True to form, maintaining compliance with Louisiana Sales Tax policies and procedures continues to remain a moving target. Beginning July 1, 2020, “Remote Sellers” must collect the applicable state and parish sales tax rates on all sales into Louisiana. Additionally, per the newly signed Act 216 of the 2020 Regular Legislative Session, certain “Marketplace Facilitators” must also begin collecting the applicable state and parish sales tax rates on all sales into Louisiana. The road to this point has been a long one, and there are likely more bumps to come as we move forward, along with new headaches and exposure to additional sales tax liability for many out-of-state vendors.
First, a brief history of the issue is in order. For many years, states were barred from requiring sellers without “nexus” to collect sales tax on behalf of the state. The term “nexus” means contact with or physical presence within a state. Some ways that nexus can be created are by owning property in a state, having employees in a state, or delivering products into a state using company vehicles. As more and more sales have moved from brick and mortar stores to the internet (i.e. from vendors with nexus to vendors without nexus), states have been trying to use multiple legal methods to require those out-of-state sellers without nexus to collect sales tax on their in-state sales.
One such method was the application of the concept of “economic nexus” to sales and use tax. Under the concept of economic nexus, if a seller’s volume of sales in a state reaches a certain threshold (usually either via the total dollar amount of sales or via a certain number of individual sales transactions), then that seller must collect and remit sales tax in that state. In a landmark 2018 ruling in the case of South Dakota v. Wayfair, Inc., the U.S. Supreme Court held that economic nexus was a legally and constitutionally valid concept with respect to sales and use tax policy. While South Dakota was the state at issue in the case, many states (including Louisiana) had enacted economic nexus laws similar to South Dakota’s that were designed to go into effect as soon as the Supreme Court ruling was issued. In Louisiana, that was only the beginning of a whole new world of sales and use tax compliance and collection.
Once economic nexus had become law, Louisiana’s next step was to establish the Sales and Use Tax Commission for Remote Sellers. Under Louisiana law, a “Remote Seller” is a seller with no physical presence in Louisiana, but who has economic nexus in Louisiana due to having in-state sales volume in excess of $100,000 or transacting 200 separate transactions. Notably, there is still a big distinction in Louisiana between a Remote Seller and a traditional, in-state “Dealer” (for the purposes of our discussion “dealer” refers to a seller with traditional physical nexus with Louisiana). The primary complicating sales and use tax factor in Louisiana has been and continues to be the fact that each parish collects its own sales tax. For instance, traditional, in-state Dealers must file a monthly sales tax return to the state as well as an individual parish return in each parish in which it conducts business. In contrast, Remote Sellers will file one return with the Commission (not with the Louisiana Department of Revenue or any of the parishes); that single return will cover the state and all parishes.
This does not mean that life is easy for Remote Sellers, however. In theory, Remote Sellers were already supposed to be charging a blanket sales tax rate of 8.45% on all of their sales into the state and remitting the collected tax on the state’s Direct Marketer return. This policy requires sellers outside of Louisiana to be aware of the Remote Seller laws in the first place and then establish and maintain internal systems to collect and remit the tax each month. As of July 1st, those sellers will need to be registered with the Commission and file their monthly returns through them.
Effective July 1, 2020, Remote Sellers are no longer allowed to apply a flat local tax rate (4%) to their Louisiana sales. They are required to begin collecting and remitting the specific parish tax rates applicable to each delivery address. While there are ‘only’ 63 parishes that collect sales tax, there are hundreds of local taxing jurisdictions in Louisiana with varying applicable rates, and Remote Sellers—who in many cases will have little to no familiarity with Louisiana—will have to determine which rate applies to each sale.
Another, more recent, complicating factor in the taxation of remote sales was the Louisiana Supreme Court’s ruling on January 29, 2020 in the case of Normand v. Wal-Mart.com USA, LLC. The court ruled in that case that an “online marketplace” does not fall under the definition of “dealer” in Louisiana sales/use tax law. The court further stated that in order to require an online marketplace to collect tax, there was a specific “need for legislation to address the obligation of an online marketplace facilitator to collect sales tax on sales of third-party retailers conducted through its online marketplace.” In the 2020 Regular Session, the Louisiana Legislature did just that with Act 216. The act changed the definition of “Remote Seller” to include “Marketplace Facilitators”. The act went on to define a “Marketplace Facilitator” as an entity which facilitates a sale for a marketplace seller through a marketplace owned, operated, or otherwise controlled by the facilitating entity. The act provides for certain exceptions to the qualifying terms of Marketplace Facilitator, such as an entity providing advertising services or offering sleeping rooms by hotels. The same economic nexus standards that apply to Remote Sellers apply to Marketplace Facilitators (i.e., either excess of $100,000 in gross sales revenue or transacting 200 separate transactions in the previous or current calendar year). Upon meeting either threshold, all Remote Sellers, including Marketplace Facilitators, have 30 days to register with the Sales and Use Tax Commission for Remote Sellers and 60 days to begin collecting Louisiana state and parish sales tax.
The Commission has represented that there will be ample guidance provided in the future to aid Remote Sellers in their tax collection and remittance processes. The Commission’s website is hard to find, however, and currently seems to be a bit of a work in progress. While it does not have much in the way of guidance, it does at least appear to allow for registration and return filing. The website can be found at https://remotesellersfiling.la.gov/. There is a good bit of information about the Commission and its plans on the Louisiana Department of Revenue website at https://revenue.louisiana.gov/LawsAndPolicies/RemoteSellersCommission.
Specifically, there is a June 24, 2020 FAQ that has a good deal of information as well (http://revenue.louisiana.gov/Miscellaneous/Remote%20Sellers%20FAQs%2006.24.2020.pdf).
The harder it is for taxpayers to get reliable and easy-to-find guidance, the higher the likelihood that there will be many out-of-state vendors that fail to comply with these new Remote Seller registration, collection, and remittance requirements. Meanwhile, in-state Louisiana businesses will still need to be diligent in finding incorrectly taxed purchase transactions and remitting state and/or parish use tax when necessary.
In our eyes, one other significant point of interest going forward will be how in-state businesses will react to the fact that Remote Sellers are only required to file one return, while in-state businesses must file multiple returns in the same onerous fashion they always have. State centralized collection has long been a goal of Louisiana’s business community. The fact that centralized collection now exists for one segment of taxpayers located outside the state, but not for the ones in the state will very possibly be the theme for the next major wave of sales tax legislation and litigation in coming years. In fact, in the First Extraordinary Session of the 2020 Louisiana Legislature, House Resolution No. 31 was passed and will establish a study group that will “make recommendations to the legislature related to the creation of a centralized sales and use tax collection system.” The group is required to submit a report to the legislature on November 1, 2020. No matter what happens, Advantous fully intends to be an important part of Louisiana’s brave new sales tax world and is positioned to guide our clients through it. Watch for further updates on this issue in future newsletters as developments occur. Also, please feel free to contact us directly for more information on this topic or for information on how Advantous may assist you with your Louisiana sales/use tax compliance, planning, refunds, audits, or concerns.