on their operations. Keeping abreast of legislative changes and consulting with tax professionals will be key for businesses looking to leverage these new rules to their advantage. As the state begins to implement these reforms, businesses may face new challenges in compliance, particularly with the complex details of the sales tax expansion and the treatment of digital products. Moreover, understanding how to utilize deductions for research and experimental expenses, as well as bonus depreciation options, will help businesses optimize their tax position. Taxpayers should also monitor upcoming guidance and any changes to the state’s tax policies to stay compliant and avoid surprises when filing their Louisiana amended tax return.
Louisiana’s recent tax reforms mark a significant shift in the state’s taxation landscape, bringing about simplification, digital adaptation, and enhanced competitiveness. The changes, including a revised Louisiana state tax rate, the transition to a flat Louisiana corporate tax rate, and the repeal of the franchise tax, aim to make the state more business-friendly. Additionally, the expansion of the sales tax base to include digital services and SaaS reflects the state’s efforts to modernize its tax structure.
For individuals, understanding Louisiana state tax policies is crucial, especially when managing Louisiana income tax obligations. Businesses must also stay vigilant about compliance requirements, including the process of filing a Louisiana amended tax return if adjustments are needed.
As these tax reforms unfold, proactive tax planning and expert guidance will be essential for businesses and individuals alike to navigate the evolving tax environment effectively. By staying informed and adapting to these changes, taxpayers can maximize opportunities while ensuring compliance with Louisiana’s new tax laws.
Bennett Thrasher’s State & Local Tax practice is ready to help you mitigate your risks in this uncertain tax landscape. For more information, you can contact one of our State & Local Tax Partners: Stephen Bradshaw, Dee Green, Brian Sengson, or Peter Stathopoulos, Or call 770.396.2200.
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