Louisiana Department of Revenue to taxpayers: Please remit use tax

Armed with new information from non-collecting retailers, the Louisiana Department of Revenue is reaching out to taxpayers who owe the state consumer use tax.

The department knows who might owe consumer use tax on their internet purchases of taxable goods and services because of the state’s non-collecting seller use tax notice and reporting requirement, which took effect July 1, 2017. The law requires certain non-collecting internet sellers to submit annual reports of consumer purchase activity to the department by March 1 of each year. It seems the department is wasting no time putting that information to use.

Consumers shouldn’t be surprised. Non-collecting sellers are also required to inform customers that they don’t collect Louisiana sales tax, and that customers may owe use tax directly to the state. To help their customers with that task, non-collecting sellers must send consumers an annual report by January 31 of each year. The report must provide the following information:

• The total amount paid for purchases delivered into Louisiana in the preceding calendar year
• The name of the retailer
• A list of the dates and amounts of purchases, if available
• The taxability of the property or services, if known
• A statement that use tax may be due and should be remitted on the state individual income tax return or consumer use tax return.

Despite this, Department of Revenue Secretary Kimberly Robinson says many taxpayers have expressed surprise at receiving a letter that begins, “Please remit use tax.” To help taxpayers understand, the department has published Frequently Asked Questions about Consumer Use Tax on its website.

A brief history of non-collecting seller use tax notice and reporting requirements

The first state to impose reporting requirements on non-collecting sellers was Colorado. It requires non-collecting sellers with at least $100,000 in total annual gross sales in Colorado to either collect and remit sales and use tax, or comply with the notice and reporting requirements. The policy was created in 2010 but spent seven years in litigation and did not take effect until July 1, 2017, after the Supreme Court of the United States allowed it to stand. Other states have followed Colorado’s lead, among them Louisiana.

Use tax notice and reporting requirements are purposefully onerous: States would prefer out-of-state internet retailers collect and remit sales and use tax. However, the Supreme Court ruled in 1992 that a state cannot require a business to collect and remit sales and use tax unless it has a substantial connection to (i.e., physical presence in) the state, or nexus.

That physical presence limitation is being challenged. On April 17, 2018, the Supreme Court will hear arguments in South Dakota v. Wayfair, Inc., a case that asks the court to reconsider its decision in Quill Corp. v. North Dakota, the seminal 1992 case. Many tax experts expect the court to at least loosen the physical presence constraint, but no one will know for sure until June, when a decision is expected.

So long as the physical presence limitation remains, states will try to find ways to increase tax revenue from remote sellers not required to collect. Thus, the notice and reporting requirements for non-collecting sellers: States like Louisiana hope they’ll motivate some out-of-state sellers to register and collect, while making it easier for the state to enforce use tax compliance.

Learn more about non-collecting seller use tax reporting and what it means for businesses.