Louisiana’s New Remote Sellers Law: What Does H.B. 547 Have in Common with a Box of Donuts?

As members of the Jones Walker SALT Team sat around the table in our office kitchen staring into a box of donuts provided by our firm on National Donut Day (the day after the close of the 2019 Regular Session of the Louisiana Legislature), we pondered this question: what does that box of tasty treats have in common with H.B. 547, which is Louisiana’s latest legislative expression on the subject of sales tax collection and remittance obligations for remote sellers? Two similarities quickly came to mind as we licked the glaze off our fingers.

First, the box of donuts definitely was full of some tasty treats (a dozen to be exact), and, well, H.B. 547 has some tasty ingredients, but certainly not a dozen. Second, H.B. 547, like that box of donuts, is full of holes.

H.B. 547, which is awaiting action by Governor Edwards, is Louisiana’s second legislative effort to bring Louisiana’s exceedingly complex state and local sales tax system into the post-Wayfair world envisioned by the United States Supreme Court in South Dakota v. Wayfair, Inc., 138 S.Ct. 2080, 201 L.Ed.2d 403 (2018), a world that many states have already entered in full force. Louisiana’s first effort, Act No. 5 of the 2018 2nd Extraordinary Session (“Act 5”), made some strides by establishing minimum economic nexus thresholds for state-level sales tax collection purposes (Act 5 is silent as to any local-level economic nexus standards) and attempting to establish the Louisiana Sales and Use Tax Commission for Remote Sellers (the “Commission”) as the single entity in Louisiana for the collection of state and local sales taxes on remote sales.

Unfortunately, as enacted, the provisions of Act 5 never became effective due to a drafting hole. Act 5’s provisions were not to become effective until a final ruling by the United States Supreme Court in Wayfair finding South Dakota’s remote seller law to be constitutional. In Wayfair, the Supreme Court overruled the physical presence requirement, but it did not reach a ruling on the constitutionality of South Dakota’s remote seller law. Thus, the provisions of Act 5 never got rolling like the donut that rolled across the table.

H.B. 547 essentially began its legislative path as a bill to fix the effective date provision of Act 5 and to address some of the issues the Commission had discussed and developed over the past few months. As is the case with many bills, H.B. 547 changed as it worked its way through the legislature. For example, at one point, provisions were added to specifically address a form of “centralized reporting” for online marketplace sales. There also were discussions among various stakeholders regarding issues, such as how to fund the work of the Commission, how to make sure local tax collectors received the proper amounts of sales taxes on remote sales, and how to make sure the local tax collectors retained their constitutional power and authority to operate independently from the state sales tax system.

Most importantly, stakeholders discussed a strategy for broadly defining “remote sales” and “remote sellers” to allow more businesses to take advantage of some form of centralized collection and remittance for remote sales. Most stakeholders agreed that this strategy would bring Louisiana more in line with the Wayfair standards, would avoid protracted and costly litigation over the constitutionality of Louisiana’s dizzyingly complex state and local sales tax systems, and would bring in much-needed state and local sales tax revenues on an efficient basis that is user-friendly for the tax collectors and their “deputy tax collectors” (i.e., remoted sellers).

Now that H.B. 547 is baked (half-baked?), what tasty treats does it contain? First, H.B. 547 fixes the effective date snafu in Act 5 by providing that H.B. 547 and Act 5 are effective for tax periods beginning July 1, 2019. This essentially means that the legislature has finally breathed life into the Commission, which will soon be fully effective and able to carry out its mission. Second, the Commission now has authority to be the single collector of state and local sales taxes for “remote sellers,” as narrowly defined in H.B. 547. Third, until the Commission fully establishes the central collection system for “remote sellers,” H.B. 547 allows “remote sellers” to temporarily use the state direct marketers return (the “DMR”) as provided in La. R.S. 47:302(K), which provides for a flat 8.45% rate to cover both state and local sales taxes.

Now, to the holes.

