Louisiana: Sales Tax Collected On Online Sales Should Have Been Remitted to Parish, not Department

The Louisiana Court of Appeals recently addressed a situation that arose when sales and use taxes related to online sales were remitted to the Department of Revenue, as opposed to Jefferson Parish. The retailer at issue made sales at its brick and mortar stores in Jefferson Parish and also made sales to Jefferson Parish customers via its website. Sales taxes collected through website sales were reported and paid to the state on a Direct Marketer Sales Tax Return (DMR), and some of these taxes were subsequently distributed to the parish. Sales taxes collected in the brick and mortar stores located in Jefferson Parish were reported and paid to the Jefferson Parish Tax Collector. The dispute arose over the treatment of taxes collected from online sales to customers in Jefferson Parish. Specifically, the Jefferson Parish Tax Collector filed a demand for sales taxes, plus interest and penalties associated with online sales to Jefferson Parish customers.  After a hearing, the Board of Tax Appeals ruled in favor of the Jefferson Parish Tax Collector, but permitted the retailer a partial credit for taxes remitted to the Department. Both the retailer and Collector appealed the Board’s decision. Importantly, the retailer tried to obtain a refund of the taxes remitted to the Department, but the refund was denied.

Under Louisiana law, a vendor that is deemed to be a “dealer” for state and local sales and use tax purposes “solely by virtue of engaging in regular or systematic solicitation of a consumer market in this state [by various remote means]” may collect a flat 8.25 percent tax on sales into the state and remit such tax to the Department of Revenue on a Direct Marketer Return (DMR) in lieu of collecting and remitting sales and use tax imposed by a political subdivision of Louisiana. The Department, in turn, distributes the tax among all parishes based on population. A retailer with a physical presence in the state may not avail itself of this provision. Here, the retailer had a physical presence in Jefferson Parish, meaning it was not a dealer that could use the DMR to remit local taxes.  Accordingly, the court determined that the retailer was liable to the Collector for sales tax collected on its online sales to Jefferson Parish residents.

The next issue was whether the taxpayer was entitled to a credit for the taxes remitted to the Department. The court affirmed the Board’s decision that the retailer was not entitled to a full credit based on a Louisiana statute permitting a credit for “similar taxes” paid by a taxpayer to a “similar taxing authority.” In the court’s view, the retailer was not a taxpayer nor was the Department a “similar taxing authority” as it was not a political subdivision. However, the court determined that the retailer was entitled to a partial credit under another statute providing that no person should be taxed with respect to a particular event more than once if the person can show a good faith effort to recover taxes paid to the “incorrect taxing authority.”  The retailer, the court concluded, had tried to recover the taxes paid to the Department— albeit unsuccessfully.

The court next agreed with the Board that the credit should be determined based on the amount of taxes the Collector received from the state as a distribution from the DMR remittances, rather than the amount of tax the retailer collected on Jefferson Parish sales. However, the court also concluded that the amount of credit should take into consideration the 11 percent commission the Collector was deprived of. Finally, the court held that a prescriptive period (statute of limitations) of ten years, rather than three years, was proper because the dispute at hand was not a suit against a taxpayer to collect taxes, but was an action to require a fiduciary to turn over the taxes collected and being held in trust for the Collector. For more information on Lerner New York, Inc. v. Normand, please contact Randy Serpas at 504-569-8810.