During the recently completely 2009 Regular Session of the Louisiana Legislature, the legislature passed, and Governor Jindal signed, legislation that excludes capital gains tax from individual state income taxes. The exclusion becomes effective for all taxable periods beginning on or after January 1, 2010, and applies to the sale of privately held companies domiciled in the state.

The Jindal administration had identified the state’s capital gains tax as a key obstacle hampering the growth of small businesses throughout the state. Presently, Louisiana taxes capital gains as ordinary income, which carries a top marginal rate of six percent. Several neighboring states, however, offer much more favorable treatment of capital gains, with Texas, Florida and Tennessee having no personal income tax whatsoever. This discrepancy in tax rates has long driven entrepreneurs and business leaders out of the state and has discouraged businesses from relocating in Louisiana. Now, this bill can be used as a tool to retain current Louisiana-based businesses, recruit new businesses to the state and encourage those who previously left the state to return.

This piece of legislation is the administration’s latest measure in its mission to improve Louisiana’s business climate, one of Governor Jindal’s top stated priorities. Previous progress was made during the second 2008 special legislative session where many business taxes were amended or repealed, including a six-year phase out of the state’s corporate franchise tax. This latest measure is yet another welcomed step in that mission, as evidenced by the heavy it received by economic development organizations throughout the state.

Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.