La. Dept. of Revenue pushing for sales tax on online holiday purchases

5th December 2011   ·   0 Comments

By Christopher Tidmore
Contributing Writer

The Louisiana Department of Revenue argued last week that holiday shoppers needed to report any unpaid sales tax on online purchases on the looming state income tax filings — due May 15. The problem is that the LDR’s proclamation may be federally unconstitutional.

In 1992, the Supreme Court has said that out-of-state retailers need not charge sales tax, and under the interstate commerce clause, the State of Louisiana may not have the power to force its citizens to self-collect sales taxes on their purchases.

In a statement to the press, the LDR reminded “shoppers that ‘online’ does not mean ‘tax-free’ when making purchases during holiday season, or any other time of year.” Representatives of the Dept. of Revenue claimed, “Louisiana’s Consumer Use Tax applies to transactions in which the retailer does not charge sales tax. This happens most frequently when making purchases from online and mail-order retailers, or television shopping networks that do not have physical locations in Louisiana.”

“When out-of-state vendors do not charge sales tax to purchases,” the press release continued, “Louisiana state law requires the shopper to report and pay the Consumer Use Tax. This tax protects Louisiana businesses from unfair competition from out-of-state retailers who don’t charge sales tax. It also helps to provide the vital funds that the state needs to maintain Louisiana’s schools, public safety, and roads and bridges.”

The problem is that nearly two decades ago, the Supreme Court said the patchwork of state tax laws made it too difficult for on-line retailers to collect and remit sales taxes. Currently, states can only tax Internet sales made by companies that have physical presences within their borders.

In fact, quite a few online retailers have domiciled in Alaska, Dela­ware, Montana, New Hamp­shire and Oregon, states that levy no sales taxes. According to several constitutional scholars, attempts for Louisiana to push the collection of sales taxes on businesses physically located in those states could violate the common market provisions of constitutional law that have been part of legal precedent since the McCulloch v. Maryland ruling in 1819.

One state cannot tax the economic activities of another, according to his landmark 19th decision, anymore than Louisiana could charge a tariff on goods bought in Delaware or Oregon and driven by car across the state line.

The LDR disagrees, considering internet purchases to be a special category. Departmental Spokes­persons noted that online purchases cost the state as much as $352 million in sales tax revenue. LDR officials maintain that all consumers who practice e-commerce buying, at the Christmas season or throughout the year, must pay the Consumer Use Tax on items as varied as appliances, books, clothing, computers, DVDs and CDs, electronics, furniture, music and movie downloads, software, and tobacco products.

Calculated at a rate of eight percent, it is payable on state income taxes directly to the Department of Revenue on the Consumer Use Tax Return (Form R-1035). LDR then redistributes four percent of the revenue to local governments. (More information at www.rev­enue.lou­isiana.gov/Con­sumerUse.)

Just as the state demanded this tax, Congress debated making online retailers collect sales taxes. “Main street retailers — local mom and pop stores in many instances, and even some of the big box retailers — suffer when they have to collect the sales tax but on-line retailers don’t,” said Michigan’s Rep. John Conyers at a recent House hearing. “Fewer purchases at local retailers means less local jobs.”

Conyers has introduced one of three bills currently in Congress to create a system for collecting sales taxes across state lines. Ironically, Conyers was a critic of Herman Cain’s sales tax proposal saying that it put added pressure on the poor, yet he is the prime sponsor of a sales tax proposal.

Called the Marketplace Fairness Act, the bill would allow states to pursue taxes on many transactions involving out-of-state companies, namely Internet businesses. It would over turn the 1992 U.S. Supreme Court ruling on mail order companies, where the court found that the companies did not have to collect state tax unless they had a physical presence, such as a warehouse or branch office, in the customer’s state.

Byron Henderson, spokesman for the state Department of Revenue, told the Baton Rouge Advocate the state’s residents voluntarily paid $1.3 million in taxes on Internet or other buying that was not taxed at the point of purchase in the fiscal year that ended June 30. He admitted, though, that the approach of asking consumers to track their tax-free purchases, add up the taxes, and pay them to state revenue departments, typically generates little money.

State Rep. Rosalind Jones, D-Monroe, sponsored a measure to get at taxes through affiliates’ Louisiana addresses by authoring legislation earlier this year that would have expanded the definition of merchants responsible for collecting Louisiana’s sales and use tax. Jones’ House Bill 641 would have included in that definition Internet companies with a physical presence in the state or who work through an independent contractor in the state.

Governor Jindal, however, opposed the legislation. It died on the state Senate floor.

This article was originally published in the December 5, 2011 print edition of The Louisiana Weekly newspaper