BATON ROUGE – It’s not often that Louisiana leads the country in any category. But for several years, the state has gone above and beyond in one category: sales tax.
Friday marked the end of a special tax session in the Legislature, which cut income taxes and raised average sales taxes to 10.11% when state and local sales taxes are combined.
Before the session, Louisiana's average combined state and local sales tax was 9.56%, and the highest in the state was 11.45%, depending on local taxes. The highest possible rate now is 12%.
Louisiana’s 9.56% was already the highest combined state and local sales tax in the country, quickly followed by Tennessee at 9.55%. When the new law takes effect next Jan. 1, Louisiana will put a larger gap between it and all the rest.
Louisiana also has the second-highest average local sales tax rate at 5.11%, behind Alabama with 5.29%. Add the new 5.0% rate to the 5.11%, and Louisiana comes out on top.
At the beginning of the session, Republican Gov. Jeff Landry and legislators said that they wanted to renew a 0.45% boost that had made the state’s portion of the tax rate 4.45% several years ago.
Renewing that rate was part of a larger plan to offset cuts in individual income and corporate taxes. The renewal would help replace some of the revenue that would be lost by cutting taxes.
However, legislators had other ideas. First, they cut the rate a bit. Then the Senate raised it to 5% when it realized it needed more funds to offset the lower income taxes.
“Many of us, myself included,” said Rep. Mark Wright, R-St. Tammany, “believe that sales tax is the better way to deal with taxes.” Wright authored the bill.
Wright explained that when the 0.45% boost was brought to the Legislature for renewal a few years ago, he voted against it. He said that at the time he could not support that effort, even if it was temporary.
This time, he said, it’s a “very different choice,” as the bill is part of a much larger tax cutting plan, which Landry thinks will make Louisiana more competitive.
Instead of raising the general sales tax rate, the governor initially sought to add sales taxes to about 40 services that had been tax-free. But lawmakers balked and had to scramble to make up the $502 million that taxing the 40 items would have generated to help cover the cost of lowering income taxes to flat rates.
The solution was to adjust other parts of the tax plan, including raising the state sales tax by 0.55 percentage points to 5.0%
“In general, sales tax is considered a regressive tax,” said Jan Moller, executive director of Invest in Louisiana, a group that advocates for lower-income citizens. “As a percentage of income, it tends to fall harder on people with low incomes than people with high incomes.”
“There’s two things we lead the country in, sales tax and putting people in jail,” Moller said, referring to the state’s high incarceration rate.
Rep. Wright said he does not “like the concept of a regressive tax versus another.” He said he believes that there are “productive” taxes that pay for bills and other things.
“I think everyone should pay a little fair share,” Rep. Wright said, “but we’ve got enough provisions to cover somebody who perhaps is poor.”
The 5% state sales tax will take effect on January 1, 2025. After 5 years, the 5% tax will drop to 4.75%, according to the bill, still higher than the current rates in other states.
