When the United States Supreme Court decided South Dakota v. Wayfair (“Wayfair”) in June 2018 the majority of the justices overturned precedent that restricted a state’s ability to require out-of-state sellers to collect sales tax from in-state customers. The ruling made clear that the structure of South Dakota’s law mattered in their decision to overturn precedent. Specifically, South Dakota’s law set thresholds to protect small sellers, the law applied prospectively, and South Dakota is a member of the Streamlined Sales Tax Project, a multi-state effort to simplify sales and use tax laws and collection. State laws that deviate from the model set by South Dakota were at risk of being challenged as unconstitutional.
Louisiana’s sales and use tax system is notorious for its complexity. Each parish in the state collects and enforces its own sales tax. Parish tax law can even deviate from the state’s tax law. Recognizing that their tax system might not pass muster if challenged in court, but also desiring additional tax revenue, the state legislature created the Sales and Use Tax Commission for Remote Sellers (“Commission”) in an attempt to simplify sales tax compliance for remote sellers. The Commission is the single authority to collect and enforce state and parish tax laws for remote sellers. However, this new system still permits differences between state and parish laws.
While the Commission greatly simplifies Louisiana’s sales tax system, a remote seller is challenging the constitutionality of the system. Halstead Bead, Inc., located in Arizona, has sued Louisiana’s Revenue Secretary in the U.S. District Court for the Eastern District of Louisiana challenging the complexities of Louisiana’s sales tax system. If successful, Halstead’s challenge to Louisiana’s tax system could require significant changes in the tax structures of other states with complex local tax systems, including Alabama, Colorado and Alaska. It’s safe to say that retailers in general would cheer mightily in the elimination of these local tax regimes should Halstead be successful in its case.
By Nic Schatte