On July 1, 2020, new economic nexus laws will come into effect in Louisiana, requiring all remote sellers who meet certain sales thresholds to collect and remit all state and local sales taxes on their sales into the state. Wineries and retailers making direct-to-consumer (DtC) shipments of wine to Louisiana residents may be affected by this rule change.
Louisiana, long one of the more complicated states for sales tax, is moving to require more nuanced tax collections from remote sellers by creating a new Louisiana Sales and Use Tax Commission for Remote Sellers, which will serve as a single-point system for out of state businesses to collect and remit sales tax—including specific local taxes—on their sales into Louisiana.
Going forward, remote sellers with economic nexus in Louisiana will be required to register with the Commission for Remote Sellers and remit all state and local taxes through a new, as-yet-to-be released online filing system.
What Does This Mean for DtC shippers?
Direct-to-consumer wine shippers have been required to collect and remit sales tax on their shipments into Louisiana. This was a condition for getting the necessary direct shipping licenses issued by the state. However, recognizing the complexity of managing local taxes in the state, DtC shippers were only required by statute to collect and remit the 4.45% state rate, and no local taxes.
This remains the primary tax liability imposed by Louisiana on DtC shippers. However, under the new rules that are coming into effect on July 1, DtC shippers that also have economic nexus—by making either more than $100,000 in annual gross revenue in the state or 200 separate annual transactions—will now face an additional local tax burden. (Remote sellers without economic nexus may also continue to voluntarily collect and remit at the state-wide average rate of 8.45%, using a specific form designed for those remittances.)
This means there are three possible tax scenarios for DtC shippers in Louisiana:
- A DtC shipper without economic nexus will continue to be required to only collect and remit state sales taxes, at the 4.45% rate. They will need a Sales Tax Account with the Louisiana Department of Revenue and remit their taxes using the R-1029 form.
- A DtC shipper without economic nexus may voluntarily decide to collect at the single combined state and local tax rate of 8.45%. They will need a Direct Marketer Account with the Louisiana Department of Revenue and remit their taxes using the R-1031 form.
- A DtC shipper with economic nexus will be required to collect all specific state and local taxes on their sales into the state. They will need a new Remote Seller Account with the Commission for Remote Sellers and will remit their taxes using the new online system, which has been promised to be available by July 1.
Sovos ShipCompliant users will be able to select which of these three options they fall into by selecting the appropriate tax preferences and tax returns. More information will be sent directly to users as these rules come into effect.
There are still some open questions to Louisiana, such as how a DtC shipper that already has a Sales Tax Account should transfer (if needed) to a Remote Seller Account. As available, we will provide answers; interested parties should also feel free to refer to the state’s information page for Remote Sellers.
Why Did the Rules Change?
The move by Louisiana represents only the latest of numerous changes to sales tax across the country that followed the 2017 U.S. Supreme Court ruling, South Dakota v. Wayfair. In Wayfair, the Court determined the longstanding “physical presence” requirement for imposing a sales tax liability on a business was inapt for the internet age. Instead a more basic “sufficient presence” standard would apply, which in that case was reflected in South Dakota’s “economic nexus” law.
In the intervening years, a wave of legislation has passed over the country as more states adopted rules similar to South Dakota’s, establishing sales tax liabilities on businesses with economic nexus, which has seemed to settle on a standard threshold of either $100,000 in annual revenue in the state or 200 separate annual transactions.
However, many states have been tripped up by having very complicated sales tax determination processes. In the dicta (i.e., guiding, but non-determinative language in the Supreme Court’s ruling) for Wayfair, Justice Kennedy noted that South Dakota’s law was likely proper because it did not impose too great a burden on out of state businesses, in particular because it had a straightforward system for calculating and remitting local sales tax rates. Since an out of state business only had to deal with a single entity in the state when registering for and remitting sales tax, and could easily find proper tax rates across the state, their troubles would not outweigh the benefits that the state would see from additional tax collections.
But the states do not have equal tax determination and remittance processes. While many have moved towards simplification, even joining an organization designed around easing tax filing burdens on businesses (the Streamlined Sales Tax board), other states maintain rather complex systems, allowing local communities to manage their own tax registrations and remittances. This puts an incredible burden on out of state businesses to manage several different tax filings for a single state, and is clearly far outside of the standard hinted at by Justice Kennedy.
Nevertheless, these states still would prefer to receive all of the local tax remittances that would be due. Some, like Colorado, only require out of state businesses to collect and remit state-administered sales taxes (Colorado, though, remains extremely complex to manage for even in-state businesses). Others, like Louisiana, had used a single average rate that a remote seller could use for all sales in the state.
However, Louisiana had long been hinting that it would require remote sellers to collect specific local taxes, but had delayed implementation of that part of its economic nexus laws pending the establishment of this new Commission for Remote Sellers. It does mark a notable change in policy for the state and what will hopefully be a friendly standard for how more-complicated states might interact with remote sellers regarding their sales tax liabilities.