Louisiana Increasing Revenue Through Sales & Use Tax Legislation
Author: Jana Gradeva
The Louisiana Legislature addressed the $900 million state budget deficit during the 2016 First Extraordinary Session, which concluded March 9, 2016. During the special session, the legislature increased the state sales and use tax rate by 1 percent, temporarily suspended various exemptions and enacted click-through and affiliate nexus provisions to require remote sellers to collect tax in the state.
With the 1 percent increase enacted by House Bill 62, the total Louisiana state and local sales tax rate is now one of the highest in the nation. The rate increase takes effect April 1, 2016, and will sunset on June 30, 2018. Under the law, various exemptions apply to the current state tax rate; however, not all of those exemptions will apply to the additional 1 percent rate increase that legislators call a “clean penny.” The bill lists the specific exemptions only applicable to the additional 1 percent, which adds another layer of complexity to Louisiana’s already intricate and highly fragmented sales and use tax structure.
In an effort to bring in more revenue, the legislature brought back and passed the affiliate and click-through nexus bill previously vetoed by the former governor during the 2015 legislative session. Current Gov. John Edwards signed the bill on March 14, 2016, with the law taking effect immediately. The new law introduced these changes:
- Expanded the definition of a dealer to include remote sellers who solicit business through independent contractors or representatives pursuant to an agreement with a Louisiana business or resident under which the business or resident, for commission or other consideration, directly or indirectly refers potential customers whether by a website link or otherwise. (The threshold for click-through nexus under this bill is $50,000 in gross sales into the state during a 12-month period.)
- Expanded the definition of a dealer to add substantial ownership interest provisions and affiliated entities language if the affiliates sell the same or substantially similar products as the Louisiana retailer under the same or substantially similar business name
- Included out-of-state sellers who have an in-state agent or affiliate engaging in activities within the state to benefit the remote seller
Dealers deemed to have nexus under these provisions would collect and remit sales tax directly to the Louisiana Department of Revenue unless they elect to separately file local parish returns.
In addition, various exemptions have been temporarily suspended, effective April 1, 2016, through June 30, 2016. On July 1, 2016, some of the exemptions will be partially reinstated. The new law enacts an exclusive list of about 32 allowable exemptions and exclusions, some of which include food for home consumption, rolling stock, materials sold for further processing and prescription drugs.
Manufacturing equipment will be taxed differently:
- From April 1, 2016, through June 30, 2016, manufacturing equipment and machinery will be subject to a 2 percent state sales tax.
- From July 1, 2016, through June 30, 2018, manufacturing equipment will be taxed at a 1 percent state sales tax rate, and beginning July 1, 2018, it will be exempt from state sales and use tax.
HB 61 and HB 62 provide a detailed account of allowable exemptions, suspension periods and new or partial tax rates. The legislature also capped the timely filing discount for sales tax returns at $1,500 per month.
To learn more about the tax law changes from the Louisiana 2016 First Extraordinary Session, contact your BKD advisor.