Much like the boxes of donuts pictured, H.B. 547 is full of holes. For example, H.B. 547 fails to address online marketplace sales. Marketplace facilitators provide an online marketplace for the sale of items by third parties. Louisiana sales tax laws presently are unclear, at best, regarding sales tax collection and remittance responsibilities for online marketplace sales, making Louisiana’s already mind-numbingly complex state and local sales tax systems even more complex. A Louisiana court of appeals recently “addressed” marketplace facilitators in Normand v. Wal-Mart.com USA, LLC, 18-211 (La. App. 5 Cir. 12/27/18); 263 So. 3d 974. This case is on appeal to the Louisiana Supreme Court and likely will be decided later in 2019. A complete discussion of the Wal-Mart.com case is beyond the scope of this article. Suffice it to say that the Louisiana Legislature missed a timely opportunity to thoughtfully and deliberatively address online marketplace sales though the legislative process on a prospective basis via H.B. 547. Language found its way into the bill but was unceremoniously stripped out in the legislative process.

Perhaps the largest hole in H.B. 547 is another opportunity missed by the legislature. H.B. 547 provides more specific definitions of “remote sales” and “remote sellers.” But the new definitions are so narrow that very few “online businesses” will qualify for the new remote sellers’ central collection process administered by the Commission. The problem arises because of the reference in the definition of “remote seller” to the definition of “dealer” in La. R.S. 47:301(4)(a) through (l). Reading these provisions together, the scope of “remote seller” that can benefit from the central collection system is very small. Indeed, sellers that engage in the regular solicitation of a consumer market in Louisiana through any type of advertising or media can potentially be required to collect state and local sales taxes in Louisiana, but will not qualify as “remote sellers” that are allowed to use the Commission’s central filing system. Consequently, even sellers lacking any physical presence in Louisiana could be required to file sales tax returns with the state and every independent, local taxing jurisdiction in Louisiana. This begs the question: Has Louisiana made any meaningful headway in the post-Wayfair world?

The picture provides a great illustration of one of the shortcomings of H.B. 547. In order to bring Louisiana’s complex state and local sales tax systems more in line with the Wayfair criteria, avoid unnecessary litigation and related costs over the constitutionality of Louisiana’s system, ease the undue burden on the “deputy tax collectors” of the state and local tax administrators, and more quickly start the flow of much-needed revenues to the state and local tax recipient bodies at little or no additional costs, the Louisiana Legislature missed the opportunity to draft legislation that would have a scope as broad as the outer diameter of the donut in the picture above. Instead, the Louisiana Legislature focused on the diameter of the hole in the middle of the donut (or even smaller) when defining “remote sale” and “remote seller.”

Unless things change over the next year through the work of the Commission and further efforts by the Louisiana Legislature to broaden the scope of central collection of state and local sales taxes, and to address online marketplace transactions, all on a specific, non-speculative, and prospective basis, few “remote sellers” will be able to use the Commission’s central collection system. Confusion and undue burden will continue for both businesses and tax administrators. Needed revenues will not flow to the local tax recipient bodies. And litigation over the constitutionality of the discriminatory, complex state and local sales tax systems will undoubtedly follow, with the related time and costs. In other words, if Louisiana aims low and seeks to perpetuate the undeniable complexity and undue burden on interstate commerce caused by the current systems in Louisiana and force the systems into the hole of the donuts, the state, local governmental tax recipient bodies, and businesses will suffer. Louisiana will continue to be at the bottom.

With meaningful collaboration among all stakeholders, however, the Commission and the Louisiana Legislature can aim high, make Louisiana’s system as close as possible to a non-discriminatory, constitutional sales tax system envisioned by the U.S. Supreme Court in Wayfair, and move Louisiana out of the cellar when it comes to complex state and local sales tax systems. Aim for the outer diameter of the donut hole, not the inside. Everyone will enjoy the tasty treats of such a system.

Bill Backstrom presents on Intercompany Transactions at COST Spring Audit and Income Tax Conference

SALT Team member, Bill Backstrom, recently co-presented “Intercompany Transactions – State Challenges” at the COST Spring Audit and Income Tax Conference in Denver, Colorado.

