The overwhelmingly complex Louisiana sales tax system is being challenged in federal court as crossing the line created by the Supreme Court in its 2018 Wayfair decision.
Halstead Bead, a family-owned jewelry and craft supply wholesaler based in Prescott, Arizona, filed suit in the Eastern District of Louisiana on Nov. 15, 2021, arguing that the state places an unconstitutional burden on businesses that wish to sell to Louisianans. Due to its sales tax complexity. Halstead Bead sells to customers across the country but avoids sales to Louisianans because of the immense burden placed on small businesses, especially online retailers, by the sales tax system.
In its brief, Halstead noted that Louisiana’s constitution requires each of the state’s 64 parishes to collect sales and use taxes, with each parish setting its own tax rates and categories — and state law requires out-of-state businesses that sell to Louisiana customers to register and file reports in each parish where sales are made. The parish-by-parish approach generates many pages of sales tax rules, creating hundreds of hours of compliance costs annually.
“Compliance is so time-consuming largely because it is not obvious which jurisdictions have a claim to a sale at a given address,” the brief stated. “Although a customer’s mailing address and nine-digit postal zip code can identify a town and the parish, that does not necessarily inform Halstead Bead of other local taxing bodies that have jurisdiction over the address. For example, in Lafourche Parish, there are several towns but also several consolidated road districts, each with its own sales and use tax rates.”
“The opinion in Wayfair said that what South Dakota was doing was not a burden on interstate commerce, and listed the features of the South Dakota tax system. Louisiana doesn’t have those features,” said Joe Bishop-Henchman of the National Taxpayers Union Foundation, the lead attorney for Halstead Bead. “They let local governments completely administer sales tax — it’s the most fragmented system of any state. Our contention is that it violates what the court set out as the minimum that states had to do. Louisiana is not reaching that minimum.”
Halstead Bead estimates that the cost to comply with the current system is $2.28 for every $1 they collect in taxes from sales. Selling beyond a de minimis number of orders in Louisiana has proven too complex and difficult for Halstead Bead because of the costs of registering and reporting taxes in each parish. Therefore, they make sure to engage in fewer than 200 transactions or less than $100,000 in taxable sales in Louisiana in any single year.
“The Supreme Court sent clear signals in Wayfair that overly complex sales tax rules would be a violation of the Constitution’s due process and commerce clauses,” Bishop-Henchman said. “Economic nexus laws already represent an undue burden on small businesses, and Louisiana’s is the worst in the nation for small businesses to navigate. The court said that sales tax complexity for small businesses cannot be a free-for-all for revenue departments, and the time is now to declare that in Louisiana, a boundary has been crossed.”
“We’re in it for the long haul,” said Bishop-Henchman. “Ultimately, it’s up to [the plaintiffs]. They want to show what small businesses across the country are facing, and draw attention to what sellers have to go through if they want to sell in all 50 states.”
