New sales tax rules for Louisiana businesses

Sales tax compliance is never easy, particularly for businesses selling a variety of goods and services in multiple tax jurisdictions. In April, it became even more complicated for anyone doing business in Louisiana. And it’s not going to get any easier any time soon.

Louisiana is in dire need of tax revenue. When Governor John Bel Edwards (D) took office last January, he inherited a nearly $1 billion deficit, and the numbers for the upcoming fiscal year are predicted to be twice as bad. In his quest for a “sensible, balanced approach,” Edwards proposed raising sales tax rates and eliminating many exemptions; and in a stunning display of solidarity, lawmakers agreed.

The state sales tax rate was increased by 1% on April 1 of this year. Everyone making taxable sales in Louisiana therefore needs to adjust point of sale systems to account for the new rate. That’s a hassle, especially considering that the state rate will have to be adjusted back down on July 1, 2018.

Goodbye exemptions

More complicated is the state’s suspension of numerous sales tax exemptions. Instead of permanently eliminating sales tax, the state is applying sales tax to many goods and services for a few months. Then, on July 1, 2016, a reduced state rate kicks in; and by July 1, 2018, most of these exemptions will be fully restored.

To make matters worse, some goods and services are currently subject to Louisiana’s old state sales tax rate of 4%, while others are subject to the new state rate of 5%. Come July 1, the rate for some products and services will drop to 3%, while the rate for others will drop to 2%. The 0% rate that takes effect in July 2018 applies across the board.

What types of products are affected by the temporary suspension/reduction of sales tax? The list is long and includes the following:

• Admissions to events promoting Louisiana arts, crafts, culture and heritage
• Girl Scout cookies
• Isolated or occasional sales
• Sales tax holidays
• Separately stated labor charges on property repaired out-of-state

Consumers will undoubtedly appreciate this approach. They’ll pay more taxes, but they’ll pay as little as possible for as short a time as possible.

Retailers, on the other hand, have years of point-of-sale adjustments to look forward to. They had little time to adjust to the changes that took effect on April 1, and they’ll have to make more changes this summer.

Hello new and increased taxes

In addition to increasing the state sales tax rate, Louisiana lawmakers are generating additional revenue with a few new taxes and a few rate increases for specific goods and services:

• Tax rate increases for alcohol, cigarettes and certain telecommunications services took effect on April 1.
• New state and local taxes on automobile rentals took effect on April 1.
• On July 1, sales and use tax will apply to transient guest accommodations (think Airbnb).

And Internet sales tax

Perhaps most notable is the fact that certain Internet sales became subject to sales tax on April 1, 2016. The new nexus law expands the definition of “dealer” and applies tax to remote retailers who solicit business in the state through an independent contractor or any other representative in exchange for a consideration of any kind, provided cumulative gross receipts from such sales exceed $50,000 during the preceding 12 months.

The state was expecting to collect tax from Amazon sales under this new policy. Instead, Amazon severed connections with Louisiana affiliates, effectively undermining the click-through and affiliate law. At least for now.

More states could follow suit

Louisiana is one state in need for more tax revenue; Alaska and Pennsylvania are two others. Even states with their financial houses more or less in order are considering ways to expand and broaden sales tax: Oklahoma is looking to modernize sales tax by broadening it, eliminating exemptions, and improving audits. South Dakota will start taxing remote sales on May 1 and will increase the state rate, the amusement device tax rate, and the excise tax on farm machinery on June 1.

For a broader look at how states are changing the rules around sales tax, Avalara put together a summary of 2016 Sales Tax Changes at both the federal and state level.

Sales tax compliance, never easy, will now that much harder — especially for businesses managing sales tax manually. If you don’t already use sales tax software like Avalara AvaTax, now is a good time to make the switch. Sales tax automation facilitates compliance in all states, allowing you to focus on the needs of your business, not sales tax.