IMG_5444Originally published by Tax Law360.

Taxation by states of out-of-state online retail sales remains a hotly contested issue.  Louisiana is now part of that national sales tax nexus conversation.

In March of 2016, during a special legislative session called by new Louisiana Governor John Bel Edwards (D) to address the State’s current budget shortfalls, the Louisiana Legislature passed House Bill 30 (signed into law as Act 22 and effective April 1, 2016), whereby certain out-of-state online retailers are now statutorily required to collect and remit Louisiana state and local sales and use taxes for online purchases made by Louisiana taxpayers. A question remains, however, as to the ultimate effect this new remote seller legislation will have on Louisiana’s budget issues and the overall movement nationwide to statutorily (or administratively) expand sales tax nexus.

[A] question does seem to present itself as to whether Louisiana has now become a new kind of bellwether state – an indicator of what may be the “new norm” among even the more conservative, mainstream state Legislatures, and a sign of what is to come across all the states.  Only time will tell whether Louisiana’s Act 22 is a new catalyst that sparks additional legislative activity across the country.

The longtime guiding backstop regarding the extent to which states can force out-of-state remote sellers to collect and remit state sales and use taxes is the “physical presence” substantial nexus standard in the U.S. Commerce Clause.  This physical presence standard was cemented in the U.S. Supreme Court’s ruling in Quill Corp v. North Dakota, 504 U.S. 298 (1992), to protect against state sales and use tax legislation that would improperly burden interstate commerce.  For more than two decades, the decision by the U.S. Supreme Court in Quill has served as the final word on the requirements regarding collection of sales and use taxes.  The seller must have an actual “physical presence” in a state for that state to require the seller to collect sales tax.

In the years following Quill, however, states have been increasingly trying to determine what degrees of “presence” are in fact sufficient to create this constitutional nexus between a seller and the state.  Such efforts by states have advanced in recent years as a result of the less-than-stable economic conditions within the country and the increasing popularity and convenience of online shopping (driving sales away from in-state brick and mortar stores to out-of-state online sellers).


Louisiana, like many U.S. states, is facing a daunting budget challenge. Over the past several years, a downturn in oil and gas prices and some sluggishness in other areas of the regional economy have led to a decline in state tax revenues. At the same time, the State’s share of the costs of mandated federal programs and other fiscal issues have created a stated need for increased spending.

As part of their development of a solution to these budget woes, lawmakers in Louisiana and around the country have been looking to, among other things, broaden their respective taxable bases, close perceived “tax loopholes,” and find ways to ensure better tax compliance within their current tax bases.  To that end, states are, among other things, increasing efforts to recapture lost sales tax revenues resulting from changing technologies, the expansion of the Internet, and the pervasiveness of online shopping.  Legislators have relied in part upon the often-cited reports by William F. Fox, Donald Bruce, and LeAnn Luna of the University of Tennessee, which attempt to quantify state and local sales tax revenue losses resulting from the development and expansion of e-commerce.  The authors claim, for example, that state and local governments possibly lost more than $56 billion over the six-year period ending in 2012.  While the actual numbers are currently being debated, many state legislators see online sales as a huge, untapped source of much-needed revenue without having to technically “increase taxes” or “expand the tax base” to previously untaxed transactions.

Louisiana is no exception.

Almost immediately following his inauguration on January 11, 2016, Governor Edwards called a special legislative session to focus on dramatic budget shortfalls for the fiscal years ending on June 30, 2016 (FY16), and June 30, 2017 (FY17).  According to stated projections, barring some form of action, the FY16 budget deficit was expected to be $700 million and the FY17 shortfall was estimated to reach $1.9 billion.  Part of the Governor’s package of revenue-raising bills was HB 30, which required the collection and remittance of state and local sales and use taxes by, among others, certain remote online vendors.  Although not outwardly advertised as a piece of legislation that “expanded the tax base” or “raised taxes,” the clear intent of the bill was to try to capture some of the lost tax revenue resulting from the advent and explosion of e-commerce.

HB 30 was actually an identical reiteration of a prior bill (HB 555) passed by the Legislature last year in the 2015 Regular Session, but which died on the prior Governor’s desk, being one of only a small handful of tax bills vetoed by then-Governor Bobby Jindal.  The stated basis for Governor Jindal’s veto was his concern that other states had failed to win court challenges against such a statutory expansion of sales tax nexus, and that doing so in Louisiana would expose the State “to extensive litigation that has budgetary implications for critical services like healthcare and higher education.”

What a difference a year makes.  Approximately eight months and one governor later, during the recent 2016 special session, HB 30 sailed through both the House and Senate and was quickly signed into law by Governor Edwards.

From a public relations perspective, assigning responsibility for the collection and remittance of state and local sales taxes to out-of-state, online retailers makes some sense.  As opposed to implementing tax increases that are likely to be perceived as directly harmful to Louisiana taxpayers (and while consciously ignoring a range of potentially negative trickle-down effects), shifting the burden of collecting such taxes to non-Louisiana entities allows legislators and the Governor to perform a delicate two-step in which non-remitting online retailers are now cast in the role of “violators” of the law, should they not comply.

