Louisiana will begin collecting internet sales taxes Jan. 1, 2019, but the complexity of its state and local sales tax systems could cause future legal problems. The decision to begin collecting those taxes comes following a June 23 U.S. Supreme Court decision that overturned a 1992 high court decision.
The 1992 decision said remote (internet) sellers weren’t required to collect state and local sales taxes unless they had a physical presence in the state. Walmart and Sears, for example, have that physical presence. The court’s view changed with its recent South Dakota vs. Wayfair decision because of the tremendous financial impact of current internet sales.
National chains are reducing their store numbers around the country, and others are going out of business. Untold numbers of workers are also losing their jobs. How much of that is because of internet sales is difficult to determine, but it is definitely a major factor. Those who have been affected will welcome the high court’s decision.
The Public Affairs Research Council of Louisiana said the court found South Dakota’s new tax system indicates the state isn’t interfering with interstate commerce, which is regulated by Congress. It also said the only internet sellers affected are those selling more than $100,000 in goods or services and those who engage in 200 or more transactions annually.
Louisiana patterned its internet sales tax collection laws after South Dakota’s, which was a wise move. However, unlike South Dakota, Louisiana doesn’t belong to the Streamlined Sales and Use Tax Agreement.
Today, 24 states have adopted the simplified tax measures followed by the member states. All state and local sales taxes are collected at the state level and there is uniformity in state and local sales tax bases.
Louisiana’s tax system isn’t even close in that last respect. PAR said critics of the Louisiana system believe it is inefficient, cumbersome and unfair for business. The non-profit agency adds that the Tax Foundation ranks Louisiana’s sales tax system last among the states.
“Louisiana has an unusually large number of exemptions and exclusions, and state and local governments lack uniformity about what is taxable,” PAR said.
State legislators had opportunities in 2017 and this year to adopt recommendations of the Sales Tax Streamlining and Modernization Commission, but rejected every effort. Rep. Julie Stokes, R-Kenner, sponsored those measures that the Republicancontrolled state House refused to approve.
Lawmakers did develop two separate systems for sales and use tax collections in order to better qualify under the Supreme Court’s guidelines. One deals with internet sales, but the other keeps what PAR calls the “old decentralized system.”
The Advocate said under a law passed in the 1980s that dealt with catalog sales, out-of-state vendors collect a 9 percent sales tax and send it to the state Department of Revenue. The state keeps 5 percent and 4 percent goes to local governments based on population regardless of where the purchase was made or what parish and municipal governments charge in sales taxes.
The major unknown at this point is how much revenue will be generated with the wider internet sales tax collections. Louisiana would have gained from $195 million to $288 million, which PAR said is modest when overall state sales tax collections for the next fiscal year will total an estimated $4 billion. Major sellers are already collecting those taxes, the agency said.
State taxpayers have been required for years to report the sales taxes owed on their income tax returns, but the compliance rate has been only 9 percent. If the internet taxing process that begins Jan. 1 is successful, that should no longer be a problem.
PAR said, “If Louisiana had to meet the Supreme Court’s implied standards for a streamlined and efficient sales tax system it would surely fail.”
However, Kimberly Robinson, secretary of the Department of Revenue, told The Advocate the Supreme Court majority said a state need only follow the criteria. “We’re looking at the streamline law itself and determining what changes are necessary to be compliant,” Robinson said. “What you need to keep in mind is that this is a first step.”
We can only hope she is right and that it will lead to the Legislature taking sales tax reform steps it has refused to take on numerous occasions. PAR said the state’s eventual goal should be establishment of a truly modern centralized and streamlined system for all retailers.
However, 2019 being a statewide election year doesn’t bode well for any significant tax reform being accomplished. In addition, and to put it bluntly, many local governments in Louisiana don’t believe the state is prepared to do a fair and equitable job of collecting and distributing their sales taxes.