As part of a larger budget deal, new Louisiana sales tax laws were approved by lawmakers late last week. The Louisiana state-wide sales tax rate dropped from 5% to 4.45%, and 2% tax was approved on business utilities. While purchasers may take notice of the slight rate decrease the next time they make a purchase, retailers will be the ones who have to take action. The Bill was enacted on June 24th and went into effect on July 1st, giving sellers very little time to adapt to the changes. Luckily, the state provides a way for sellers to shore up discrepancies that occur as they work their way to compliance.
Details on the New Rules
As part of the 2018 Third Extraordinary Session of the Louisiana Legislature, Governor John Bel Edwards signed into law House Bill 10 (HB 10). This bill introduced the following two major changes to the state’s sales tax laws.
New Sales Tax Rate
Beginning July 1st, 2018, the Louisiana state sales tax rate was reduced from 5% to 4.45%. This rate reduction was ultimately a two-step process: there was a rate reduction of 1%, and then a rate increase of .45%.
In 2016, the Legislature approved an additional 1% sales tax called the “clean penny” tax. This raised the state-wide rate from 4% to 5%, which brought the state an immediate $220 million in revenue. This 1% increase was set to expire on June 30, 2018, but House Democrats and Republicans worked together on a compromise; they reinstated 45% of the clean penny tax that was expiring, bringing the overall state rate back up to 4.45%. This .45% hike was an attempt to avoid harsh budget cuts to the TOPS college tuition program, food stamps, and other government-funded public service programs that had benefitted from the clean penny tax over the last 18 months.
The overall rate decrease will sunset on June 30, 2025, at which point the rate will fall back down to 4% unless further legislative action is taken.
Additional Sales Tax on Business Utilities
As of July 1st, the state began charging a 2% sales tax on non-residential “business utilities.” This new rate is also the result of two rate changes: there was a rate reduction of 3%, and then a rate increase of 1%.
From July 1, 2016 through June 30, 2018, business utilities were taxed at 4% . This rate was scheduled to be reduced down to 1% for the period beginning July 1, 2018 and ending March 31, 2019. Rather than let the rate fall three percentage points, HB 10 reinstated a third of the reduction, making the overall sales tax rate on business utilities 2%. This tax is levied on the sale, use, consumption, distribution, or storage of steam, water, electric power, electric energy, natural gas, or other energy sources. Residential utilities are specifically exempted.
This new sales tax rate on business utilities will sunset on June 30, 2025.
What to Do with Excess Sales Taxes
Because of the short implementation period this bill provided, many of our clients may inadvertently collect sales taxes at the higher 5% rate for a period of time. These excess sales taxes can easily be reported on Louisiana Department of Revenue Sales Tax Return Form R-1029. Any excess sales taxes can be reported on Line 8 of this return and then remitted to the Department of Revenue.
If you haven’t done so already, now is the time to examine the taxability of your transactions to ensure you are complying with these new laws. If you have any questions about this new law or have any other sales tax concerns, send us a message or give us a call and let us know how we can help.