These arguments, however, generally ignore the fact that Louisiana retail customers are already liable for payment of such taxes, whether they report and pay the statutorily required complementary use taxes when filing their annual state income tax returns, or otherwise submit the tax directly to the state and local sales and use tax collectors. That said, supporters of online remote seller tax legislation point out that many taxpayers are either unaware of this responsibility or simply refuse to comply (fully expecting that the states have neither the resources nor the wherewithal to track down individuals who fail to report and pay these taxes).


In an attempt to expand the boundaries of “physical presence” under Quill, and following in the footsteps of such states as California and New York, Act 22 expands Louisiana’s remote seller nexus for out-of-state vendors (including online retailers) with certain business activities in the State.  Specifically, Act 22 creates new collection and remittance requirements on certain additional remote sellers by expanding the applicable statutory definition of “dealer.”  The following additional activities now qualify a remote seller as a “dealer” and thereby create statutory nexus between the seller and the State for state and local sales and use tax purposes:

  • Click-through nexus (Amazon law):  Solicitation of business through agreements with independent contractors or other representatives who are Louisiana residents, where the resident refers potential customers (by link on an Internet website or otherwise) to the seller for a referral fee or some other form of consideration, and where the gross receipts generated from such business are in excess of $50,000 during the prior twelve months.
  • IP nexus:  Selling the same or a substantially similar line of products as a Louisiana retailer under the same or substantially similar business name, using trademarks, service marks, or trade names that are the same or substantially similar to those used by the Louisiana retailer.
  • Affiliate nexus:  Soliciting business and developing and maintaining a market in Louisiana through an agent, salesman, independent contractor, solicitor, or other representative under an agreement with a Louisiana “affiliated agent” (a resident or business) where the affiliated agent, for a commission, referral fee, or other consideration, engages in activities that inure to the benefit of the remote seller to help develop business or maintain a market for the remote seller’s goods or services in the State, as long as those activities of the agent are sufficient to satisfy the sales tax nexus requirements of the U.S. Constitution.
  • “Substantial ownership interest” nexus:  Holding a substantial ownership interest, directly or through a subsidiary, in (or being substantially owned by) a retailer with sales locations in Louisiana.  “Substantial ownership interest” is defined to mean affiliated entities where there is an ownership interest of more than 5%, whether direct or indirect, in the other entity.

Those qualifying remote sellers would now be required to collect and remit Louisiana state and local sales and use taxes on their remote sales into Louisiana.  Such remote sellers would use a flat local sales and use tax rate of 4%, along with the applicable state sales and use tax rate (currently 5%).  Act 22 is applicable to all tax periods beginning on or after April 1, 2016.


Far from resolving the issues surrounding state taxation of online sales, however, the Legislature’s implementation of Act 22 now sets the stage for a likely confrontation with online retailers and other out-of-state entities that are now considered “dealers” in Louisiana.  Not unexpectedly, many out-of-state sellers disagree strongly with Act 22.  Some are simply pulling back from any of these new “trigger” activities in Louisiana.  For example, has already ended its advertising relationships with Louisiana affiliates and online sellers that had been established through its Amazon Associates Program.  Such Louisiana affiliates will no longer be able to earn ad revenue from Amazon.

Additionally, passage of Act 22 will almost certainly lead to constitutional challenges from out-of-state taxpayers that believe the Legislature’s actions go beyond the current scope of Commerce Clause “physical presence” substantial nexus under Quill.  Barring any legislative action at the federal level, which has yet to gain significant traction, such constitutional challenges will likely be settled only in court.  As a result, state officials and business taxpayers are already gearing up for the fights to come.

Also, from a compliance perspective, the April 1, 2016 effective date of Act 22 imposed a heavy burden on many out-of-state sellers who previously had no Louisiana sales tax registration requirements.  Within the span of only a couple of weeks, these out-of-state sellers were required to determine whether they now had statutory nexus with Louisiana under one of the new categories, register for sales tax purposes in the State, and adjust their point of sale systems and internal processes so as to be able to properly collect and remit Louisiana state and local taxes on any transactions to Louisiana purchasers.  All of this, of course, also assumes that the out-of-state sellers became immediately aware of the enactment of Act 22 and the resulting statutory nexus changes.


When it comes to its tax laws — or legislation in almost any arena, for that matter — Louisiana is not generally known as an innovator among states. Typically, Louisiana legislators wait to see how issues and debates play out in other jurisdictions before taking action at home.  With the passage of Act 22, however, the Louisiana Legislature leaped somewhat into the spotlight of the online sales and use tax debate.  Louisiana is now among a minority of U.S. states that have passed this type of legislation, most of which rely on creative means of pushing the boundaries of (and in some cases circumventing) the “physical presence” substantial nexus standard laid out in Quill.

While it is clear that Louisiana is not a unique groundbreaker in this area of remote seller nexus legislation (other states already had similar legislation, and roughly 30% of the country’s state tax departments believe the types of activities in Act 22 create nexus for sales tax purposes), a question does seem to present itself as to whether Louisiana has now become a new kind of bellwether state – an indicator of what may be the “new norm” among even the more conservative, mainstream state Legislatures, and a sign of what is to come across all the states.  Only time will tell whether Louisiana’s Act 22 is a new catalyst that sparks additional legislative activity across the country.

What is clear, however, is that such legislative actions will continue to be strongly challenged by out-of-state taxpayers who believe these types of statutory nexus provisions go too far, violating taxpayers’ Commerce Clause protections under the “physical presence” standard articulated by the U.S. Supreme Court in Quill.