A ‘remote retailer is not a ‘remote seller — Wacky Tax Wednesday

A remote retailer is a business that purposefully avails itself of the Louisiana market (or has any other minimum contact with the state) and meets all the following criteria:

• It is not  required by law, ordinance, or regulation to register as a dealer in Louisiana or collect Louisiana sales and use taxes
• It has more than $50,000 in cumulative annual gross receipts from retail sales of tangible personal property or taxable services in Louisiana per calendar year (including retail sales by affiliates)
• It does not collect and remit Louisiana sales and use tax on its retail sales in this state (including the tax imposed under R.S. 47:302(K))

The Louisiana Department of Revenue explains this in Revenue Information Bulletin No 18-006, dated January 5, 2018. This was before Louisiana had the authority to tax remote sales.

States won the right to tax remote sales on June 21, 2018, when the Supreme Court of the United States ruled in favor of the state in South Dakota v. Wayfair, Inc. Prior to the seminal Wayfair decision, a state could require a business to collect and remit sales tax only if the business had a physical presence in the state.

Following the decision, one state after another enacted then began enforcing economic nexus laws that base a sales tax obligation on a remote entity’s economic activity in the state. For example, South Dakota’s economic nexus threshold is $100,000 in gross revenue from sales in the state or 200 transactions in the state in the current or previous calendar year. Once a business hits that threshold, it’s required to register and comply with all applicable South Dakota sales and use tax laws.

Louisiana was one of the first states to enact economic nexus but one of the last to enforce it. Like South Dakota, the Pelican State now requires a remote business to register for sales tax if it has more than $100,000 in annual gross revenue from sales of products or services in the state or 200 transactions in the state in the current or previous calendar year. Louisiana is one of a handful of states where there are economic nexus requirements at the local level too.

The department of revenue bulletin on remote retailers doesn’t mention the $100,000/200 transactions economic nexus threshold because it was published prior to Wayfair. At that time, Louisiana couldn’t mandate registration for businesses with no physical presence in the state, no matter how many sales they made.

Yet because remote retailers sell above another threshold — $50,000 — they must comply with Louisiana’s non-collecting seller use tax notification requirements. This means they must inform purchasers that online purchases are subject to Louisiana use tax unless specifically exempt.

Non-collecting use tax notification requirements are from a time before Wayfair, when many states were looking for a way to increase remote sales tax collections without actually taxing remote sales. Read more about non-collecting seller use tax notice and reporting requirements.

To further encourage remote retailers to register and collect Louisiana sales tax — thereby sparing customers the need to self-report use tax — Louisiana made remote retailers eligible to collect and remit Louisiana’s single combined sales tax rate (currently 8.45%). This is a huge convenience, because actual sales tax rates in Louisiana range from 4.45% to 11.45%.

Louisiana defines a remote seller as a business that:

• Has no physical presence in the state
• Has economic nexus with the state (i.e., $100,000 or 200 transactions in the current or previous calendar year)

Because remote sellers have economic nexus with Louisiana, they’re required to register to collect and remit all applicable state and local sales taxes.

Unlike remote retailers, remote sellers are not eligible to collect and remit Louisiana’s 8.45% single combined sales tax rate. They must collect the actual rate in effect at the point of delivery (i.e., the delivery address). Not only do these vary considerably, they can also be hard to track down. Louisiana is a home-rule state where local governments administer their own local sales taxes and provide for their own sales tax deductions, exclusions, and exemptions. Figuring out what you owe could easily entail a call to the local taxing authority.

Finally, Louisiana defines a direct marketer as a seller that has no physical presence in the state, sells beneath the state’s economic nexus threshold, and therefore has no obligation to collect and remit sales tax.

Should they choose to voluntarily collect tax on Louisiana sales as a courtesy to customers, direct marketers are entitled to collect and remit the single combined 8.45% sales tax rate on all sales delivered into Louisiana, like remote retailers.

In fact, a direct marketer seems to be a lot like a remote retailer, only without the $50,000 threshold and the requirement to comply with non-collecting seller use tax notice and reporting requirements. But that’s not entirely clear because the Sales and Use Tax Commission for Remote Sellers doesn’t specify that a “direct marketer” makes less than $50,000 in sales in Louisiana.

The term “remote retailer” is likely a legacy term left over from the days before Wayfair. But it’s still kicking around and, I think, muddying rather than clarifying remote sales tax requirements.

I understand Louisiana tax officials are trying to simplify a situation that’s become quite complicated for taxpayers, and that they’re working within the confines of the law. I just wish simplifying things didn’t make them so hard to understand.

Learn more about South Dakota v. Wayfair, Inc., and its ongoing impact on businesses.