Louisiana State Sales Tax

During Louisiana’s 2024 Third Extraordinary Session, significant reforms were enacted to the state’s sales and use tax system, effective January 1, 2025. These changes aim to simplify the tax code, broaden the tax base, and adjust tax rates to align with the state’s fiscal objectives.

Increase in State Sales Tax Rate

The state sales and use tax rate increased from 4.45% to 5%, effective January 1, 2025, and is set to remain at this rate until December 31, 2029. Beginning January 1, 2030, the rate will decrease to 4.75%. This adjustment positions Louisiana among the states with the highest combined state and local sales tax rates in the nation.

Expansion of Taxable Goods and Services

The tax base was broadened to include digital products and prewritten computer software access services. This means that sales and use tax now applies to digital goods and services, aligning Louisiana with other states that tax digital transactions.

Modification of Exemptions and Exclusions

Over 200 sales tax exclusions and exemptions were either repealed or retained to streamline the tax code:

• Repealed Exemptions: Certain exemptions, such as those for pollution control devices and systems, and sales of cellular telephones and electronic accessories (e.g., free phones), were repealed.
• Retained Exemptions: Exemptions for sales of raw agricultural commodities and purchases by nonprofit entities that sell donated goods (e.g., Goodwill, Salvation Army) were retained.

Vendor Compensation Adjustments

The compensation for vendors collecting and remitting state sales tax was reduced from $1,500 to $750 per month. Additionally, the vendor’s compensation for local taxes was eliminated.

Local Sales Tax Reporting Changes

Local sales tax collectors are now required to modify their tax returns to include separate line items for sales of prescription drugs and for the sale of manufacturing machinery and equipment. This change aims to enhance transparency and accuracy in tax reporting.

Implications for Businesses and Consumers

Businesses dealing in digital products must now account for sales tax in their pricing and invoicing. The reduction in vendor compensation may impact retailers’ administrative processes. Consumers may experience a slight increase in prices due to the higher sales tax rate and the expanded tax base.

These reforms reflect Louisiana’s efforts to modernize its tax system, broaden the tax base, and adjust rates to meet fiscal needs while aiming for a more straightforward and equitable tax structure.

Clarifications on Taxation of Prewritten Software Access Services in the Security Alarm Industry

The recent tax reforms have raised questions within the security alarm industry, particularly regarding the taxation of prewritten software access services. Here’s a breakdown of how these services are taxed at different stages:

1. Provider to Central Station: When a provider charges a central station for access to prewritten software (e.g., software facilitating alarm monitoring), this transaction is subject to sales tax. The provider is responsible for collecting and remitting this tax.
2. Central Station to Installer: If the central station passes the software access charge to the installer without markup, the central station should not charge sales tax again, provided that the installer furnishes a resale certificate. This certificate indicates that the installer is purchasing the service for resale to the end user.
3. Installer to End User: The installer must charge sales tax to the end user on the software access service. The installer is responsible for collecting and remitting this tax to the Louisiana Department of Revenue.

It’s crucial for each party in the supply chain to maintain proper documentation, such as resale certificates, to ensure compliance and avoid double taxation. For detailed guidance, refer to the Louisiana Department of Revenue’s FAQs on taxable services.

These clarifications aim to assist businesses in navigating the complexities of the new tax regulations. The LLSSA does not claim to be the voice of authority in this matter and all questions should be referred to your Accountant and the Louisiana Department of Revenue at Sales.Inquiries@LA.GOV 855-307-3893.