Almost five years to the day of the Supreme Court’s decision in South Dakota v. Wayfair, one of the biggest problems brought about by that decision may finally have been solved.
Prior to Wayfair, states could only require retailers to collect and remit sales tax on purchases made by customers in that state if the retailer had some form of physical presence in that state. Wayfair changed that, allowing states to require completely remote sellers to collect sales taxes. Expected to go from complying with just one or two state sales tax regimes to complying with vastly different state tax systems around the country nearly overnight, small remote sellers without much in the way of in-house accounting know-how were left out in the cold.
But while broader issues with the fallout from Wayfair remain pervasive, a few states were more problematic than others. One such state was Louisiana, which required remote sellers in other states to comply with not only Louisiana’s statewide sales tax code, but also the sales tax systems of 63 local parishes — each of which had their own rules, definitions, and exemptions.
Not only did that mean filing as many as 63 more tax returns, but it also necessitated becoming an expert in as many more separate tax systems. Often, rates within those parishes would differ based on local fire districts or road zones, for which no state-provided maps existed online. In short, Louisiana was attempting to apply a sales tax system designed for the 20th century to the 21st.
Louisiana legislators quickly recognized the need for reform. The state legislature put a constitutional amendment before voters which would create a simplified, state-level collection system, making Louisiana no more complicated to sell into than any other state. However, the parishes that enjoyed such autonomy under the status quo successfully managed to narrowly defeat the ballot measure.
With legislative relief stymied, an Arizona-based small jewelry components business, Halstead Bead Inc., sued Louisiana for its archaic sales tax system. With the help of lawyers from the National Taxpayers Union Foundation, the Goldwater Institute, and the Pelican Institute, Halstead brought forward a challenge arguing that if Louisiana wanted to require it to collect sales taxes, it had to change its system to make it realistic to do so.
After all, Halstead estimated that complying with the old Louisiana system would cost $12,000 over three years, multiple times the profit they would receive from Louisiana sales. Instead, Halstead simply turned off sales to Louisiana customers — a situation that no one wins from.
But even before courts arrived at a final decision in that case, Louisiana bowed to the pressure. This month, in unanimous votes, Louisiana’s legislature passed, and Governor John Bel Edwards signed, two bills (HBs 171 and 558) which together solve the problem Halstead was facing.
These two bills ensure that only sellers with over $100,000 in sales into Louisiana face collection obligations, simplifies the system to allow out-of-state selles to file with just one statewide authority for both state and local taxes, and puts the state in charge of administering and keeping track of local-level tax rules and changes.
It’s not just a win for remote retailers, but a win for taxpayers everywhere. Halstead proved that holding states accountable through the courts for the unfair burdens they put on taxpayers can work. Any time governments acknowledge that they have an obligation to make tax compliance fair and not unreasonably complicated is a good day for taxpayers.
Those few other states that still operate similarly complicated sales tax regimes in the wake of Wayfair should consider themselves on notice. There’s a limit to how much arbitrary complexity that taxpayers are willing to put up with.
