As word spread about the Supreme Court’s opinion in South Dakota v. Wayfair, Inc., Dkt. No. 17-494, 485 U.S.        (June 21, 2018), tax administrators around the country popped open bottles of champagne and began toasting the end of the “physical presence” substantial nexus standard.  The sounds of celebration were, at least initially, particularly deafening in Louisiana, with its sixty-three (63) autonomous parish taxing jurisdictions that levy, administer and collect local sales and use tax on behalf of numerous cities, towns, districts and other local jurisdictions.  Remote sellers might have considered downing a drink or two to drown their sorrows at the thought of potentially having to navigate the complex systems of state and local sales taxes in Louisiana.

As tax administrators continued to read the Wayfair opinion, however, a sobering reality began to set in that, at least in the short term, Louisiana’s various taxing jurisdictions are in no better position to force remote sellers to collect and remit state and local sales taxes than they were before the Wayfair decision (and perhaps even a worse one).

The New Constitutional “Statutory Nexus” Test Under Wayfair

In the post-Wayfair world, gone is the “physical presence” rule of Quill and Bellas Hess for purposes of determining whether a state can force a remote seller with no physical presence in a state or a locality to collect and remit sales taxes.  In its place, the Court has re-inserted a more amorphous substantial nexus test. According to the Court, in the absence of Quill and Bellas Hess, the first prong of the Complete Auto test simply asks whether the tax applies to an activity with a “substantial nexus” with the taxing jurisdiction, with such nexus established when the taxpayer or vendor “avails itself of the substantial privilege of carrying on business in that jurisdiction.”  The Court concluded that nexus was sufficient in the Wayfair case based on both the “economic and virtual contacts” (an “extensive virtual presence”) the remote seller had with the taxing jurisdiction, and the fact that South Dakota’s applicable nexus statute only applies to sellers that deliver more than $100,000 of goods or services into the taxing jurisdiction or engage in 200 or more separate transactions for the delivery of goods and services into the taxing jurisdiction on an annual basis.

Importantly, however, especially for Louisiana, the Court in Wayfair also explained that complex state and local sales tax systems could have the effect of unduly burdening or discriminating against interstate commerce, notwithstanding the issue of nexus.  In eschewing physical presence as a gatekeeper nexus text, the Court was careful to remind everyone that other Commerce Clause principles can invalidate a state or locality’s sales tax scheme – specifically, taxing jurisdictions may not impose undue burdens on interstate commerce and may not discriminate against interstate commerce.

In remanding the Wayfair case for further proceedings, the Court questioned whether some other principle in the Court’s Commerce Clause doctrine that had not yet been litigated or briefed might invalidate the South Dakota law.  The Court, however, specifically noted that South Dakota’s tax system includes several “features” that appear designed to prevent discrimination against or undue burdens upon interstate commerce:

First, the Act applies a safe harbor to those who transact only limited business in South Dakota. Second, the Act insures that no obligation to remit the sales tax maybe applied retroactively. S.D. 106, §5. Third, South Dakota is one of more than 20 States that have adopted the Streamlined Sales and Use Tax Agreement. This system standardizes taxes to produce administrative and compliance costs: it requires a single, state level tax administration, uniform definitions of products and services, simplified tax rate structures, and other uniform rules. It also provides sellers access to sales tax administration software paid for by the State.

Wayfair at p. 23.

The Court, therefore, clearly provided a road map for designing state and local sales tax systems that would appear not to tread on the Commerce Clause.

Louisiana Has None of the Wayfair Court’s “Features” to Prevent Undue Burdens Upon, or Discrimination Against, Interstate Commerce

As explained below, Louisiana’s state and local sales tax systems have none of these features.  In fact, Louisiana’s combined state and local tax systems could be considered the “poster child” of the complex state and local tax systems that the Court warned would create an undue burden upon and discriminate against interstate commerce.

What Does Wayfair Mean for Louisiana’s State and Local Sales Tax Systems and Retailers Selling to Louisiana Consumers?

Applying Wayfair to Louisiana’s complex state and local sales tax systems leaves little doubt that Louisiana’s state and local tax systems are lacking on all fronts.

