A few weeks after Louisiana lawmakers approved Act 15 and Act 375 to substantially reform the state’s local sales tax system, the U.S. Court of Appeals for the Fifth Circuit today issued their decision in Halstead Bead v. Richards. The decision is a short one, affirming the district court on the applicability of the Tax Injunction Act and not addressing the cases’s underlying merits or a separate comity issue. As expected because of the subsequent legislative developments, today’s decision is unpublished and not considered precedent under Fifth Circuit rules.
The case, brought by small business Halstead Bead - represented by a coalition of the National Taxpayers Union Foundation, the Pelican Institute, and the Goldwater Institute - argued that the state’s remote-sales tax structure was so restrictive and complex as to be unconstitutional. The district judge ruled that the case should be heard in state court, not federal court, and that question was being appealed.
“We set out to win a better situation for taxpayers, and we won in the Legislature,” said NTUF executive vice president Joe Bishop-Henchman, who represented Brad and Hilary Scott of Halstead Bead in the litigation and argued the case at the district court. “We also got the government saying on the record that taxpayers can challenge tax laws in state court without having to pay first, which is a bonus,” he added.
“The court and the other side acknowledged that no tax collection is happening now because Brad and Hilary can’t sell into the state, but strangely concluded that the Tax Injunction Act applies because tax collections would stop,” said NTUF senior attorney Tyler Martinez, who argued the case for Halstead Bead in the Fifth Circuit. “Both can’t be true. If anything Louisiana will see more revenue, not less, when Brad and Hilary and other retailers can sell into the state without dealing with the parish-by-parish complexity.”
Louisiana has had one of the most restrictive and complex remote-sales tax systems in the country, mandating that any company that conducts more than 200 transactions or $100,000 of business into the state comply with its labyrinthine and archaic parish-based tax collection structure. HB 171 (Act 15) repeals the 200-transaction threshold, leaving in place only the $100,000 threshold. HB 558 (Act 375) directs the Louisiana Uniform Local Sales Tax Board to implement a single remittance system whereby each taxpayer can remit state and local sales and use taxes through a single transaction. This new law also provides an absolute defense against any taxing authority that fails or refuses to provide timely notice to any changes in tax rates, boundaries, or exemptions to the uniform system, and it adds authority to impose a fee on any non-participating local sales tax collector to cover the costs of maintaining and operating a uniform electronic local returns and remittance system.
“Louisiana’s 200 transaction threshold and parish-by-parish system was the worst in the nation,” said Bishop-Henchman. “Now that Louisiana is fixing that, we’ll be figuring out which state was second-worst in the nation,” he added.
For more information on Louisiana’s remote-seller tax structure or the Halstead Bead case, please contact NTUF Vice President of Communications Kevin Glass at 703-299-8670 or at kglass@ntu.org.
