Louisiana repeals income tax throwout, governor vetoes franchise tax repeal

In brief

H.B. 631, enacted on June 27, removes corporate income tax throwout related to intangibles and throwout related to sales that cannot be assigned to a state. Additionally, H.B. 631 removes references to allocable income items found in the apportionment statute that were inadvertently included in prior legislation. These changes are applicable to tax years beginning on or after January 1, 2024.

Louisiana S.B. 1, passed by the House 98-0 and passed by the Senate 37-1, would have implemented a corporate franchise tax reduction in franchise tax periods 2025 to 2030 conditioned on the state exceeding certain corporate income and franchise tax revenue goals. The governor vetoed S.B. 1 on June 27. Because the Louisiana Legislature is adjourned, there is no opportunity for a legislative override. 

The takeaway: Throwout repeal should benefit taxpayers as they no longer face removal of a portion of their sales factor denominator. The rental, lease, and license of property changes rationalize Louisiana’s corporation income tax apportionment statute by addressing inconsistencies related to allocable income items appearing in the apportionment statute. 

Although franchise tax repeal was vetoed by the governor, it’s near-unanimous approval by the legislature signals that the issue may be a significant agenda item in next year’s legislative session.  

[Louisiana H.B. 631 (6/27/23), S.B. 1 (vetoed 6/27/23)] 

Franchise tax repeal vetoed 

Existing franchise tax 

For taxable periods beginning on or after January 1, 2023, Louisiana generally imposes a $2.75 franchise tax per each $1,000 of a taxpayer’s taxable capital. There is no maximum amount.

S.B. 1 franchise tax reduction 

For franchise tax periods beginning on or after January 1, 2025, and before January 1, 2031, S.B. 1 would have provided for the franchise tax to be reduced by 25% for “each year that monies are deposited into the Revenue Stabilization Trust Fund.” The reduction would have been effective for taxable periods beginning on or after January 1 of the year following the monies being deposited into the Fund. However, as noted below, S.B. 6 would have provided for a partial offset of the franchise tax revenue reduction by reducing the benefit of Louisiana’s Quality Jobs incentive. 

Revenue Stabilization Trust Fund 

The Louisiana Constitution, Art. VII, Sec. 10.15(D), and La. Stat. Sec. 39:100.112 direct the state treasurer to “deposit into the fund the amount of revenues in excess of six hundred million dollars received each fiscal year from corporate franchise and income taxes as recognized by the Revenue Estimating Conference.”  

The Revenue Estimating Conference is the governmental body that prepares initial and revised estimates of money to be received by the state general fund and dedicated funds for the current and next fiscal years that are available for appropriation. 

Revenue reduction partially offset by incentive reduction 

S.B. 1 would have become effective and operational only upon enactment of S.B. 6.  

S.B. 6 would have modified the state’s Quality Jobs program. The program provides a cash rebate to companies that create well-paid jobs and promote economic development. The program provides a state sales and use tax rebate on capital expenditures or a 1.5% project facility expense rebate on the total capital investment, excluding tax-exempted items.

S.B. 6 would have provided that, for contracts with advance notifications filed after December 31, 2023, the sales and use tax rebates and the project facility expense rebates are reduced by half of the amount the franchise tax is reduced. The governor vetoed S.B. 6 on June 28, 2023. 

Governor veto 

The governor’s July 27, 2023, S.B. 1 veto message acknowledges that the franchise tax is “antiquated and should be structurally reformed or repealed.”  However, the governor noted that the fiscal impacts from prior tax reform changes would not be known until December 2023 or early 2024 and he believed it to be “unwise to crease a second franchise reduction trigger at this time.”