Lawmakers Contemplate Changes to State Sales Tax
BATON ROUGE (The Center Square) — Officials with the Louisiana Department of Revenue and Legislative Fiscal Office presented lawmakers with information on the state’s sales tax Wednesday as they prepare for potential changes in the 2023 legislative session.
Louisiana imposes a 4.45% state tax on the sale or use of tangible personal property and eight specific services, such as hotels, admissions, laundry, repairs and others, with some exclusions and exemptions outlined in the constitution and state statutes.
Coupled with local sales taxes from 64 parishes and other entities, the overall average sales and use tax in Louisiana is the highest in the nation at 9.55% as of July 2022, Mia Strong, assistant at the Department of Revenue, told lawmakers on the House Ways and Means Subcommittee on State Tax Structure Wednesday.
While the state’s sales tax ranks 38th nationwide, Louisiana has the second highest average local sales tax rate in the country at 5.10%, she said.
Total state sales tax collections declined from about $4 billion in 2017-18 to about $3.5 billion in 2018-19, when the state sales tax rate decreased from 5% to the current rate, and has since rebounded to $3.7 billion in 2020-21 after hitting a five-year low of $3.3 billion in 2019-20.
Graphics presented Wednesday show Louisiana’s sales tax has remained the most consistent revenue from the state’s various licenses, taxes and fees since 1978.
In fiscal year 2021, top parishes for state sales tax collections included Jefferson Parish at $305 million, East Baton Rouge with $215 million, Orleans at $163 million, Caddo at $136 million and Lafayette at $132 million, Strong said.
Several economic development funds receive specific dedications from the revenues, which amounted to a total of more than $36 million in the last fiscal year. Another $33 million in state sales taxes levied on hotel rooms is also dedicated to local tourism and economic development funds.
Exclusions and exemptions also shave off about 41% of total potential collections, or about $2.4 billion of the roughly $6 billion in potential collections in fiscal year 2021.
A growing share of sales tax revenue comes from remote sellers, or those who sell online to state residents, which is subject to both the state and local sales taxes through a single filing submitted electronically on a monthly basis to the Louisiana Sales and Use Tax Commission for Remote Sellers.
In fiscal year 2021-22, the state collected more than $444 million from remote sellers, which resulted in $439 million distributed after a 1% fee for the commission.
“A question we have received is about whether or not remote sales have impacted our traditional sales collection, the storefronts that are still here,” Strong said. “We have found that has not been the case.”
“So we don’t see that remote sales are reducing collections from our physical dealers. What we do see, however, is a reduction from our direct marketers,” she said.
Direct marketers are remote sellers who do not meet the state’s threshold of $100,000 in sales or 200 transactions for remote sales tax, who voluntarily remit a flat rate tax of 8.45%, of which 4% is distributed to all parishes based on population.
In fiscal year 2022, the state collected a total of a little over $555,000 from more than 8,000 direct marketers, down from about $1.3 million collected from more than 54,000 direct marketers in 2020.
Renee Roberie, executive director for the remote sellers commission, told lawmakers the commission is now adding staffers to handle a significant increase in remote sellers remitting taxes above the threshold.
“To give you an example of our growth, the first quarter of year one we processed right under 2,500 returns. The first quarter of year two, 8,800 returns. The first quarter of this year, over 17,000,” she said.
Debbie Vivian, chief economist with the Legislative Fiscal Office, also explained to lawmakers how the revenues are distributed through the state budget.
“In total, sales make up about 30 to 35% of our budget, depending on which year it is, but it’s a relatively steady amount,” she said, adding that “sales make up about 40% of your general fund.”
The subcommittee is scheduled to meet again on Nov. 30, and will launch a website on the House Fiscal Division webpage in the coming days to offer materials from the presentations to the public.