State representatives reach compromise on sales taxes
25th June 2018 · 0 Comments
By Christopher Tidmore
Contributing Writer
The difference between the State House Republican and Democratic sales tax plans was just a tenth of a penny, or less than $100 million in revenue. Republicans wanted a 4.4 percent sales tax, and Democrats wanted 4.5 percent mid-Afternoon Friday, a bipartisan coalition of House members decided to split the difference. With little discussion, in a 74-24 vote, the House agreed to advance a bill that would set the state sales tax rate at 4.45 percent. This still leaves a deficit of just under $50 million, but it might be enough for Amazon.com to fill, even if the legislature lacks the time to initiate taxes on any other online retailers this year.
Some legislators hoped that the Supreme Court’s ruling on Thursday June 21, 2018 would provide a sudden and unexpected half of a billion dollar well-spring of funds, sparing any difficult sales tax votes after all. Fiscal forces beyond their control had saved them—in part—earlier this year. In a near ‘Deus Ex Machina’ moment, the Trump tax plan generated an extra $300 million income taxes for the state without the legislature having to lift a finger by limiting itemized deductions of rich people. As Louisiana is one of only six states allowing federal deductions on state income taxes, LA’s Treasury disproportionately fiscally benefited. The rich paid higher state income taxes without the legislature needing to lift a finger.
However, warnings by the Edwards Administration tempered this enthusiasm. The Governor’s staff quoted experts like Scott Drenkard, conservative economist and director of state projects for The Tax Foundation, “The state still has a long way to go before it can collect Internet sales tax revenue…This is not the type of thing we could fix in Louisiana in nine days.”
The Governor’s staff warned that the Lower Federal Courts would again revue the South Dakota legislation, and this process could take years. Regardless, with the legislative efforts by Rep. Walt Leger (D-New Orleans) in the last special session to adjust Louisiana’s statutory code to reflect the South Dakota Internet tax regime, there would undoubtedly be legal challenges.
The new law, signed by Gov. John Bel Edwards and which went into effect on June 12, positions the Pelican State to take advantage of the ruling, requiring Internet retailers with more than $100,000 in sales to collect sales taxes and dividing the revenues between state and local governments. The Governor ‘s warning—that many Internet businesses will opt not to comply, though, until there is clarity to the limits of the tax by the lower courts — has one major exception.
One online retailer which has already begun to collect sales taxes, and it alone might almost be enough to bridge the small fiscal gap between the Democratic and Republican compromise proposal, amounting to less than $50 million.
Last November, Amazon.com began collecting state sales taxes in Louisiana for its primary products (though not its third party providers). At a full 8 percent sales tax rate, a study by the retail industry research group Civic Economics released in 2016 found that Amazon alone would be kicking in $75 million in extra tax revenue to the state of Louisiana.
Amazon.com represents almost 46 percent of online purchases in the United States. In other words, if the legislature opted to pass a bill in the next few days to temporarily stop the division of these revenues with parish governments, Amazon’s net contributions could almost bridge the gap between the .4 and .5 cents on the dollar sales tax bills. In theory, at least. Despite Amazon’s voluntary commitment to collect the sales taxes last fall, the Revenue Estimating Conference has shied away from calculating the revenue from online sales taxes to the state budget, and that’s the wrinkle.
Some estimates believe a full and ubiquitous online sales tax at 8 percent on all Internet retailers operating in the Pelican State would generate $800 million in extra revenue. Consequently, many anti-tax Republicans are arguing that the state’s fiscal problem has been solved. Fiscal Right-Wingers sought to block any taxes—or any tax changes—in the wake of the decision, raising real fears that NO new revenues would be passed in this third special session. The resulting fiscal deficit would translate into a 30 percent cut in the TOPS program and 25 percent across the board cuts in most state departments under the current budget.
That fear proved enough for moderates in the GOP and the Democratic Gubernatorial Administration to forge a compromise. There is still hope, though, that the Supreme Court ruling could provide a major new source of funds by next year.
On a 5-4 vote in South Dakota vs Wayfair, the High Court overturned a 1992 decision prohibiting states from requiring businesses to collect taxes on Internet sales. Retailers with stores in the state, required to collect sales taxes, have long argued that the 1992 ruling put them at a competitive disadvantage. Justice Anthony Kennedy wrote the decision, joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch. Chief Justice John Roberts dissented, saying the decision should be left to Congress, and was joined by Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan.
The South Dakota law exempts online retailers with less than $100,000 in annual sales or 200 annual transactions in the state, yet the justices did also open the door to states that may want to collect sales taxes from smaller sellers. Kennedy said Congress could step in to set limits.
“If some small businesses with only de minimus contacts seek relief from collection systems thought to be a burden, those entities may still do so under other theories,” Kennedy said. But the potential for problems, he said, “cannot justify retaining this artificial, anachronistic rule that deprives states of vast revenues from major businesses.”
This article originally published in the June 25, 2018 print edition of The Louisiana Weekly newspaper.
