La. tax law changes now in effect
Louisianans making more than $50,000 a year will pay a lower state income tax rate in 2022.
Voters went to the polls in November to consider four ballot amendments dealing with tax and budget issues; only Amendment 2 passed. The proposal offered to lower the state’s top income tax rate from 6% to 4.75%, as well as strip a federal tax deduction requirement from the state’s constitution.
The changes go into effect Saturday.
Other changes also apply, as three separate tax reform statutes passed by the Louisiana Legislature hinged on the amendment’s success.
Act 395 limits tax deductible items to medical expenses when in excess of the federal income tax standard deduction, which is $12,550 for single filers and $25,100 for married couples filing jointly.
Louisiana taxpayers previously could apply all deductible expenses – not just medical expenses – against their state income tax liability when it exceeded the federal standard deduction amount.
Act 395 also allows for the state’s income tax rates to drop in the future if tax collections are higher than expected. The complicated process involves comparing future tax collections with those from fiscal year 2018-19 and applying a growth factor.
“The rate of each tax bracket would decrease proportionally according to a growth factor formula,” according to the Public Affairs Research Council, a nonpartisan research organization based in Baton Rouge.
Act 396 changes the state’s corporate income tax structure to essentially mirror what Act 395 does for individual income taxes. Specifically, it removes the federal income tax deduction and reduces corporate tax rates by 0.5% across all brackets.
Corporate tax rates will be 3.5% for the first $50,000 of taxable income, 5.5% for income between $50,000 and $100,000 and 7% for income in excess of $150,000.
The third corresponding statute, Act 389, applies to the state’s franchise tax, which is levied against earnings and investment capital rather than income. Act 389 eliminates any franchise tax on capital below $300,000 and reduces the rate to 2.75% on capital above $300,000.
Both Gov. John Bel Edwards, a Democrat, the GOP-controlled Legislature and Louisiana’s business community supported Amendment 2.
After voters approved the measure, 54-46, Edwards said, “Tax bills are not going to be higher.”
According to the Public Affairs Research Council, voters have considered 293 ballot amendments since the Louisiana Constitution was revised in 1974, with 202 being approved. More than half dealt with tax and budget items.
“A constitution is supposed to be a state’s fundamental law that contains the essential elements of government organization, the basic principles of governmental powers and the enumeration of citizen rights,” the research organization explained. “Statutory law, on the other hand, provides the details of governmental operation and is more subject to change by the Legislature.”