While Louisiana is one of the few states (as of today) that does not actively require out-of-state vendors to collect their sales tax, it’s not for lack of effort or forethought. Louisiana has been thinking about taxing remote commerce for a few years and now, they are ready to act and make the requirement fully mandatory and enforceable.
It all started with Act 274 of the 2017 Regular Session. Through this bill, the Louisiana legislature created the Louisiana Sales and Use Tax Commission for Remote Sellers (the “Commission”). The Commission sits within the auspices of the Louisiana Department of Revenue with the objective of designing systems and processes that would enable the administration and collection of taxes from remote sellers. However, the Commission was prohibited from actually putting anything in place that required the authorization of expenditures (money) until a federal law (i.e. a law enacted by the United States Congress) became effective that would allow states to require such collection.
While a federal law enabling the collection of tax from remote sellers never came to be, in June of 2018, the Supreme Court of the United States issued its decision in the case of South Dakota v. Wayfair, Inc. The Court upheld South Dakota’s ability to enforce sales tax collection on sales made into the state by remote vendors. As such, while the federal prohibition against taxing remote commerce was removed, the fact that it did not come through an act of the US Congress, continued to constrain Louisiana from acting in any way that required the spending of money. It must have been supremely frustrating from them.
[Avoid your own frustration with SD v. Wayfair and watch the on-demand recording Q&A webinar with Chuck Maniace, vice president, regulatory analysis and design, Sovos, “South Dakota v. Wayfair One Year Later: Retrospective and Look Ahead,” from June 27 and be prepared for changes ahead.]
During their 2018 Second Extraordinary Session, in the wake of the South Dakota v. Wayfair decision, the Louisiana legislature passed Act 5 (House Bill 17), which expanded the definition of “federal law” to include a final ruling by the United States Supreme Court and made the Commission the sole entity for the administration and collection of sales and use taxes on remote sales. The Act also re-defined the term “dealer” to include remote sellers having more than $100,000 in sales or more than 200 separate sales into the state.
Louisiana Remote Seller Sales Tax Collection Rules
Now, it’s important to understand that Louisiana sales tax is complex – far more complex than those that apply in South Dakota. In Louisiana, local taxes exist at the Parish (County), City, and District level. Making things even more complicated is the fact that local taxes are locally administered, meaning sellers with sales tax nexus in Louisiana must understand state and local rates, state and local rules, and file state and local returns. On top of all of that, the Louisiana sales tax code is a case study in complexity – understanding what’s taxable and what’s exempt is far from easy for even the most experienced team of tax professionals.
In a Post-Wayfair world, states are free to impose sales tax obligations on remote sellers, however they must do so in a way that does not create an undue burden. Without some form of simplification to their tax systems, Louisiana could face a legal challenge claiming that their economic nexus law was unconstitutional. However, under the law, a material simplification is indeed available.
For any “dealer” meeting the threshold, the newly formed regime required tax to be collected at a special rate of 8.45%. The combined rate reflected the state rate of 4.45%, as well as a combined local rate of 4% intended to simplify collection of local taxes. Under this regime, all funds are remitted to the state directly via Form R-1031 and local filing is not required.
Louisiana Remote Seller Sales Tax Collection Update
Originally, it seemed that Act 5 was to take effect on July 1, 2018, but enforcement was put on hold until the Commission had a chance to study the issue. However, remote sellers qualifying as dealers were given the option of voluntarily collecting and remitting the 8.45% tax, an option that remains in place through June 30, 2019. However, the time for optional compliance is almost over. Sovos has confirmed that Louisiana plans on mandating collection (using the simplified rules) effective July 1, 2019.
However, sellers should be aware that the simplified regime effective today is not long for this world. On June 17, 2019, Governor Edwards signed Act 360 (House Bill 547) into law, which states that remote sellers who qualify as dealers will ultimately be required to collect and remit state and local taxes at the prevailing local rates rather than at the simplified 8.45% rate. The Commission will give 30 days’ notice of such enforcement, but enforcement will be no later than July 1, 2020. However, it’s important to understand that from July 1, 2019 until that time, collection is required for any remote seller exceeding the threshold.
The time to comply in Louisiana is at hand!