On March 17, 2022, NTUF’s Taxpayer Defense Center (TDC) was in New Orleans to protect interstate commerce from the labyrinthine sales tax reporting system in Louisiana. The case is Halstead Bead v. Richard in the federal court for the Eastern District of Louisiana.
TDC lawyers Joe Bishop-Henchman and Tyler Martinez, along with Sarah Harbison from the Pelican Institute, appeared on behalf of Halstead Bead, a small family-owned-and-operated business selling craft jewelry supplies across the country. The Defendants—government officials in charge of sales tax collection for the state and various parishes—brought ten lawyers, who filled two different tables in the court.
Louisiana’s sales tax reporting system is uniquely difficult, due to a parish-by-parish registration and reporting system for sales taxes, distinct exclusions and exemptions adopted by local ordinance, taxing jurisdictions within parishes that don’t conform to zip code lines, and so forth.
The Court was hearing arguments on two motions to dismiss from the defending state and parish officials. In the briefing, the Defendants offered fifteen arguments on why Halstead Bead should not be able to challenge the system, but few have any real weight.
When the hearing started, it was clear that District Court Judge Jane Triche Milazzo was prepared, preferring to jump straight into her questions about the case rather than hear a recitation of facts or an overview of the arguments from either side. The judge seemed to recognize that Halstead Bead may well have been injured by Louisiana’s system and that the Tax Injunction Act, which generally prohibits federal courts from interfering with state tax schemes, did not apply to Halstead Bead’s challenge.
Bishop-Henchman explained to the court that the Tax Injunction Act does not apply if the challenge is not to the “assessment, levy, or collection” of a tax or if the state does not offer a “plain, speedy and efficient remedy” in a state forum. The Judge mentioned she and her clerks hotly debated where else Halstead Bead could bring its challenge in state courts—but found no conclusive answers either.
But the Judge had practical questions about the Louisiana Sales and Use Tax Commission for Remote Sellers (“Commission”) website. The Defendant Parishes rested much their argument on how wonderful the website was and how it comported with the Supreme Court’s requirements in South Dakota v. Wayfair, 138 S. Ct. 2080 (2018). In response, Joe Bishop-Henchman laid out all the ways the Louisiana website differed from the South Dakota website, and emphasized that the problems of Louisiana’s system go far deeper: noting that there is no free lookup tool for rate and boundary changes, the website’s bare-bones simple reproduction of the paper forms, lack of participation in national registration or accepting uniform tax returns and taxability certificates, producing or providing a matrix of taxable items, adhering to uniform definitions of products and services, providing free software, and one state-level administration and audit.
Then Judge Triche Milazzo said something surprising: she was trying to get onto the Commission’s website to see how burdensome tax reporting was for out of state sellers. Joe Bishop-Henchman pushed back that such an inquiry was on the merits and better fit for evidence, testimony, and expert opinion rather than independent investigation by the judge.
The judge’s remaining questions were on “redressability”—in other words can the Court do anything to help Halstead Bead? Bishop-Henchman answered that by striking Louisiana Constitution Article VII, Section 3, the state’s legislature would then have the flexibility to create a sales tax system that did not unduly burden interstate commerce. The Court’s main concern was not stopping the collection of sales taxes all together by judicial decree. She asked why the Legislature could not simply fix the issue. Joe Bishop-Henchman responded that the Legislature had tried to solve this problem in the past, but the state constitution forbids it. An attempt to amend the state constitution, known as Amendment 1, failed at the ballot box last year. He noted, however, that there are already calls to again refer the measure to the voters this year as well as other proposed legislative tweaks.
In total, the hearing was about 45 minutes long. In an unusual move, the following Monday (March 21), the judge ordered the Defendants to provide login credentials for the Commission’s website so the Judge could see the process as if she were a business owner trying to file sales tax returns.
We await the Court’s decision on the motions to dismiss. There is no deadline for the Court to act, though the judge seemed keen on moving quickly.