States often take pains to distinguish themselves from each other: We all know that Virginia is for lovers and you don’t mess with Texas.
On occasion, though, a state’s distinguishing characteristics may not be so positive. For instance, it’s unlikely that any state would advertise that it has the highest average sales tax rate in the country. But that’s exactly the situation that Louisiana finds itself in.
According to the Tax Foundation’s latest survey, Louisiana tops the list of states with an average combined state and local sales tax of 10.02%. And a high average tax rate is just the beginning of the complicated state of Louisiana’s sales tax regulations.
This article will go over some of the rules and regulations that can make sales tax compliance in Louisiana difficult — and hopefully by doing so, will help relieve some of that difficulty.
The State Of Louisiana Sales Tax
The first step in getting compliant with a state — if you do have a sales tax obligation there — is to get registered with the Department of Revenue. This can often be a complicated enough process that it could take up an entire blog post. And indeed, this post should provide most everything you need to know about registering as a sales tax collector in Louisiana.
Once registered to collect and remit sales tax on orders to Louisiana residents, it is vital to know exactly what rates to collect at.
At the state level, Louisiana’s tax rate is nothing special at a middle-of-the-road 5%. However, that can balloon quickly when you add in local rates. These range from a mild 1.8% to a whopping 7.75% (though some localities don’t have any additional local rates).
Looking at a sample of sales made across the state, some will have a fairly average 7 or 8% tax added onto the net price, while others will tack on almost 13% on top of the price tag.
In addition to high average tax rates, Louisiana is a “destination-based” state for sales tax calculations. That means that a business must collect sales tax at the rate of the ship-to address.
Of course, for a brick-and-mortar retailer not doing any deliverable sales, that means only one rate to know (where their store is located). But for remote sellers, this can get very complicated. This is because there can be very real consequences for collecting at the wrong rate.
Under collecting will cost a business out-of-pocket money. On that business’s regular sales tax return, the state will see where the sale was completed, and expect a tax remittance at the according rate. Say, if a business only collected at 7% when they should at 10%, it will need to make up that 3% difference itself.
Over collecting can be an even bigger problem — technically that’s theft. If a business collected at 10%, when it should have only collected at 7%, it took money from the customer that it wasn’t permitted to. The business will then need to go hat in hand and return that money to the customer — or face serious legal repercussions.
So, when it comes to a complicated state like Louisiana with a huge range of possible tax rates, it is vital to get all the help you can so you always are collecting at the proper rate.
What Else Is Louisiana Doing With Sales Tax?
Like most other states, Louisiana is looking to grow its sales tax revenue. The states see billions in missing potential tax revenue, largely from absent remittances for remote and online sales. This has led many states, including Louisiana, to pass new laws expanding the circumstances in which they can require remote sellers to collect sales tax.
Click-Through and Affiliate Nexus in Louisiana
Since 2016, Louisiana has applied two expanded nexus rules: click-through nexus, and affiliate nexus. Nexus is a status that a business can have with a state, whereby the state can require that business to collect sales tax. The current standard for establishing nexus is a “sufficient physical presence,” which states have sought to expand. (Though an upcoming Supreme Court case could change the entire nexus landscape.)
What Louisiana did, following the lead of many other states, was to say that a seller had physical presence nexus in the state, regardless of its actual physical location, if it contracted with instate services to refer potential customers in Louisiana to the seller either online or by in-person or telemarkting will have nexus in the state, and must collect and remit sales tax on their Louisiana sales. Any seller using these services would have to collect and remit sales tax on their sales to the state.
Louisiana was also one of the first states, along with Colorado and Vermont, to impose what are called “notice-and-report” rules, which came into effect as of July 1, 2017. (There was an interesting judicial battle over their legality, which was only finalized late in 2016.)
Notably, notice-and-reporting is not a requirement to collect sales tax. Instead, it’s effect is to require sellers to remind their customers of the customer’s existing obligation to remit use tax on their purchases. Use tax is an ancillary to sales tax, which must be paid when sales tax was not collected by the seller at the time of purchase (say, because the seller doesn’t have nexus, and therefore isn’t required to collect sales tax).
However, whether out of ignorance or something more malicious, purchasers almost never remit their use tax. (In theory, if all use tax was properly remitted, then the entire tax gap states are complaining about would disappear.)
And so, among other states, Louisiana determined that the best way to go forward would be to have non-collecting retailers (i.e. sellers without nexus) send notices to their customers reminding them of their duty to pay use tax in lieu of the retailer collecting sales tax. In addition, these retailers must send annual reports to the state’s tax collecting agencies indicating which residents they should expect use tax payment from. The alternative to these often onerous (and by all accounts embarrassing) notices and reports is for the business to become a voluntary sales tax collector in the state.
These rules do not apply to all non-collecting retailers; in Louisiana; only those making more than $50,000 in annual sales to the state must follow the notice-and-reporting rules.
Louisiana sent out a recent bulletin to remote sellers, reminding them of the need to file the first such reports by March 1; Louisiana residents will pay their use tax with their annual income tax filings, due by April 17th. In the weeks and months after, it will be interesting to see the effects of these new notice-and-reporting rules, whether the state actually does receive a boost in its use tax revenue. If it does, it is likely that many other states will follow suit (indeed, there are a rash of bills moving through state legislatures to pass notice-and-report style rules.)
Complying with sales tax requirements is rarely easy, and never painless. Even so, Louisiana seems to stand out in terms of its high average tax rates and complicated nexus rules. Ecommerce businesses selling into the Pelican State would do well to take advantage of any resources out there that can assist their collection of sales tax in the state.
Protect your business against complex and evolving regulations that cause headaches. Download the Guide to Sales Tax Penalties and Audit Risks for eCommerce Sellers.