Wayfair-based litigation heats up in Louisiana

A small family-owned company is continuing its fight to simplify Louisiana’s complex sales tax regime for remote sellers.

The company, Halstead Bead, has filed a response brief in the U.S. District Court for the Eastern District of Louisiana that spells out its argument against the Louisiana sales tax regime as an unconstitutional burden on interstate commerce, explaining that it creates barriers to doing business through a combination of red tape, local rules, and paperwork that must be filed in order to sell to Louisianans online. For many businesses, this makes it prohibitively difficult and costly to do business in the state.

The suit was originally filed on Nov. 15, 2021, against the Louisiana Secretary of Revenue. (Kimberly Lewis, the Secretary of Revenue for Louisiana at the time the suit was filed, was succeeded by Kevin Richard by the filing date of the response brief on Feb. 15, 2022.) The National Taxpayers Union Foundation, the Pelican Institute, and the Goldwater Institute joined to represent the business. In part because states prefer to have challenges heard in state rather than federal court, Richard sought dismissal under several federal procedural rules, in addition to questioning the court’s jurisdiction to hear the case.

Richard argued that, in the absence of a waiver, the Eleventh Amendment bars Halstead from obtaining an award of damages against him. But Halstead argued that it can, and does, seek declaratory and injunctive relief against him.

Moreover, Halstead argued that Richard and other defendants are engaging in an ongoing violation of federal law by enforcing the filing and reporting requirements.

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“In light of the Wayfair decision and subsequent state efforts to impose sales tax collection obligations on remote sellers and marketplaces, it was only a matter of time until taxpayers challenged complex state sales tax regimes on the basis that they are unconstitutional under Wayfair,” said Jamie Yesnowitz, SALT leader in Grant Thornton’s Washington national tax office. He noted that there are varying rules and tax bases between the state sales tax and the local sales taxes administered by the state’s 64 parishes, with in-state businesses remitting state sales taxes to the Department of Revenue, and local taxes to each parish in which they operate. “In contrast, out-of-state companies meeting Louisiana’s economic nexus thresholds must report to a separate agency, the Sales and Use Tax Commission for Remote Sellers, and are subject to different rules.”

Yesnowitz predicts further challenges by online sellers in 2022 against states that do not have centralized tax systems.

“There are more than 11,000 local tax jurisdictions that small businesses must comply with around the country, and failing to remit sales taxes down to the penny can result in them being criminally charged,” observed Joe Bishop-Henchman, lead counsel for the National Taxpayers Union Foundation, which represents Halston Bead. “Halstead Bead estimates that the compliance cost of the sales taxes they are subject to is $2.28 for every dollar collected and remitted in sales taxes, and that their business has had to spend more than 7,700 hours over the last three years on sales tax compliance. An easy fix for Louisiana could streamline their collection to one central administration point as other states have done, greatly alleviating the burden on small businesses.”

The defendants’ motion to dismiss should be denied by the court, he said: “The defendants have provided no support for their assertion that Halstead Bead’s claims are moot. Halstead has standing and injury, and neither the Tax Injunction Act nor the 11th Amendment bar this suit from proceeding.”