The LABI Report: A streamlined sales tax project

Published 12:00 am Saturday, November 2, 2002


Many Louisiana businesses and governmental entities have a common complaint regarding a complex tax issue.

State and local governments argue that hundreds of millions of dollars in sales tax revenues are lost when Louisiana consumers fail to pay taxes owed on catalog and Internet purchases placed with out-of-state companies. Many Louisiana businesses complain they are at a competitive disadvantage when they must collect sales taxes that are not collected by out-of-state companies selling the same items.

If ever there were an issue on which businesses and governments should work together, taxability of out-of-state sales would seem to be the one. That potential partnership may revolve around whether turf protection is more important to local governments than the ever-increasing loss of sales tax revenues that are legitimately owed to them.

The issue of collecting sales taxes on out-of-state purchases is not a new one. Governments have tried to force the collection of sales taxes by out-of-state vendors for decades – with little success. In its 1967 National Bellas Hess decision, the U.S. Supreme Court found that a state or local government could not impose a sales/use tax on a company whose only connection with a state was the delivery of the product via common carrier or the U.S. Mail.

As the years went by, the mail order industry expanded exponentially, and the amount of uncollected sales tax revenue grew. State and local governments began passing new laws in the late 1980s to try to get around National Bellas Hess.

The issue ended up before the High Court again in the Quill Corporation v. North Dakota case. In Quill, the court again upheld the necessity for a physical presence in a state before remote sellers could be forced to collect state and local taxes.

But the court also used the decision to open the door for Congress, under the Commerce Clause of the Constitution, to address the issue of collection of legitimate state taxes by out-of-state sellers.

The decision led to the creation of the Streamlined Sales Tax Project (SSTP). It is a joint endeavor by state and local governments and the private sector to encourage voluntary collection and participation by out-of-state sellers.

One of the major reasons Congress has not acted on this issue deals with fairness. Is it fair to force a company in one state to adhere to different sales tax forms, rates and regulations in thousands of taxing jurisdictions all over the U.S.? Congress correctly thinks not and demands uniformity of collection standards and practices must be in place before it will act.

The SSTP is wrapping up its work and will soon have an agreement among the states participating in the SSTP. Some of the provisions of the agreement will require states to have a single central collector of sales taxes and maximum uniformity between state and local sales tax laws. Louisiana is one of the states most deficient in achieving these two critical criteria. Louisiana has 60 separate collectors and separate state and local sales tax codes, as well.

Legislation will be introduced in the Legislature next year to bring Louisiana into maximum conformity with the SSTP recommendations. Adopting such legislation will be the best hope for the state and local governments to receive as much as $400 million in uncollected revenue legitimately owed them. It is also the best chance many Louisiana businesses will have to gain a level playing field with out-of-state companies who beat their prices by not collecting sales taxes.

It will be interesting to see if local governments support the attempt to conform to the SSTP or continue to object to a central collector and the fusion of the state and local sales tax regulations into one code.

Perhaps higher revenue collections and fair treatment for domestic businesses aren’t as important to some local governments as the protection of their political patronage.

DAN JUNEAU is the president of the Louisiana Association of Business and Industry.