The presentation focused on transactions between related parties and how they attract the attention of state taxing authorities. Tax authorities believe that such transactions provide opportunities for the “redistribution” of income. But supply chains and service companies are a common part of a corporate family.

The speakers discussed several weapons that states use to challenge intercompany transactions such as addbacks, throwbacks and throwouts, as well as transfer pricing studies. The speakers also discussed if the state has the authority to use these weapons and what the taxpayer’s best arguments are against their application.

Louisiana’s Uniform Local Sales Tax Board Issues Adopted Regulation Regarding Uniform Voluntary Disclosure Program and Related Voluntary Disclosure Agreements (VDAs)

Louisiana’s Uniform Local Sales Tax Board (“ULSTB”) has now issued its adopted regulation at Louisiana Administrative Code (“LAC”) 72:I.105 (“Voluntary Disclosure Agreements”) regarding a uniform voluntary disclosure program and corresponding uniform voluntary disclosure agreement (VDA) for Louisiana local sales and use tax purposes.  The final, adopted regulation contains the same language as the prior proposed regulation that was issued by the ULSTB on November 29, 2018.

A copy of the adopted regulation can be found here (March 2019 Louisiana Register – see p. 440):

https://www.doa.la.gov/osr/REG/1903/1903.pdf

As required by statute (see La. R.S. 47:337.102(F)), the ULSTB has promulgated this regulation to establish a uniform voluntary disclosure program and corresponding VDA for taxpayers seeking relief from penalties in cases where a liability to more than one local sales and use tax collector is owed.

Taxpayers may apply for a VDA with the ULSTB anonymously, if they wish.

Pursuant to the adopted regulation, an undisclosed liability will qualify for a VDA if it results from the underpayment or non-payment of sales tax due to an error in the:

  1. mathematical computation of the tax due on the return;
  2. interpretation of the law; or
  3. process of reporting the tax due on the return.
  4. An undisclosed liability also qualifies if it resulted from the merger or acquisition of a company that previously failed to properly report sales and use taxes to a collector.

An “error in the mathematical computation of the tax due on the return” is an error on the part of the taxpayer in mathematical computation on the face of the return or on any of the supporting documents or the unintentional failure to include all amounts necessary for calculating the correct amount of taxes due on the return.

An “error in the interpretation of the law” is a construction of the law on the part of the taxpayer contrary to the collector’s construction of the law that caused the applicant to incorrectly determine that no tax or a smaller amount of tax was due.

An “error in the process of reporting the tax due on the return” is an error, omission, or a mistake of fact of consequence to the determination of the tax liability on the part of the taxpayer.

However, pursuant to the regulation, an applicant shall be considered to fail to comply with the requirements for a VDA under any the following conditions:

  1. The applicant is registered as a dealer that is required to report retail sales or sales at retail, as defined in R.S. 47:301(10), to the collector on the application date and the undisclosed liability results from the applicant’s failure to file returns for a local sales tax.
  2. The undisclosed liability results from the filing of false, fraudulent, or grossly incorrect returns and the circumstances indicate that the taxpayer had intent to defraud the local taxing authority of the tax due under a local ordinance or the Uniform Local Sales Use Tax Code (the “ULSTC”) (La. R.S. 47:337.1, et seq.).
  3. The applicant has been contacted by the collector to inquire about a tax matter, including but not limited to nexus, a potential tax liability or an audit of the taxpayer’s records provided such contact occurred in writing and prior to the application date of the agreement.
  4. The applicant is affiliated, as defined by law, with an entity that has been contacted by the collector for the purpose of performing an audit. However, an applicant shall be considered in compliance with the requirements of the voluntary disclosure program after the audit of the affiliated entity has been completed, provided the undisclosed liability otherwise qualifies for the VDA (as described above) and the applicant does not otherwise fail to qualify for the VDA (as described in the bullets immediately above).

The adopted regulation also provides additional detailed information regarding:

  • the VDA Application and the ULSTB’s evaluation of offer to enter into a VDA.
  • the determination of the applicable “look-back period” and treatment of periods prior to the look-back period.
  • post-approval procedures and conditions.
  • the procedure for payment of the tax, interest, and penalty due (however, under the adopted regulation, once full payment of tax and interest has been received, the collector shall waive any delinquent penalty due).

