By Rachael Averett, Kristian Gerrets & Geoff Campbell
There have recently been some significant changes to the way sales tax compliance is handled in Louisiana. Most of those changes stem from the shift to a virtual economy from a “bricks and mortar” one. More people are conducting business electronically and are able to reach people that they would not have been able to reach in the past. Because of these changes, sales tax has had to evolve. The U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc. effectuated these big changes.
Post-Wayfair, a state is effectively required to have a centralized sales/use tax collection system in order to enforce an economic nexus standard. As a result of being a “home rule” state, Louisiana realized that it was going to encounter significant challenges when attempting to implement the economic nexus standard outlined in Wayfair. Being a “home rule” state means that each parish acts as its own taxing jurisdiction, enforcing and collecting its own sales and use tax separately from the state. Consequently, in order to satisfy the centralized sales/use tax collection system requirement set forth in Wayfair, Louisiana established the Sales and Use Tax Commission for Remote Sellers (the “Commission”). This Commission was established to serve as the centralized collection and administration entity for remote sellers.
Under Louisiana law, a “Remote Seller” is a seller with no physical presence in Louisiana who has economic nexus in Louisiana as the result of having in-state sales volume in excess of $100,000 or transacting 200 separate transactions during the previous or current calendar year. The Commission has established a single web-based portal for remote sellers to report and remit the state and local taxes they collect, effectively allowing them to file one return for all Louisiana activity. Meanwhile, nothing has changed for in-state sellers, who have to report and remit sales tax to the state via a state sales/use tax return, as well as to each of the individual parishes in which they do business via a separate parish return for each of those parishes.
In essence, the state has created a centralized sales tax system for out-of-state sellers while continuing to maintain an archaic and administratively burdensome system for sellers who have a physical presence in Louisiana. This is one of multiple differences in the ways in which these two groups of taxpayers are treated, all of which are likely to lead to more taxpayer strain and frustration, as well as costly litigation until further changes are made to our tax structure as a whole.
Another difference that exists between remote sellers and in-state dealers is nexus. It appears that each group of sellers has their own nexus threshold. In the past, dealers were defined in LA R.S. 47:301(4) as pretty much anyone conducting business in Louisiana and also having some sort of physical connection with the state. In other words, in order to establish a registration and collection responsibility in a given taxing jurisdiction, a dealer had to have a physical presence in that taxing jurisdiction.
Fast-forward to Act 5 of the 2018 Second Extraordinary Legislative Session, in which the definition of dealer was expanded to encompass remote sellers and to stipulate the level of economic activity necessary to trigger a remote seller’s obligation to register and remit sales tax in Louisiana.
LA R.S. 47:301 (4) (m)(i) states that a dealer is defined as,
“Any person who sells for delivery into Louisiana tangible personal property, products transferred electronically, or services, and who does not have a physical presence in Louisiana, if during the previous or current calendar year either of the following criteria was met:
(aa) The person’s gross revenue for sales delivered into Louisiana has exceeded one hundred thousand dollars from sales of tangible personal property, products transferred electronically, or services.
(bb) The person sold for delivery into Louisiana tangible personal property, products transferred electronically, or services in two hundred or more separate transactions.”
What does this mean for taxpayers who are considered dealers but not remote sellers? Is physical presence the nexus threshold for in-state dealers and the economic standard reserved only for remote sellers? Based on the current reading of the statutes, it would potentially appear that way. If that is the case, how does this affect taxpayers who have a physical presence in one parish but ship their products to other parishes via common carrier? These dealers are not defined as remote sellers, so do they need to meet the economic nexus thresholds set forth in Act 5 in order to have a reporting obligation within those parishes?
Currently, there are a number of court cases surrounding the issue of nexus in Louisiana. Many of them specifically relate to the reporting periods which preceded the enforcement of the economic nexus standard which went into effect on July 1, 2020. Parishes appear to be taking the position that if you have nexus in the state, you have nexus with every parish in which you have sales regardless of your status as a remote seller or in-state dealer. What changed prior to July 2020 for the parishes to take that position on nexus? Prior to that point, wasn’t physical presence the bright-line test in practice and in law?
At this time, uncertainty appears to be the over-arching theme of Louisiana sales tax. Change is likely on the horizon and will hopefully clear up some of that uncertainty. During the 2021 Legislative Session, Act 131 was passed and provides for a Constitutional Amendment to streamline Louisiana sales and use tax for all taxpayers. The amendment will be on a state-wide ballot November 13, 2021, and if passed by the people of Louisiana, the legislature will have the power to enact overdue changes to our antiquated tax structure and streamline sales tax administration. Through these changes, we will have the opportunity to resolve some of these inequities and put our in-state businesses on equal footing with their out-of-state counterparts.
Sales tax administration is a fluid situation in Louisiana and more big changes are likely to occur in the coming years. Follow the monthly Advantous Insights newsletter and Advantous’ social media feeds, as we will continue to provide the timeliest updates regarding nexus litigation and the ongoing legislative efforts to streamline our system. Knowing Louisiana’s sales tax history, we are preparing for a roller coaster ride over the next few years, but we are hopeful the ride will be worth it in the end.