Question:  Do Louisiana’s state and local sales tax systems have minimum annualized thresholds of sales amounts and/or number of sales?

Answer:  At the moment, they do not.

Currently, neither Louisiana’s state sales tax system nor any of the 63 parish sales tax systems in Louisiana has applicable safe harbor factor presence nexus thresholds (i.e., $100,000 of sales or 200 separate transactions).  In Act 5 of the Second Extraordinary Session of 2018, the Louisiana legislature enacted a law with an expanded definition of “dealer” to include:

Any person who sells for delivery into Louisiana tangible personal property, products transferred electronically, or services, and who does not have a physical presence in Louisiana, if during the previous or current calendar year either of the following criteria was met: …

The person’s gross revenue for sales delivered into Louisiana has exceeded one hundred thousand dollars from sales of tangible personal property, products transferred electronically, or services. … [or]

The person sold for delivery into Louisiana tangible personal property, products transferred electronically, or services in two hundred or more separate transactions.

Act 5 was an attempt by the legislature to add, on a prospective basis, a new definition of “dealer” for Louisiana statutory nexus purposes to make Louisiana’s statutory nexus regime on par with the South Dakota statutory economic nexus regime at issue in the Wayfair case.  However, the new “dealer” definition in Act 5 does not become applicable unless/until the U.S. Supreme Court rules in the Wayfair case that the South Dakota statute/regime is “constitutional.”  Although the Court in Wayfair ruled that there is no longer a “physical presence” nexus test for Commerce Clause purposes, the Court did not rule that South Dakota’s scheme was constitutional.  Rather, the Court remanded the case to address whether South Dakota’s regime was constitutional taking into account other issues (such as any other undue burdens upon, or discrimination against, interstate commerce).  Thus, as of right now, Act 5 in Louisiana is not yet applicable (and may never be).  Of course, as was recently attempted by some members of the legislature in SB 1 of the Third Extraordinary Session of 2018 (which failed to pass), the legislature may in the future attempt to change the “applicable” date of Act 5, so as to make the Act applicable as of a certain date rather than being contingent on some outcome of the Wayfair case.  Any such change would likely be prospective only.

Question:  Do Louisiana’s state and local sales tax systems provide any assurance that the recent decision of the Supreme Court in Wayfair will not be applied retroactively?

Answer:  They do not.

Currently, neither Louisiana’s state sales tax system nor any of the 63 parish sales tax systems in Louisiana provides any assurance that the recent decision of the Supreme Court in Wayfair will not be applied retroactively to force remote sellers to collect and remit state-level sales taxes local-level sales taxes for periods prior to the date of the decision.  As noted above, Act 5 attempted to apply the “South Dakota” style statutory economic nexus regime to Louisiana on a prospective basis.”  However, Act 5 is not applicable (and may never be) in its current form.  This prospective only language in Act 5 also only applies to the new, additional definition of “dealer” and does not apply to the other relatively broad definitions of “dealer” that are already found in the Louisiana state and local sales tax statutes and ordinances.

Question:  Has the State of Louisiana or any local taxing jurisdiction in Louisiana adopted the Streamlined Sale and Use Tax Agreement (SSUTA)?

Answer:  They have not.

Currently, neither Louisiana’s state sales tax system nor any of the 63 parish sales tax systems in Louisiana has adopted or participated in the Streamlined Sales and Use Tax Agreement. Furthermore, currently, neither Louisiana’s state sales tax system nor any of the 63 parish sales tax systems in Louisiana has any of the other positive features noted by the Court in Wayfair:

• They have not standardized all state and local sales taxes or even all local sales taxes to reduce administrative and compliance burdens and costs on vendors;
• They have not required a single, state-level tax administration scheme for all Louisiana state and local sales taxes or even among all local sales taxes;
• They have not provided uniform definitions of products and services that are subject to, or excluded or exempt from, all Louisiana state and local sales taxes or even among all local sales taxes;
• They have not provided simplified rate structures for all Louisiana state and local sales taxes or even among local sales taxes;
• They have not provided other uniform rules applicable to all Louisiana state sales taxes or even to all local sales taxes;
• They have not provided a simplified, centralized, combined audit process for all Louisiana state and local sales taxes or even for all local sales taxes; and
• They have not provided access to tax administration software paid for by the tax administrator(s) (and related immunity from audit liability for those sellers who use such software).

