Louisiana Sales Tax Centralization

In 2024, through a special legislative session, Louisiana enacted comprehensive, pro-growth tax reform. Now, individual and corporate income is taxed through flat rates of 3 percent and 5.5 percent, respectively. The state also ushered in permanent full expensingFull expensing allows businesses to immediately deduct the full cost of certain investments in new or improved technology, equipment, or buildings. It alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs., making Louisiana the third state to fully decouple from federal phasedowns that existed prior to the One Big Beautiful Bill Act. Effective in 2026, Louisiana recognizes S corporationAn S corporation is a business entity which elects to pass business income and losses through to its shareholders. The shareholders are then responsible for paying individual income taxes on this income. Unlike subchapter C corporations, an S corporation (S corp) is not subject to the corporate income tax (CIT).  status, no longer requiring these businesses to file taxes as C corporations but rather as pass-through entities. Also, effective this year, the state has repealed the uncompetitive franchise (capital stock) taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.. Taken together, these reforms helped improve Louisiana’s competitiveness regionally and nationally. However, there is still room for growth.

Louisiana remains a national outlier in lacking central collection and administration of its sales taxes. The state has made progress with an alternative remote sellers’ regime, but the number of jurisdictions that have the ability to define their own tax bases and to administer the taxes separately from the state imposes high compliance costs. This is because remote sellers that are eligible for centralized remittance still must determine the local sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.  rates and bases for each sale. It is possible for a product to potentially be included in one sales tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. and excluded from another in a single jurisdiction. This level of complexity is often beyond the capabilities of standard sales tax compliance tools. Two bills currently pending before the legislature (HB620 and HB658) would change this for all by centralizing sales tax collection at the state level.

While transitioning to state-level centralized sales tax collection would require an amendment to the state’s constitution, it is sound tax policy. HB658 specifically includes language to alleviate any concerns that local monies would be comingled with state revenue and provides for the timely remittance of local sales taxes to local coffers. 

The centralized sales tax collection issue is not new, but lawmakers have often declined to address the problem in the past. Local control has been an important feature of the state, and for many years, it may have worked for sales tax collection, particularly before the rise of e-commerce. However, the economy has changed, and customers now use online marketplaces more than ever. This requires out-of-state sellers to navigate the complexities of the state’s numerous jurisdictions that have authority to collect sales taxes, raising compliance costs, particularly on small and midsize remote sellers, and disincentivizing these enterprises from doing business in the state. Moreover, the high burden of compliance may, in fact, leave sales tax revenue on the table, especially when the opportunity cost of compliance is unduly high.

Lawmakers have recognized the inefficiencies in the state’s sales tax code. In 2023, they removed the transaction threshold from the marketplace facilitator and remote seller rules, leaving only a dollar threshold. Transaction thresholds tend to create disproportionately burdensome obligations on those sellers that do not meet the sales threshold, particularly smaller enterprises. 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. Simplifying this system is sound tax policy, and this same policy judgment should be extended to centralization.

While lawmakers have prioritized competitive tax reform, the state’s sales tax code is the least competitive in the country. Louisianans pay the highest combined state and average local sales tax rate in the nation. The code also exempts a number of services from sales taxes, which renders the base unnecessarily narrow and makes it difficult to lower rates. The state lacks base alignment for local and statewide sales taxes. Add to this the compliance burdens posed by the lack of centralized sales tax collection, and it is easy to see why the sales tax code hinders Louisiana’s ability to break into the most competitive states.

As Louisiana policymakers seek to make the state a destination for residents and businesses, tax reform should remain part of the toolkit. A great deal of positive work has been done in recent years, and that momentum could help inform the next round of needed reforms. Voters will have a say on the state’s inventory tax at the ballot this spring. For their part, lawmakers have an opportunity to help the state further by centralizing sales tax collections.

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