Louisiana Tax Reform: Sales Tax on Digital Products & SaaS and Repeal of Franchise Tax

By: Jeff Glickman, SALT Partner

At a glance

• The main takeaway: Louisiana enacted significant tax reform, including the repeal of the corporate franchise tax, the expansion of the sales tax base to digital products and Saas, and current deductions for research and experimentation expenses.
• Assess the impact: While Louisiana plans to issue more guidance on these new tax regulations, it’s important for taxpayers to stay proactive and speak with their tax advisors. 
• Take the next step: Aprio’s State and Local Tax (SALT) team can help you navigate these new regulations and how they will impact your business.

Schedule a free consultation today to learn more!

The full story

On December 4, 2024, Louisiana Governor Jeff Landry signed several tax bills that enacted significant tax reform in the state. These changes include:

• The repeal of the corporate franchise tax,
• Expansion of the sales tax base to tax digital products and software-as-a-service (SaaS), and
• An election to deduct 100% of research and experimental expenses as defined under section 174 of the Internal Revenue Code (IRC). 

A summary of these and other changes is provided below.

HB 3 – Corporate Franchise Tax Repeal

The corporate franchise tax has been repealed and is effective for tax years beginning January 1, 2026.

HB 8 and HB 10 – Sales Tax Changes Taking Effect January 1, 2025, except as otherwise noted

The Louisiana sales tax rate has increased from 4.45% to 5% effective through December 31, 2029. Effective January 1, 2030, the states sales tax rate will reduce to 4.75%.

The sales tax base has been expanded to apply to the following:

• Prewritten computer software access services (i.e., SaaS) – means “charges made to customers for the right to access and use prewritten computer software, where possession of the software is maintained by the seller or third party regardless of whether the charge for the services is on a per use, per user, per license, subscription, or some other basis.”
• Information services – means “electronic data retrieval or research; and collecting, compiling, analyzing, or furnishing of information of any kind, including, but not limited to, general or specialized news, other current information or financial information, by printed, mimeographed, electronic, or electrical transmission, or by utilizing wires, cable, radio waves, microwaves, satellites, fiber optics, or any other method now in existence or which may be devised; this includes delivering or providing access to information through databases or subscriptions.”
• Digital products – means “digital audiovisual works, digital audio works, digital books, digital codes, digital applications and games, digital periodicals and discussion forums, and any other otherwise taxable tangible personal property transferred electronically, whether digitally delivered, streamed, or accessed and whether purchased singly, by subscription, or in any other manner, including maintenance, updates, and support.”

The legislation contains several exemptions, including but not limited to the following:

• The tax does not apply to a digital product consumed “in producing for sale a new product or taxable service, where the digital product becomes an ingredient or component of the new product or taxable service.”
• The tax does not apply to each of the services/products above as well as to computer software generally when all of the following conditions are met:
  • The service or product is purchased or licensed exclusively for commercial purposes.
  • The service or product is used by the business directly in the production of goods or services for sale to its customers.
  • The goods or services produced and sold by the business are subject to sales and use tax or the insurance premium tax.

HB 2 – Corporate Income Tax Changes (effective for tax years beginning on or after January 1, 2025)

The corporate income tax rate moves to a flat 5.5%, which replaces the tiered-rate structure where rates ranged from 3.5% to 7.5%. In addition, businesses will receive a $20,000 deduction.

Finally, corporations are now able to elect “bonus depreciation” and “bonus amortization” as follows:

• Bonus depreciation allows a 100% deduction for expenditures for “qualified property” (as defined in section 168(k) of the IRC) and for “qualified improvement property” (as defined in section 168(e)(6) of the IRC) that are incurred by the taxpayer during the taxable year in which the property is placed into service.
• Bonus amortization allows a 100% deduction for “research and experimental” (as defined in Section 174 of the IRC) that are incurred by the taxpayer during the taxable year.

The election is made when the taxpayer timely files an original or amended return that calculates Louisiana taxable income with such bonus depreciation or amortization. Taxpayers that make this election will need to adjust their federal taxable income on future returns to ensure that these expenses are not double counted for state purposes. 

The bottom line

It is anticipated that the Louisiana Department of Revenue will issue regulations to provide more information about the administration of these new tax rules. In the meantime, taxpayers should speak with their tax advisors or a member of Aprio’s SALT team to learn more about what this tax reform means for your business. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.