Failure to incorporate any such features in Louisiana’s state and local sales tax systems places undue burdens upon and discriminates against interstate commerce.

In addition, currently, Louisiana’s state sales tax system and the 63 parish sales tax systems in Louisiana (by themselves and in combination with one another) also contain multiple onerous features that individually and collectively impose undue burdens on vendors that are engaged in interstate commerce and that are asked to collect and remit Louisiana state and local sales taxes on behalf of the various Louisiana state and parish sales/use tax collectors.  Such onerous features include, but are not limited to:

• Multiple parish-level taxing jurisdictions and sub-parish-level taxing jurisdictions;
• Over fifty-five (55) separate, autonomous parish sales/use tax collectors (a few parishes have agreed to use the same collector);
• A lack of uniformity between the state and local sales and use tax bases, and even among the local sales and use tax bases;
• The disparate treatment of exemptions and exclusions among parish collectors and between the state and parish collectors;
• A wide array of tax rates among the local taxing jurisdictions on the same transactions that vary based on highly granular geographic boundaries that often are not readily available to vendors;
• The disparate interpretations and applications of the same statutes among parish collectors and between the state and parish collectors on the same transactions from the same vendor, even in situations where there is supposed to be uniformity;
• The disparate guidance or a lack of sufficient guidance among parish collectors and between the state and parish collectors as to the taxability or nontaxability of transactions, goods, and services;
• State sales tax exemptions that are not applicable at the parish level;
• Parish-level exemptions that are not applicable for purposes of the state sales tax;
• Optional parish-level exemptions and exclusions;
• Recent exemption and exclusion “haircuts” applicable only to a portion of the state sales tax, but not parish-level sales taxes;
• The disparate application of tax procedures and interpretations of tax procedures among parish collectors and between the state and parish collectors to the same taxpayer;
• An increased number of audits from individual parish-level collectors; and
• The potential of having to file annually over 750 different state and parish sales tax returns throughout Louisiana (with numerous disparate calculations made on each return).

These onerous features, among others, create one of the most, if not the most, complex state and local sales tax systems in the country that impose undue burdens on interstate commerce for remote sellers.

Louisiana’s Lack of Centralized Collection and Uniformity… and Steps Being Taken to Change

It is in the area of centralized collection and uniformity that Louisiana is lacking perhaps more so than any other state.  The Louisiana Department of Revenue administers and collects state level sales taxes.  Sixty-three (63) separate Louisiana parishes levy, collect, administer, and audit their own local-level sales taxes (with a only few a parishes agreeing to use the same collector). Louisiana’s various state and local tax administrators have long been aware that single, centralized tax administration would likely be necessary in order for Louisiana’s attempts to impose sales tax collection requirements on remote sellers to pass constitutional muster.  In 2017, the Louisiana legislature passed a law for the establishment of the Louisiana Sales and Use Tax Commission for Remote Sellers (the “Commission”).  The original raison d’être of the Commission was to serve as a single entity in Louisiana to require remote sellers to collect and remit to the Commission sales taxes on remote sales sourced to Louisiana taxing jurisdictions if Congress passed a law authorizing states and localities to require remote sellers to collect sales tax. With a ruling in Wayfair pending, Act 5 (2018 2^nd Ex. Sess.)also expanded the available triggering events that would allow the Commission to serve as the single tax collector on remote sales, so as to also include a “final ruling by the United States Supreme Court” that authorizes states and localities to require remote sellers to collect sales tax.  With Act 5, the legislature was attempting to position the state and the local taxing jurisdictions in Louisiana to begin reaping the benefit of additional tax revenue should the Court rule that South Dakota’s scheme is constitutional.  However, as noted above, Act 5 is not yet “applicable.”  As a result, the Commission is not technically provided such authority to serve as the single tax collector on remote sales.

