Taxpayers taxed as C corporations for federal income tax purposes, and estates and trusts subject to tax levied in R.S. 47:300.1 are prohibited from earning the inventory tax credit (ITC) against state taxes for ad valorem taxes paid on or after July 1, 2026.
ITCs earned by such taxpayers between January 1, 2025, through June 30, 2026 are not refundable, but the unused portion of the credit may be carried forward for up to 10 years. The elimination of the ITC for C Corporations will have deleterious effects on their cash-flows.
Louisiana voters’ rejection on Saturday of the constitutional amendment that would have allowed local governments the ability to eliminate the inventory tax in their parish or to lessen the inventory tax underscores the need for C corporations to review their entity structure and tax timing strategies before the cutoff.
In addition to timing ad valorem tax payments to maximize the use of carryforwards before the phase-out, C-corporations might consider converting to an S-corporation or pass-through entity to retain eligibility for the ITC. Such taxpayers might also evaluate other state or federal tax incentives that could offset inventory-related costs. Other entity structures may be available as well.
While there is no one-size fits all solution for taxpayers to mitigate the consequences of the inventory tax in light of the loss of the credit, affected taxpayers should seriously consider planning opportunities that may be available to them.
For more information, contact Liskow attorneys Bob Angelico, Leon Rittenberg, III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page.