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Louisiana considers broadening sales tax, eliminating exemptions


 Louisiana is working on a new plan to stave off the fiscal cliff.

Louisiana has a “broken, outdated” tax system, says Gov. John Bel Edwards, who has introduced a new plan to “bring stability and predictability” to the state’s budget. His Budget Stabilization Plan proposes permanent reductions to tax credits and incentives, lower corporate and individual income tax rates, and a new commercial activity tax (CAT) on doing business in the state. It would also reduce the state sales tax rate and broaden it to many services.

State sales tax rate change

Last year, the state sales tax rate increased as part of a broader tax reform. The temporary 1 percent sales tax increase that took effect April 1, 2016, is not across the board: it doesn’t apply to sales of food for home consumption, prescription drugs, utilities, and numerous other enumerated transactions.

The rate increase is scheduled to be in effect only through June 30, 2018, and the governor could have sought to extend it. Instead, his new plan proposes letting it expire as planned. This would cost the state $880 million in annual revenue, but the idea is being favorably received. There is widespread agreement in the legislature that sales tax in Louisiana is too high.

Broaden sales tax

In addition to lowering the rate, the plan proposes eliminating many exemptions and broadening sales tax to many services, including cable and satellite television, home repairs, and landscaping. Together, these changes would bring in an additional $380 million annually. Revenue Secretary Kim Robinson said that by broadening the tax base and lowering the rate, they’re looking to “achieve a structurally sound tax system that allows us to have the necessary revenue to fund government services.”

The 2016 tax reform (Acts 25 and 26) effectively broadened the sales tax base by suspending — temporarily — numerous state sales and use tax exceptions and exemptions, including Girl Scout Cookies, isolated or occasional sales of tangible personal property, and sales of any human tissue transplants. They’re subject to a rate that decreases and then zeroes out over time: 4 percent (not the 5 percent) as of April 1, 2016; 2 percent as of July 1, 2016; and nada as of July 1, 2018 (Louisiana suspends sales tax exemptions). A complete list of the goods and services that would be taxed under the new plan has not yet been released.

Reducing the rate and expanding sales tax follows the recommendations of a Task Force on Structural Changes in Budget and Tax Policy. If no changes are made to Louisiana’s tax system, the state’s revenue stream is projected to fall off a fiscal cliff, dropping by $1.2 billion in 2019, and by $1.6 billion by 2020. The Legislature will convene to discuss the budget and taxes on Monday, April 10.

Revamping Louisiana’s tax system will make it particularly challenging to keep up with sales tax compliance. Tax automation software helps simplify compliance for businesses of all sizes in all states. Learn more.


Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.