As part of this VDA program, the ULSTB has also set up a separate online “Agreement for Voluntary Disclosure of Local Sales and Use Taxes,” which can be found here:

https://lulstb.com/agreement-for-voluntary-disclosure-of-local-sales-and-use-taxes/

This online form Agreement can be completed by the taxpayer and submitted online to the ULSTB for review and distribution to the relevant local sales/use tax collectors.

 

 

 

Jay Adams’ Team Fleur De Que Named Top Fundraising Team at Annual Hogs for the Cause BBQ Competition

Team Fleur De Que was once again named the Top Fundraising Team at the Annual Hogs for the Cause barbecue festival and competition. Jones Walker SALT Team leader, Jay Adams, has been a proud member of Team Fleur De Que for several years and helps his team raise money to contribute to the needs of families with children fighting pediatric brain cancer.

Our SALT Team has always paired good food with important information. Hogs for the Cause goes beyond and has provided amazing food from the people across Louisiana to ensure families have the resources they need during their most difficult times.

– Jay Adams

Please click here to learn more about Hogs for the Cause and how you can help.

John Fletcher presents on “Hot Topics – East of the Mississippi”

Jones Walker SALT Team member John Fletcher recently presented at the Council on State Taxation’s Sales Tax Symposium in Atlanta, Georgia. John’s panel, “Hot Topics – East of the Mississippi” covered litigation and legislative issues for companies with extensive operations east of the Mississippi River. Topics included the controversial recent trend by states to impose sales taxes on “marketplace facilitators” such as Ebay, Craigslist, Amazon, Facebook Marketplace, etc. (potentially converting non-taxable person-to-person sales into fully taxable commercial transactions) as well as developments related to and concerns over the constitutionality of various aspects of Louisiana’s local sales tax system. For more information on these issues, be sure to reach out to John or another Jones Walker SALT Team member.

Jay Adams presents at IPT Sales Tax I School

Jay Adams was an instructor at the IPT Sales Tax I School in Atlanta, Georgia where he presented to over 200 attendees on recognizing the hierarchy of laws, understanding the consequences of specific decisions when working with the Department of Revenue and ways to resolve disputes, and identifying the four prongs of the commerce clause and the case. For more information on IPT programming, please click here.

Bill Backstrom Presents at National Multistate Tax Symposium

Bill Backstrom recently spoke at the 2019 National Multistate Tax Symposium in Orlando, Florida presented by Deloitte Tax LLP and the Florida Bar.

Bill’s first panel, ‘State Tax Reboot: The Age of Multistate”, helped decipher what the recent sweeping tax law changes may mean from a practical perspective for businesses navigating this new age of Multistate taxation. The panel provided summary thoughts on the Constitutional and federal tax law changes, and the plethora of resulting state tax administrative and legislative actions and reactions. The panel also provided their insights on how they prioritize the issues, predictions on how the states will move forward, the challenges that businesses are facing from tax compliance and systems solutions perspectives, and potential planning and restructuring considerations.

Bill’s second panel, “Challenging State Sales Tax Regimes” examined how states are implementing their sales and use tax regimes in this context—including tax collection and remittance for remote sellers, online marketplaces, and referrers—and how businesses may proactively apprise state taxing authorities about the uniformity and fairness issues at play.

Louisiana Remote Seller Commission Issues Second Information Bulletin – RSIB 18-002 – Addressing Definition of “Remote Seller” and Further Guidance to Remote Sellers

The Louisiana Sales and Use Tax Commission for Remote Sellers (the “Commission”) has now officially issued its second information bulletin – Remote Sellers Information Bulletin (“RSIB”) 18-002 – which provides a general definition for “remote sellers,” as well as further administrative guidance regarding current and future registration, collection, remittance, and reporting requirements for “remote sellers.”  The Commission issued this final version of the RSIB following lengthy Commission discussions over several weeks and multiple extensions regarding the timing of the Commission’s vote on the RSIB (with an ultimate 6-2 vote in favor of adoption).

