The Louisiana Legislature has simplified the effective state tax rates for most taxable transactions, eliminating the previous five potential tax rates (as applicable to various exemptions) to two possible rates: either fully exempt from state tax or 4.45% for most purchases. Effective July 1, 2018, House Bill (“HB”) 10 of the 2018 Third Extraordinary Session of the Louisiana Legislature has amended La. R.S. 47:321.1(A), (B), and (C) reducing the Louisiana state sales tax rate from 1% to 0.45%. Accordingly, Louisiana sales at retail, taxable use and rentals of tangible personal, as well as taxable services will be subject to tax at this rate. This bill was sent immediately to, and signed by, Governor Edwards. Accordingly, sellers qualifying as “dealers” under state law should collect state taxes at the 4.45% rate as of the effective date of July 1, 2018. Nevertheless, the Louisiana Department of Revenue has quickly issued guidance, Revenue Information Bulletin No. 18-016 (June 24, 2018), providing that, if a dealer mistakenly collects at the 5% rate on or after July 1, 2018, then the dealer must remit the excess sales tax collected to the Louisiana Department of Revenue, and that any excess sales taxes collected should be reported on Line 8 of the Sales Tax Return Form R-1029.
The Legislature also reduced the reduction in tax on business utilities. That is, business utilities are currently taxed at 4% through June 30, 2018. That rate was scheduled to be reduced to 1% on July 1 through March 31, 2019. As a result of HB 10, the rate on business utilities will be 2% until June 30, 2025. Business utilities include steam, water, electric power or energy, natural gas, or other energy sources for non-residential use. The exemptions for steam, water, electric power or energy, natural gas, or other energy sources for non-residential use in La. R.S. 47:305(D)(1)(b), (c), (g), and (h) will continue to apply to the sales tax levies under La. R.S. 47:321, 321.1, and 331 and residential uses remain exempted.
Both the new additional tax rate of 0.45% pursuant to La. R.S. 47:321.1 and the sales tax rate of 2% on business utilities under La. R.S. 47:302 are set to sunset on June 30, 2025, unless the Legislature decides at some point to extend the additional tax or to make it permanent.
The bill also removes various exemptions by listing those items that remain exempt, or will become exempt, which include but are not limited to:
- Other constructions permanently attached to the ground (2% –> 0%)
- Sales of electricity for chlor-alkali manufacturing (3% –> 0%)
- Rentals or leases of oilfield property for re-lease or re-rental (3% –> 0%)
- Labor, materials, services and supplies used for repair, renovation or conversion of drilling rig machinery and equipment (3% –> 0%)
- Repairs and materials used on drilling rigs and equipment (3% –> 0%)
- Installation charges on tangible personal property (0% –> 0%)
- Tangible personal property intended for resale (0% –> 0%)
- Sale of property for lease or rental (2% –> 0%)
- Sales of materials for further processing (0% –> 0%)
Food for home consumption, natural gas, electricity, water, prescription drugs, articles traded in on new articles, and gasoline remain nontaxable under the Louisiana Constitution.
The rate of state tax on purchases of manufacturing machinery and equipment was scheduled to be is currently 1% but is now fully exempt.
For the full list of changes in tax rates set to take effect on July 1, 2018 see Louisiana Department of Revenue’s publication, R-1002(07-18).
If you have questions or are not sure if these changes affect you or your business, please contact Kean Miller tax attorneys, Jaye Calhoun (504.293.5936), Jason Brown (225.389.3733), Angela Adolph (225.382.3437), Phyllis Sims (225.389.3717) or Willie Kolarik (225.382.3441).