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. Collection of sales tax on Internet sales has been a matter of ongoing debate both within individual states and at the federal level.
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 a1992 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, for purposes of collecting sales tax, physical presence means having:
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.
Examples of Physical Presence
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.
While the physical presence rule may seem clear, that is not necessarily the case. In Quill, the Supreme Court discusses not only physical presence, but also several types of potential nexus (connection) between a business and a state. Many states, including Louisiana, have used the term nexus rather than physical presence in their sales tax laws or other official documents.
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. Also note that a FAQ page published by the Louisiana Department of Revenue (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. The same FAQ page seems to equate nexus with physical presence, stating “Companies that do not have nexus (i.e., no salesperson within the state, no office within the state, no property within the state, etc.) with Louisiana are not required to collect Louisiana sales tax.”
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 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 FAQ page from the DOR, as well as Sections 4401 through 4423 of Title 61 of the Louisiana Administrative Code.
Louisiana also has an annual sales tax holiday on the first consecutive Friday and Saturday of August each year. You can find the text of the sales tax holiday at RS 47:305.54. At some point each year before the holiday, the DOR posts an updated webpage providing plain-English guidance about how the holiday works including what items are eligible for exemption.
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 . . . .”
At the federal level Congress has repeatedly considered legislation that would affect large Internet retailers and how online sales taxes are collected in all states. The most recent form of a proposed federal law is the Marketplace Fairness Act of 2015. As in previous versions, the 2015 Act 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.
For most small online businesses, it is the long established physical presence rule that will apply in Louisiana. However, because Internet sales tax is a subject of ongoing debate, you should consider checking in periodically with the Louisiana Department of Revenue to see if the rules have changed.
Updated: April 27, 2016