A copy of RSIB 18-002 can be found here.

A few items to note regarding RSIB 18-002 are:

Remote Seller Definition

  • The RSIB provides a general definition of “remote seller” – i.e., those sellers who would be able to use a single, centralized return instead of being required to file returns separately in each local jurisdiction in Louisiana.
  • There is an important distinction in Louisiana between (1) the group of sellers/vendors who have statutory nexus with the State of Louisiana and are statutorily required to collect and remit Louisiana sales taxes because they meet the definition of a “dealer,” and (2) the smaller subgroup of those “dealers” (sellers with statutory nexus) who would also meet the separate definition of “remote seller” and would thus be allowed to utilize one centralized state and local sales tax return (instead of multiple local returns) for reporting purposes.
  • The RSIB provides that a “remote seller” means “a seller who sells for sale at retail, use, consumption, distribution, or for storage to be used for consumption or distribution any taxable tangible personal property, products transferred electronically, or services for delivery within Louisiana but does not have physical presence in Louisiana.”  According to the RSIB, “[i]f a seller has physical presence in Louisiana, the seller is considered a dealer as defined by LA R.S. 47:301(4) and subject to state and local collection and remittance requirements.”
  • The RSIB also includes two examples of “remote sellers.”  Based on the in-depth discussions at the Commission’s December 18, 2018 meeting, it is understood these examples are to be illustrative and not exhaustive.
  • The first example (Example 1) provides that “Company A sells tangible personal property for delivery to purchasers in Louisiana through only remote means through its Internet website, catalogs, telephone, television shopping channel, or other communication systems … [and] Company A has no physical stores, inventory, or salespersons in Louisiana.”
  • The second example (Example 2) provides:  “Company B sells tangible personal property for delivery to purchasers in Louisiana through only remote means through its Internet website, catalogs, telephone, television shopping channel, or other communication systems. Company B is an affiliate of Company C, but each company may sell different lines of products. Company C has retail stores located in Louisiana. An online purchase from Company B cannot be returned or exchanged in one of Company C’s stores in Louisiana. Company B is a remote seller but Company C is not a remote seller.”
  • Also, importantly, following much discussion and public comment, the Commission voted that the final issued version of the RSIB would not include an additional previously-drafted example of what was “not a remote seller,” because that additional example (if kept) would have inadvertently had the effect of precluding certain classes of sellers/taxpayers with “affiliate nexus” in the State from using a single, central return (be it the current Direct Marketer Return or the Commission’s forthcoming centralized return when completed).  Specifically, the final example (now removed) would have in effect seemingly excluded from the definition of “remote seller” a seller that had a separate affiliate entity with retail stores in Louisiana if an online purchase from the seller can be returned at the separate affiliate entity’s retail store location for a refund, credit, or gift card.  Louisiana sales tax law – La. R.S. 47:302(V) – currently allows these exact types of sellers to file the single, centralized Direct Marketer Return.  Rather than being allowed to use the single Direct Marketer Return (allowed now) or the Commission’s forthcoming single return (when completed), these excluded sellers would have been required to file directly with the State and every local jurisdiction in which they make sales (up to 63 additional separate parish returns per month, or 750+ additional parish returns per year).  The Commission ultimately decided to remove this additional draft example of a “non-remote seller” because the Commission did not want to narrow the class of sellers that could use some form of centralized return more than what is even allowed under current Louisiana law.  The Commission also did not want to inadvertently add even more complexity and higher undue burdens from a Commerce Clause perspective (as cautioned against by the U.S. Supreme Court recently in Wayfair).  The Commission also did not seem to want to inadvertently provide a more expansive view of “physical presence” than is even provided for under the current Louisiana sales tax jurisprudence in the prior BarnesAndNoble.com case.  The Court in BarnesAndNoble.com expressly held that those activities noted in the final example (now removed) did not amount to “physical presence” in Louisiana.  Based on the Commission’s meeting discussions, the goal of the Commission’s efforts with the definition of “remote seller” in the RSIB was for the “remote seller” status to be determined on an individual entity basis, without adding in additional “affiliate nexus” concepts.  The Jones Walker SALT Team had provided public comments to the Commission regarding this specific issue.

