Most people don’t know, but Louisiana has started charging sales tax on online purchases. The passage of this bill really flew below the public’s radar, but there’s now an online brochure that describes the law in brief. The Louisiana Department of Revenue (hereinafter LDR) has dubbed this a “consumer use tax.” That means you do the consuming and they do the using; either way it sounds rather taxing.
The LDR’s headline states that: “online” doesn’t mean “tax free.” Since you’ve likely never heard of this provision, we’ll quote the brochure in some detail:
“Louisiana’s Consumer Use Tax protects Louisiana businesses from unfair out-of-state competition. When out-of-state retailers don’t collect sales tax, they enjoy an unfair edge over local businesses.
The Consumer Use Tax helps to ensure adequate funding for schools, public safety, healthcare, and other services upon which Louisiana residents rely. The Consumer Use Tax applies to retail purchases from companies with no physical presence in Louisiana such as online retailers, mail order catalogues, and TV shopping networks.”
The term “physical presence” is the key to the Louisiana statute’s legality. In 1992, the Supreme Court ruled in Quill Corp. v. North Dakota, that a state could not require a company without a physical presence therein to collect sales tax. That case focused on mail-order companies and has been extended to online vendors. Thus, while the LDR can require, for example, Coldwater Creek or Barnes & Noble to file sales tax returns, they cannot do likewise in regard to Amazon or L.L. Bean.
The taxable items include things that many of us have bought from an online merchant: books, clothing, computers, DVDs and CDs, electronics, furniture, music and movie downloads, software and tobaccos products. That last item provides additional incentive to stop smoking, but it’s unlikely that the LDR had that in mind when this laundry list was devised. The “R” stands for “revenue,” after all.
Here’s the bottom line as to what you are expected to pay: Louisianians who make online purchases are supposed to file a form and pay the 8% “consumer use” tax, which is divided equally between the state and your parish. That constitutes a break for consumers in parishes such as East Baton Rouge and Orleans that levy a 5% local tax. It’s unlikely that this small break will make you feel better about filling out more tax forms, but 1% can add up.
There are, however, items bought online that are exempt from sales tax. Most are items not subject to tax in brick and mortar stores: food, real estate, prescription medication, essentially most medical related items.
Now that we’ve covered what is taxable and what is not, let’s discuss why the Louisiana Legislature decided to pass such a law. We know that consumers aren’t dancing in the streets to celebrate the law, so who likes it? That’s an easy one: the law seeks to protect Louisiana businesses that compete with online merchants. Merchants who sell cameras, books, music and the like believe that the ability to sell tax-free gave online vendors an unfair competitive advantage.
The LDR’s headline states that: “online” doesn’t mean “tax free.” Since you’ve likely never heard of this provision, we’ll quote the brochure in some detail:
“Louisiana’s Consumer Use Tax protects Louisiana businesses from unfair out-of-state competition. When out-of-state retailers don’t collect sales tax, they enjoy an unfair edge over local businesses.
The Consumer Use Tax helps to ensure adequate funding for schools, public safety, healthcare, and other services upon which Louisiana residents rely. The Consumer Use Tax applies to retail purchases from companies with no physical presence in Louisiana such as online retailers, mail order catalogues, and TV shopping networks.”
The term “physical presence” is the key to the Louisiana statute’s legality. In 1992, the Supreme Court ruled in Quill Corp. v. North Dakota, that a state could not require a company without a physical presence therein to collect sales tax. That case focused on mail-order companies and has been extended to online vendors. Thus, while the LDR can require, for example, Coldwater Creek or Barnes & Noble to file sales tax returns, they cannot do likewise in regard to Amazon or L.L. Bean.
The taxable items include things that many of us have bought from an online merchant: books, clothing, computers, DVDs and CDs, electronics, furniture, music and movie downloads, software and tobaccos products. That last item provides additional incentive to stop smoking, but it’s unlikely that the LDR had that in mind when this laundry list was devised. The “R” stands for “revenue,” after all.
Here’s the bottom line as to what you are expected to pay: Louisianians who make online purchases are supposed to file a form and pay the 8% “consumer use” tax, which is divided equally between the state and your parish. That constitutes a break for consumers in parishes such as East Baton Rouge and Orleans that levy a 5% local tax. It’s unlikely that this small break will make you feel better about filling out more tax forms, but 1% can add up.
There are, however, items bought online that are exempt from sales tax. Most are items not subject to tax in brick and mortar stores: food, real estate, prescription medication, essentially most medical related items.
Now that we’ve covered what is taxable and what is not, let’s discuss why the Louisiana Legislature decided to pass such a law. We know that consumers aren’t dancing in the streets to celebrate the law, so who likes it? That’s an easy one: the law seeks to protect Louisiana businesses that compete with online merchants. Merchants who sell cameras, books, music and the like believe that the ability to sell tax-free gave online vendors an unfair competitive advantage.
This competitive disadvantage is of great concern to many Louisiana merchants:
For the past several years, with the growth of online commerce, David Guidry has seen customers come into his stores, look over his merchandise and take advantage of his well-trained staff to help them make an informed purchasing decision.
Then, they go online to purchase it from on out-of-state retailer that does not collect or remit sales tax.
“The sales/use tax inequity is the single biggest impediment to the growth and sustainability of my company,” said Guidry, owner of Lakeside Camera in Metairie and Mandeville.
Helping state businesses is certainly a praiseworthy goal, but the law appears to be unenforceable. It’s the responsibility of buyers to voluntarily report online purchases to the LDR. But who knows about the law? Other than the online brochure, the state doesn’t seem to have publicized this provision in a memorable or substantial way. Voluntary compliance isn’t possible without public knowledge.
You’ve surely heard the ancient legal term: caveat emptor. It means, “Let the buyer beware.” It’s certainly applicable to the “consumer use tax.” Buyers seem to be unaware, which means that they’re unlikely to file, even though most people are honest and play by the rules. But it’s hard to be law abiding when you’ve never heard of a law.
SOURCES:
http://www.nolo.com/legal-encyclopedia/louisiana-internet-sales-tax.html
http://neworleanscitybusiness.com/blog/2011/05/26/it%E2%80%99s-time-to-capture-online-sales- taxes/
h”p://www.revenue.louisiana.gov/forms/taxforms/540CU-‐NR%2810_11%29F.pdf
http://taxfoundation.org/article/louisiana-considers-adopting-amazon-tax-out-state-online-sellers
