If you are selling goods or products online and some of your customers are located in Louisiana, you need to be aware of the state’s Internet sales tax rules. As you read, keep in mind that collection of sales tax on Internet sales has been a matter of ongoing debate both at the state and federal level.
The federal government is currently considering legislation that would affect large Internet retailers and how online sales taxes are collected in all states. The proposed federal law, called the Marketplace Fairness Act of 2013, would allow states to require sellers not physically located in their state to collect taxes on online and catalog sales made to people in their state. Sellers that make $1 million or less in annual sales and have no physical presence in the state would be exempt from this requirement. States would have to meet certain criteria to simplify their sales tax laws and make sales tax collection easier before they could require sellers to collect the tax.
Below is an article on the current rules on Internet sales tax in Louisiana. A new federal law would affect all state Internet sales tax laws so be sure to check for updates in this area.
The General Rule: Physical Presence in the State
The current default rule throughout the United States is that you must collect sales tax on Internet sales to customers in those states where your business has a “physical presence.” The physical-presence rule is based on a 1992 United States Supreme Court decision, Quill Corp. v. North Dakota, that addressed the obligations of mail-order businesses to collect sales tax on out-of-state sales. The decision has been extended to include online retailers. Generally speaking, a physical presence means such things as:
- having a warehouse in the state
- having a store in the state
- having an office in the state, or
- having a sales representative in the state
For guidance on how physical presence is determined specifically under Louisiana law, consult Section 47:301(4)(h) of the Louisiana Revised Statutes (RS), which defines “Engaging in business in the taxing jurisdiction.” Note that the definition includes not only the bulleted items mentioned just above, but also those same types of items when maintained “indirectly or through a subsidiary.” For further guidance, check the definition of “engaging in business” within the discussion of the term “Dealer” in Section 4301(C) of Title 61 of the Louisiana Administrative Code and this guidance page on the Louisiana Department of Revenue (DOR) website. Also note that a FAQ page published by the DOR states that “Internet sales are treated the same as catalog sales for sales tax purposes” and goes on to distinguish those businesses that have “a presence in Louisiana” as being required to charge sales tax.
As you might expect, the corollary to the physical-presence rule is that, if you do not have a physical presence in the state, you generally are not required to collect sales tax for an Internet-based sale to someone in that state.
Example 1: You are operating solely out of an office in Minneapolis, Minnesota and make a sale to a customer in Metairie, Louisiana—a state where your business has no physical presence: You are not required to collect sales tax from the Metairie customer.
Example 2: You are operating solely out of a warehouse in Baton Rouge, Louisiana and make a sale to a customer in Lake Charles, Louisiana: You are required to collect sales tax from the Lake Charles customer.
Example 3: After several years of operating solely out of an office in Minneapolis, Minnesota, you open a one-room satellite office just outside of New Orleans, Louisiana—a state where previously you had no physical presence. A day later, you make a sale to a customer in Shreveport, Louisiana: You are required to collect sales tax from the Shreveport customer.
Some items sold via the Internet to Louisiana customers may be exempt from sales tax under Louisiana law. For example, Section 4404 of Title 61 of the Louisiana Administrative Code (LAC) states that seeds used in the planting of crops are exempt from sales tax. For further information on many exemptions, check the section answering “Are there any exemptions from the sales tax?” on this easy-to-read FAQ page from the DOR, as well as Sections 4401 through 4423 of Title 61 of the LAC.
Louisiana also has an annual sales tax holiday on the first consecutive Friday and Saturday of August each year. Helpful additional information is available on a DOR webpage and the text of the sales tax holiday law found at RS 47:305.54.
The Customer’s Responsibility
In cases where the online retailer does not have to collect sales tax, it is the customer’s responsibility to pay the tax—in which case it is known not as a sales tax but, rather, a “use tax.” As a Louisiana DOR brochure on the state’s consumer use tax, entitled “’Online’ doesn’t mean ‘tax free’,” makes clear, “The Consumer Use Tax applies to retail purchases from companies with no physical presence in Louisiana such as online retailers . . . .”
While you might not know it from looking solely at Louisiana’s sales tax statute, the issue of whether to require online retailers to collect sales tax in states where they have no physical presence has been a matter of significant debate in many states and at the federal level. However, at this time, Louisiana has not enacted any law that would require out-of-state retailers to collect sales tax from Louisiana customers.
In Louisiana, the physical-presence rule applies for Internet retailers. However, because the issue is hotly debated in various quarters, you should consider checking in periodically with the Louisiana Department of Revenue to see if the rules have changed. For more general information on taxes on Internet sales, see Nolo's article Sales Tax on the Internet. And, for information on the rules about collecting sales tax for Internet sales in any other state, see Nolo’s article, 50-State Guide to Internet Sales Tax Laws.