Stelly Plan

The Stelly Plan is a since repealed 2002 tax measure in the U.S. state of Louisiana designed to shift certain state sales taxes on food for home consumption and utilities to increases in state income taxes. Narrowly approved by voters, the proposal soon ran into criticism as middle-class taxpayers complained of paying much more in state income taxes than the amount of reduced sales taxes. The plan is named for former State Representative Victor T. "Vic" Stelly, a Lake Charles Republican, who served in the House from 1988-2004. Removal of the Stelly income tax tables began in calendar year 2009.

In the November 5, 2002, general election, Louisiana voters approved the Stelly Plan, listed on the ballot as Act 88-2002, actually a constitutional amendment. The tabulation was 534,989 (51 percent) to 506,938 (49 percent).

Under the Stelly Plan, the state sales tax on food for home consumption and the sales tax on natural gas, electricity, and water for residential use was lowered on January 1, 2003, from 3.9 cents to 2 cents per dollar. Taxes on those items were then eliminated on July 1, 2003. To replace revenue lost through Stelly, individual income tax brackets were adjusted upward. Because individual tax returns for taxable year 2003 were not filed until after January 1, 2004, the withholding tax tables were revised, and the new rates went into effect on January 1, 2003.

Stelly did not affect local sales taxes on food. Only food requiring preparation at home was covered by the reduction in state sales tax. Single-use portions or restaurant meals were not affected by the Stelly Plan. Prescription drugs were already exempt from sales taxes, but Stelly placed that exemption in the state Constitution. Louisiana does not exempt over-the-counter drugs from sales tax, but such items are exempt in neighboring Texas. Stelly also allowed the tax owed by the individual to be distributed over the year 2003. The increase in taxpayer withholding was to have been the same as the savings realized from the elimination of sales taxes under the Stelly Plan. Taxpayers making approximately $80,000 annually saw increases in total state taxes.

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