Louisiana: State Sales Tax Exemption Trumps Local Ordinance

The Louisiana Board of Tax Appeals recently addressed whether a state law exemption applied to the local sales and use tax imposed by the City of New Orleans.  The taxpayer contracted with a non-profit school to provide catered meals to students and faculty under either an a la carte purchase or a prepaid meal plan arrangement. Under Louisiana law, sales and use tax does not apply to certain meals furnished to students and teachers at “educational institutions.”  In contrast, a local New Orleans ordinance limited this exemption to sales of food at  schools other than those that are “state operated”   or “operated under religious supervision,“ meaning the taxpayer was considered to be making sales at retail and was required to pay local sales tax on its receipts from sales of food products.  The question before the Board was whether the state statute or the City ordinance applied. All parties agreed that if the state law applied, the taxpayer’s sales would be exempt. The answer depended on whether the New Orleans' Home Rule Charter had the effect of depriving the Legislature of its express constitutional authority to enact exemptions applicable to all localities in Louisiana.

The New Orleans Home Rule Charter provides the City power to tax without authorization from the Legislature, provided such tax is not inconsistent with the Constitution. The Constitution grants the Legislature the express authority to provide for tax exemptions, as long as they are “uniformly applicable.”  In other words, the Legislature must use its power to provide exemptions in a way that treats all local taxes in the state the same. The Board, relying on a previous case (Circle Foods) addressing a similar issue, determined that the Home Rule Charter authority must yield to the provisions of the Constitution where, as here, the Legislature had made the sales tax exemption uniformly applicable to all taxing authorities. Applying the City ordinance would be inconsistent with the Constitution because it would essentially allow the City to unacceptably override the legislature’s express authority to enact tax exemptions. As such, the Board vacated the City sales tax assessment. For more information about Healthy Course, LLC v. City of New Orleans, please contact Randy Serpas at 504.569.8810.