As an update to our Insight on July 22, 2022, counsel for Halstead Bead Inc. (Halstead) has notified the United States Court of Appeals for the Fifth Circuit that the basis for its appeal filed in opposition to Louisiana’s remote seller sales tax laws is now moot.
“Louisiana’s system, requiring remote sellers to have detailed local knowledge of parish and various tax districts within the parish, is not reasonable, and its practical effect is that Louisiana’s tax registration system is a trap for the unwary.”
Due Process & commerce clauses violations
From a compliance perspective, Louisiana, has one of the most expensive and burdensome sales tax systems in the US. This fact, in combination with trying to maintain proper tax compliance post-Wayfair, led to Halstead’s appeal. Specifically, Halstead alleged Louisiana’s decentralized sales tax system created an undue burden on remote sellers in violation of the Commerce Clause and the Due Process Clause.
tax strategy
Because of the extent of sales and use tax compliance costs with having nexus with Louisiana, both direct and indirect, Halstead purposefully avoided crossing Louisiana’s 200 transaction economic nexus threshold by deliberately stopping sales into Louisiana when nearing 200 transactions.
TRAPPED
In its original complaint, Halstead stated, “Louisiana’s system, requiring remote sellers to have detailed local knowledge of parish and various tax districts within the parish, is not reasonable, and its practical effect is that Louisiana’s tax registration system is a trap for the unwary.”
Adamantly disagreeing with Halstead’s claims, counsel for the parishes stated during appellate oral arguments, “[o]ver 8,000 [registered] remote sellers are doing exactly what Halstead claims is too complicated and impossible to do with [Louisiana’s] convoluted tax structure.”
Fortunately, parish counsel’s position notwithstanding, Louisiana Governor John Bel Edwards signed legislation eliminating the state’s 200 transaction threshold effective August 1, 2023, making moot the basis of Halstead’s appeal.
Simpler times ahead
Trending positively for Halstead and numerous other remote sellers, Louisiana appears to be joining other states with eliminating the transaction threshold and easing the compliance burden post-Wayfair. Earlier this year, South Dakota also eliminated its 200 transaction threshold, making nine states that have ended their transaction threshold.
According to South Dakota state Senator Jim Stalzer, “[i]t’s a lot of work for very little revenue on our side” and it’s “not worth either side’s time.” Adding to the conversation on other state’s compliance laws, Stalzer said, “[i]t’s our hope that other states will follow [South Dakota] on this.” With Louisiana following in their footsteps just a few months later, perhaps his hope is more prophetic than wishful.
best practices
In addition to your other monthly projects, performing a monthly nexus analysis, which includes reviewing ever-changing threshold, taxability and sourcing laws, is strongly recommended.