On March 14, 2016, House Bills 61 and 62 (Acts 25 and 26 respectively) were signed into law by Louisiana Governor, John Bel Edwards. The first of these bills expands the sales tax base in Louisiana to encompass nearly every previously excluded transaction, and many, if not most, previously exempt transactions. The second bill enacts a new code section that increases the sales and use tax rate by one percent. While these were by no means the only changes made during the 2016 First Extraordinary Session of the Louisiana Legislature, they were two of the broadest, most complex pieces of legislation to pass.
Background on Taxation in the Bayou State
Previously, under Louisiana law, the combined state tax rate of 4% was administered under four separate sections, all with the same definitions, exclusions, and exemptions. Under the law as amended by Acts 25 and 26, the various sections imposing the different pieces of the combined state tax are administered differently, creating a mixed bag of fully exempted or excluded items, fully taxable items, and items that are taxable under certain sections, but not others; further, some provisions under certain sections expire on July 1, 2016, while other provisions are effective until July 1, 2018.
Items Subject to New Tax Rates: Newspapers to Numismatic Coins
While not an exhaustive list, below are some of the noteworthy changes. These will change to a reduced rate effective July 1, 2016, and will return to being fully exempt effective July 1, 2018 barring any change:
- Orthotics and prosthetics
- Prescription eyeglasses and contact lenses
- Wheelchairs and wheelchair lifts sold by prescription
- Medical devices
- Patient aids for home use prescribed by a physician
- Custom software and mandatory services related thereto
- Gold, silver, or platinum bullion; numismatic coins
- Storm shutter devices
- Membership fees to nonprofit civic associations
- Pollution control equipment not used in the manufacturing process
- Occasional sales
The changes effected by Acts 25 and 26, is impressively broad despite their intricacy and varied effective dates, and should bring much needed revenue to the state of Louisiana. Ultimately, the state is taxing just about everything that it is constitutionally permitted to tax in order to raise revenue and bridge budgetary gaps.
What About Sales Tax Holidays?
In fact, these bills have eliminated the weather preparedness sales tax holiday that generally takes place in May. Some exemptions will still be available for manufacturing machinery and equipment, such that these items will be subject to a 2% rate until July 1, 2016, when they will become subject to a 1% rate; they will return to being fully exempt effective July 1, 2018.
Further, there will be some reprieve from tax for the usual back to school sales tax holiday in August, and the usual Second Amendment sales tax holiday in September; however, these holidays will not offer full exemptions as they have in the past. Items purchased during the August and September sales tax holidays will be subject to a 3% tax rate. Services are among the only things that remain tax free in Louisiana.
At Sovos, we stay up to date as all these changes occur. Our large tax department researches every change before we change our system and we are here to break it down for you clearly and answer all your questions. Check out our webinars, subscribe to our blog, state of compliance newsletter, or speak with one of our experts to stay in the know.