Notwithstanding the foregoing, and obviously motivated by the Supreme Court’s decision in Wayfair, the Commission held its first meeting on June 29, 2018. To its credit, the Commission will forge ahead with its planning despite the fact that the applicability of Act 5 remains in limbo. The Commission has set as its target date January 1, 2019 to have a mechanism in place for the centralized collection of Louisiana state and local sales taxes from remote sellers. The second meeting of the Commission is scheduled for today, July 11, 2018.

Are Remote Sellers at Risk for Prior Sales Tax Periods?

While the Wayfair case was pending with the Supreme Court, a handful of parish sales tax administrators stated that once Wayfair overruled Quill and Bellas Hess, the local jurisdictions would retroactively audit and assess their own collection agents – remote sellers. Although the Supreme Court’s ruling in Wayfair did not expressly state that its holding is prospective only, the Court’s opinion expressed in multiple sections the Court’s disapproval of any retroactive application of the Wayfair decision, and it would certainly support an argument by remote sellers that such retroactive imposition of state or local sales tax collection obligations on remote sellers would impose an undue burden upon and/or discriminate against interstate commerce.

What Are Remote Sellers to Do Today?

Considering the language of Wayfair, the fact that Act 5 is not applicable, the fact that the Commission still has much work to do, and the lack of current guidance from Louisiana state and local tax administrators, many remote sellers are understandably confused about their state and local sales tax collection responsibilities in Louisiana today.

The first step in this analysis is for remote sellers to separately analyze existing Louisiana statutes, keeping in mind that the Act 5 provisions providing factor presence economic nexus thresholds are not applicable, to determine if a statutory tax collection requirement exists, and if so, in what jurisdictions.

The statutory nexus requirements are generally found in Louisiana’s definition of a “dealer” in La. R.S. 47:301(4). For example, La. R.S. 47:301(4)(l) provides that a “dealer” includes:

Every person who engages in regular or systematic solicitation of an consumer market in the taxing jurisdiction by the distribution of catalogs, periodicals, advertising fliers, or other advertising, or by means of print, radio or television media, by mail, telegraphy, telephone, computer data base, cable optic microwave, or other communication system.

This definition, however, should be applied to activities in not only the State, but also separately in each local taxing jurisdiction within the State. In other words, regular, systematic solicitation of a market in one parish does not make a remote seller a “dealer” in other parishes. Furthermore, it is highly questionable whether merely maintaining a website where goods can be ordered, without more, rises to the level of “regular or systematic solicitation of a consumer market in the taxing jurisdiction.”

Also, as noted above, Act 5 provides an additional statutory definition of “dealer” to provide statutory economic nexus with corresponding factor presence thresholds (although Act 5 is not applicable).

In addition, remote sellers should remain cognizant of the additional statutory definitions of “dealer” in La. R.S. 47:302(V), including those relating to concepts of “click-through” nexus, “affiliate” nexus, “IP” nexus, and “related party” nexus.

If a remote seller determines that it is a statutory “dealer” in a particular taxing jurisdiction, it must then turn its analysis to the constitutional limitations of undue burden, discrimination, and substantial nexus (as discussed above).

Louisiana’s state and local tax administrators would certainly welcome any voluntary collection and remittance with open arms for those sellers inclined to take on that burden.  The direct marketer return (“DMR”) provisions in La. R.S. 47:302(K) are another option for those sellers that qualify.  In fact, according to Act 5, were it applicable, remote sellers would be required to collect and remit sales taxes using the direct marketer return until the Commission is provided the authority to serve as the single tax collector on remote sales (by way of Congressional action or a ruling of the U.S. Supreme Court).

Wayfair has undoubtedly provided various states with an additional opportunity to require remote sellers to collect and remit sales tax. The Supreme Court’s decision, however, similarly leaves no doubt that Louisiana’s complex state and local sales tax systems are presently lacking those features that would prevent undue burdens upon, or discrimination against, interstate commerce.  It will be very interesting to watch the efforts of state and local officials over the next several months to bring Louisiana’s sales tax systems within the constitutional parameters espoused by the Court in Wayfair.