Current Voluntary Nature of These Collection and Remittance Provisions

  • The RSIB seeks to again clarify that the collection and remittance provisions in the RSIB are currently voluntary, and are not yet mandatory, as the implementing legislative Act – Act 5 of the 2018 Second Extraordinary Session – is not yet “applicable” and cannot be until additional legislative actions occur in the upcoming 2019 Regular Session of the Legislature.
  • The RSIB anticipates that the collection and remittance provisions will become mandatory at “a date to be determined sometime in 2019.”
  • Remote sellers can expect at least thirty days’ notice prior to the commencement of mandatory collection and remittance requirements.  Notice will be issued as provided by LA R.S. 47:302(W)(6) following further work of the Commission and the LDR.

Remote Sellers’ Collection and Remittance Requirements (and Information Reporting Requirements)

  • The RSIB provides that a remote seller with the requisite “economic nexus” – gross revenue for sales delivered into Louisiana in excess of $100,000 from sales or separate transactions of 200 or more sold for delivery into Louisiana – should voluntarily apply to begin filing a Direct Marketer Return with the Louisiana Department of Revenue (the “LDR”).  Upon approval, the remote seller could immediately begin voluntary collection of sales tax on its remote sales for delivery within Louisiana.
  • The Direct Marketer Return allows the seller to collect Louisiana state and local sales tax at a flat combined rate (currently 8.45%) and remit such tax on one, centralized monthly return.
  • Any remote seller who does not meet these aforementioned “economic nexus” thresholds, but who has cumulative annual gross receipts in excess of $50,000 per calendar (including those gross receipts of its affiliates) year must comply with Louisiana separate DMA-style information reporting requirements in La. R.S. 47:309.1 as a “remote retailer.”  For purposes of calculating these gross receipts, the seller and its affiliates must include all receipts from retail sales of tangible personal property or taxable services where the property is delivered into Louisiana or the beneficial use of the service occurs in Louisiana. The RSIB directs sellers to LDR Revenue Information Bulletin 18-006 for more information.  If the seller chooses to voluntarily collect and remit on its sales for delivery into Louisiana, the seller is relieved from the reporting requirements of La. R.S. 47:309.1 beginning on the date of collection.  However, the portion of the calendar year preceding the date of collection would remain subject to the State’s information reporting requirements.

Calculation of Applicable Economic Nexus Thresholds

  • The RSIB further explains the Commission’s understanding of the way in which a seller should calculate its sales and individual transactions when determining whether the seller has met the State’s “economic nexus” thresholds in La. R.S. 47:301(4)(m)(i) (i.e., (1) gross revenue for sales delivered into Louisiana in excess of $100,000 from sales, or (2) separate transactions of 200 or more sold for delivery into Louisiana).
  • According to the RSIB, to calculate the amount and quantity of sales, remote sellers should consider sales during the current calendar year and the immediately preceding calendar year. For example, if a remote seller sold $120,000 of tangible personal property in 1,000 separate transactions for delivery into Louisiana during 2018, the remote seller should voluntarily collect and remit sales tax in 2019.

Timeline of Registration

  • According to the RSIB, if a remote seller has not previously registered with the LDR, the remote seller should submit the Form R-1031A within thirty days of surpassing either of the “economic nexus” thresholds in La. R.S. 47:301(4)(m)(i).  Assuming the application is approved by LDR, the remote seller should commence collection of sales and use tax on sales for delivery into Louisiana no later than ninety days from the date the remote seller surpassed either of the thresholds of LA R.S. 47:301(4)(m)(i). If the application is not approved, the applicant should adhere to the instructions set forth in the notice from LDR.

A more detailed review and analysis regarding the Commission’s recent activities, discussions, and actions will be forthcoming in a separate blog post.

The Jones Walker SALT Team will also continue to closely follow – and report on – the future activities of the Commission and the Legislature (and any related developments) as they occur.

LexBlog