Louisiana changes state sales tax rate, exemptions, and tax on remote retailers

Louisiana changes state sales tax rate, exemptions, and tax on remote retailers

Update 12.21.2018: Louisiana initially planned to enforce economic nexus starting January 1, 2019. However, the Louisiana Department of Revenue now says it will enforce economic nexus at "a date to be determined in 2019."

Update, 7.17.2018: The Louisiana Department of Revenue has announced the temporary cessation of state sales tax holidays from July 1, 2018 through June 30, 2025. Additional information

Louisiana Governor John Bel Edwards and the Louisiana Legislature have come up with a compromise to keep the state from tumbling off the fiscal cliff on July 1, 2018. As with last time the cliff was averted, in 2016, sales tax is a central part of the solution.

State sales tax rate

The state sales tax rate temporarily increased from 4 percent to 5 percent on May 1, 2016. It was set to drop back to 4 percent on July 1, 2018, and many lawmakers were staunchly opposed to extending the extra penny. Under the newly enacted budget (HB 10/Act 1), the rate will drop only partially, to 4.45 percent, on July 1. See the Department of Revenue News Release for more details.

This new rate is set to remain in effect for seven years, providing a degree of stability Louisiana has long lacked. The governor has called numerous special sessions since taking office in January 2016, all to deal with the looming, massive deficit. The current plan will raise, and spend, $463 million in sales tax revenue. That’s about $100 million less than the governor wanted, but following his own advice, he compromised.

Sales tax exemptions

Many sales tax exemptions were temporarily eliminated or reduced in 2016, and Gov. Edwards was keen to avoid reinstating them. In his opening remarks to the second special legislative session of 2018 (not the third, which finally succeeded), he noted, "The four existing pennies of sales tax have over 180 exemptions on them." He wanted to keep the exemption for groceries, pharmaceuticals, and utilities, and eliminate most of the rest. He didn’t quite get his wish.

The measure doesn’t eliminate specific exemptions, but it does list numerous exemptions that will remain after June 30, 2018. These include: other constructions permanently attached to the ground; installation charges on tangible personal property; and tangible personal property intended for resale. The Louisiana Department of Revenue has yet to provide additional information.

In addition, some of the sales tax breaks will be scaled back until the middle of 2025. The overall state sales tax rate for the retail sale, use, consumption, distribution, or storage of steam, water, electric power or energy, natural gas, or other energy sources for non-residential use (business utilities) will be 2 percent starting July 1, 2018. Residential uses of these utilities remain exempt. Additional information is available in Louisiana Department of Revenue Information Bulletin No. 18-016.

Gov. Edwards thanked the legislature for the compromise. "The fiscal cliff is now gone," he said, "and we have predictability ahead of us."

Taxing remote sales

Another significant sales tax change was established during Louisiana’s second special session of 2018: The state adopted economic nexus.

Under HB 17 (Act 5), any person who sells tangible personal property, electronically transferred products, or services for delivery into Louisiana who does not have a physical presence in the state is a "dealer" required to collect and remit Louisiana sales and use tax if, during the current or previous calendar year, the person either:

  • Has gross revenue for sales of tangible personal property, electronically transferred products, or services delivered into Louisiana in excess of $100,000
  • Sold for delivery into Louisiana tangible personal property, electronically transferred products, or services in 200 or more separate transactions

The measure also provides for a retailer without physical presence to voluntarily register for and collect state and local sales and use taxes, even if that retailer doesn’t meet either of the above thresholds.

Louisiana’s economic nexus provision applies "to all taxable periods beginning on or after the date of the final ruling by the United States Supreme Court in South Dakota v. Wayfair, Inc. … finding South Dakota 2016 Senate Bill No. 106 constitutional." The Supreme Court did so on June 21, 2018 — physical presence is no longer a prerequisite for sales tax collection.

In a brief statement on the Supreme Court’s decision, the Louisiana Department of Revenue explained, "It is far too soon for a definitive estimate of what the state will receive from online sales as a result of today’s decision, but when appropriate, we will provide updates." However, the department noted that it’s "in a good position having adopted a provision very similar to the South Dakota law." 

Simplifying sales tax compliance

Sales and use tax compliance is complicated in Louisiana, a home rule state. To help simplify it, the legislature recently established a special Louisiana Sales and Use Tax Commission for Remote Sellers within the Department of Revenue. The commission is tasked with promoting uniformity and simplicity in sales and use tax compliance, while reserving the authority of political subdivisions to impose and collect sales and use taxes under the state’s home rule provisions.

The commission will "serve as the single entity in Louisiana to require remote sellers and their designated agents to collect from customers and remit to the commission sales and use taxes on remote sales sourced to Louisiana." In other words, remote retailers will not have to remit tax to local jurisdictions. Additional details are provided in HB 601.

The legislature also created the Louisiana Uniform Local Sales Tax Board, for purposes of uniformity and efficiency of imposition, collection, and administration of local sales and use taxes.

Other states react to South Dakota v. Wayfair, Inc.

Louisiana is one of more than 20 states with an economic nexus law on the books. All are working to determine how the Supreme Court ruling will impact the enforcement of these laws. Like the Louisiana Department of Revenue, other state tax authorities will issue guidance as soon as they can.

Learn more about the South Dakota v. Wayfair, Inc. case and its possible impact on your business here. Sign up to participate in a Q&A forum explaining new rules for remote sellers in the post South Dakota v. Wayfair, Inc. world here.

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