Louisiana’s Sales Tax System Is Likely Going To Change Anyway…

We weren’t crazy about Amendment 1, the measure which failed on a fairly close vote in Saturday’s elections, but not because the idea of unifying sales tax collections isn’t a good and necessary one. We just didn’t like the horse-designed-by-committee setup the amendment envisioned in order to govern the collection of sales taxes.

It was a big-government solution. The small-government solution to unifying sales taxes in Louisiana is to give the job of collecting those sales taxes to the Louisiana Department of Revenue, which already collects sales taxes for the state.

The commission which would include representatives of local government was the design of the sponsor of the underlying bill, House Speaker Clay Schexnayder. Schexnayder had run a bill last year trying to unify sales tax collections and the super-powerful local government lobby defeated him. So this time he attempted to pander to the sheriffs and the local government lobby by giving them seats on this sales tax collections commission. The business community went along with that Frankenstein monster in hopes that it would placate the locals enough to get them to support the measure, or at least not to oppose it.

But Amendment 1 went on the ballot in an off-year election when turnout was going to be under 20 percent – substantially under 20 percent, as it turned out – almost everywhere in Louisiana but in Orleans Parish, where the mayor and city council were all up for election. So you got 28 percent turnout there, and the political machine in Orleans opposed Amendment 1.

And that was enough to beat it, because the local government people in places like Livingston Parish, St. Tammany Parish, Bossier Parish, Ascension Parish and Terrebonne Parish groused about it and it failed to run up a decent enough margin to overcome Orleans.

But the problem of sales tax collections being handled in a chaotic fashion which plays hell with the business community persists. And no sooner did Amendment 1 fail but another, less-democratic mechanism for solving the problem has arisen.

That being the lawsuit.

Lawsuit Intends to End Louisiana’s Red Tape Nightmare for Small Businesses

NEW ORLEANS– Louisiana’s approach to sales taxes has created a red tape nightmare for businesses. With retailers forced to deal with a wide variety of local rules and mounds of tax paperwork just to be able to sell their products in the state, the hurdles are just too high for many companies to make it work.

That’s why today, the National Taxpayers Union Foundation (NTUF), the Pelican Institute, and the Goldwater Institute have teamed up to represent one small Arizona-based business to challenge Louisiana’s onerous sales tax structure, arguing that the state places an unconstitutional burden on businesses that wish to sell to Louisianans.

Halstead Bead, a family-owned jewelry and craft supply wholesaler based in Prescott, Arizona, has filed a lawsuit against the tax collecting authorities in the Louisiana Department of Revenue and Lafourche, Tangipahoa, and Washington parishes challenging the state’s complex sales tax system. Halstead Bead sells to customers across the country but limits sales to Louisianans because of the immense burden the state’s antiquated system places on small businesses, especially online retailers.

“Louisiana’s overly complex sales tax collection process places an undue burden on small businesses and is in direct conflict with the U.S. Supreme Court’s 2018 Wayfair decision. To be fair to small business owners like the Halstead family and to provide more options for consumers, Louisiana needs to streamline their sales tax collection process to make it easier to do business in the state,” said Sarah Harbison, General Counsel for the Pelican Center for Justice.

Halstead Bead estimates that the cost to comply with the current system in Louisiana is $2.28 for every $1 they collect in taxes from sales. Over the past three years, they have spent 7,700 hours and $297,000 on sales tax compliance nationally. Across the country, small businesses that do the bulk of their sales online face rules and regulations from more than 11,000 local tax jurisdictions with which they must comply; failing to get sales tax remittance correct down to the penny carries the risk of criminal charges. Louisiana could ease the burden on small businesses by streamlining collection to one central collection point.

“Louisiana makes it extremely hard to do business in the state because of the countless hours and dollars it takes to ensure accurate compliance with all of the taxing jurisdictions,” says Brad Scott, Halstead’s Director of Finance. “We don’t have the tools; we don’t have the resources, but we still have outrageous compliance demands. It’s overwhelming, and both businesses and consumers alike suffer because of the fragmented nature of the Louisiana sales tax collection system.”

Yes, the objection to this is “why should an out-of-state company be telling Louisiana how to collect its sales taxes?” Except the identity of this specific plaintiff isn’t really what’s important. There are lots of Louisiana businesses who might end up joining the suit. For example, we know somebody who’s in the concrete business in Baton Rouge but who does jobs all over southeastern Louisiana. There are three dozen different jurisdictions in their main business area, and sales tax is collected based on the rates in place in each. It’s going to be different in Denham Springs than in Port Allen, and even within parishes and cities you’ve got special taxing districts here and there. The cost of compliance, to calculate sales taxes to pass along to customers and then to figure out how to remit the sales taxes, is unduly high.

Then you’ve got the Wayfair decision which could really drag us into the weeds with this discussion but essentially makes Louisiana’s system doubly unworkable where online commerce is concerned, and the status quo isn’t going to work.

This was a case where the locals needed to realize the game is over – and where a strong legislative leadership would get them to buy in, perhaps with goodies from somewhere else sweetening the pot. But that didn’t happen. Schexnayder put something together that was a half-measure, because it was the best he could do in order to get the two-thirds vote in the legislature he needed, and it failed mostly because Orleans Parish is an endless fountain of poo at this point.

We’d be surprised if this case wasn’t decided for the plaintiff and Louisiana has unified sales tax collections imposed on us by a federal court. And frankly, it’s more likely than not that the court will craft a better mechanism to do so than the Legislature did.

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