On May 28, 2020, the Louisiana Legislature passed S.B. 138, which, if signed by the Governor, will require marketplace facilitators to collect and remit state and local sales and use taxes if they exceed an economic nexus threshold of $100,000 in sales or 200 transactions in the state in the current or previous calendar year.
Beginning July 1, 2020, the bill directs marketplace facilitators to register with the Louisiana Sales and Use Tax Commission for Remote Sellers (Commission) within 30 days of meeting either threshold and begin collecting the tax within 60 days. Following the Senate’s concurrence to a House floor amendment, the bill will now be sent to Governor John Bel Edwards, who is expected to sign it into law. If enacted, only four states with a sales tax remain that have not enacted a marketplace collection law: Florida, Kansas, Mississippi, and Missouri.
Background – right place, wrong time
S.B. 138 was introduced in response to Normand v. Wal-Mart.com USA, LLC, Dkt. No. 2019-00263 (La. 1/29/20), rehearing denied April 9, 2020, where the Louisiana Supreme Court held that a marketplace facilitator was not a “dealer” liable for Jefferson Parish sales tax on marketplace sales made by third-parties. In that decision, the court noted “the need for legislation to address the obligation of an online marketplace facilitator to collect sales tax on sales of third party retailers conducted through its online marketplace.” Id. at 24.
“Marketplace Facilitator” – definition and exclusions
Who is a marketplace facilitator?
S.B. 138 contains a broad definition of a “marketplace facilitator” that is not tied to payment collection. Under the bill, a person is a marketplace facilitator if it facilitates a sale for a marketplace seller through a marketplace by any of the following:
- Offering for sale through any means, by a marketplace seller, tangible personal property or sales of services for delivery into Louisiana.
- Collecting payment from the purchaser and transmitting all or part of the payment to the marketplace seller, regardless of whether the person receives compensation or other consideration in exchange for facilitating the sale or providing any other service directly or indirectly through any agreement or arrangement with one or more third parties.
Are there any carve-outs to the marketplace facilitator definition?
The bill contains several exclusions from the definition of a marketplace facilitator, including for third-party payment processors, advertising services platforms or forums, or any person who offers or facilitates the furnishing of hotels or other lodging or of rental of cars.
Are there any opt-out provisions for marketplace facilitators?
Yes. S.B. 138 contains a contractual opt-out provision allowing marketplace facilitators and marketplace sellers to enter into an agreement regarding the collection and remittance of the sales or use taxes if the marketplace seller meets the following requirements:
- Has annual US sales exceeding $1 billion (including affiliates and franchisees of a single franchisor);
- Falls within specific statutory provisions for certain telecommunications service providers that collect the state’s 911 fees;
- Provides evidence to the marketplace facilitator that it is registered as a dealer with the state and localities to collect sales and use tax;
- Notifies the Commission that it will collect and remit all applicable taxes and fees on its sales through the marketplace; and
- Remains liable for failure to collect or remit applicable taxes and fees on its sales.
Interestingly, the House adopted this opt-out provision as a floor amendment on third reading and final vote on May 27, to which the Senate subsequently concurred on May 28. In so doing, Louisiana will join several states that permit certain marketplace sellers to agree with marketplace facilitators that the marketplace seller will remain liable for sales and use tax collection and remittance, subject to various conditions. See, e.g., Multistate Tax Comm’n, Wayfair Implementation Marketplace Facilitator Work Group April 2020 White Paper (Apr. 2020) at 42. But, Louisiana will be the first state to adopt such an opt-out provision that is limited to a specific industry.
Notable administrative provisions
Do marketplace facilitators have to register with Parishes to collect and remit local sales or use taxes on marketplace sales?
No. S.B. 138 directs marketplace facilitators to register with the Commission rather than having to register independently with each Parish’s local tax collector.
For background, the Commission is an independent agency within the Department of Revenue that consists of eight voting members with representation from state and local tax authorities. The Commission is charged with the general administration, collection, and distribution of sales and use taxes collected by remote sellers on remote sales.
Like other remote sellers, a marketplace facilitator that exceeds Louisiana’s Wayfair thresholds (200 or more separate transactions in the state or more than $100,000 of gross sales delivered into the state) must collect state and local sales and use tax on remote sales for delivery into the state and remit to the Commission. Once a marketplace facilitator crosses a threshold at the state-level, it will be required to register with the Commission to collect and remit all local sales and use taxes on remote sales even though the facilitator may not independently exceed a Wayfair threshold for each Parish.
Does the bill provide any liability relief for under-collection or over-collection of tax?
Sort of. Although S.B. 138 relieves marketplace facilitators for failure to collect sales and use tax if the marketplace seller provides incorrect or insufficient information. This liability relief is capped at five percent of the total sales tax due on the sales it made or facilitated in the state. Further, the bill provides no liability relief if the marketplace facilitator is affiliated to the marketplace seller (using a five percent ownership threshold). If a marketplace facilitator is relieved of liability, the seller making the sale on the marketplace will be subject to audit and liable for any tax due.
The bill also provides a marketplace facilitator with class action protection for overpayment of sales or use tax collected by the marketplace facilitator, provided that the marketplace facilitator did not intentionally collect the tax without regard to the applicable state and local tax rates and bases. This protection extends to any action before the Louisiana Board of Tax Appeals and state or federal courts brought by or on behalf of purchasers arising from or related to an overpayment of sales or use tax collected by the marketplace facilitator.
- Return election for 1P and 3P marketplace sales. S.B. 138 allows marketplace facilitators to report sales and use taxes on sales made by the facilitator with sales made by third-party sellers, or to report them separately.
- Audits and exemption certificates. Generally, the bill provides that a marketplace facilitator steps into the shoes of the marketplace seller for all state and local sales and use tax purposes, including taxability determinations, audits and exemption certificate collection and maintenance.
- Vendor’s compensation. The bill authorizes vendor’s compensation for marketplace facilitators if they timely file and remit all tax due on marketplace sales. The Commission will apply each taxing jurisdiction’s specific rate of vendor’s compensation as a deduction against tax due and reduce the monthly distribution to that jurisdiction.
Is the bill similar to NCSL’s Marketplace Facilitator Sales Tax Collection Model Legislation?
Yes, there are several similarities between S.B. 138 and the Marketplace Facilitator Sales Tax Collection Model Legislation developed by the National Conference of State Legislatures. Among those similarities with the NCSL model legislation, S.B. 138 includes:
- Similar class action protection and auditing provisions that require the Department to audit the marketplace facilitator for all facilitated sales, except in limited circumstances. Most notably among the differences, however, is that Louisiana would cap liability relief at a de minimis amount of five percent whereas NCSL did not cap such relief;
- An opt-out provision allowing marketplace facilitators and marketplace sellers to contractually agree to have the marketplace seller collect and remit the taxes and fees if the marketplace seller meets certain caveats. However, S.B. 138’s opt-out provision is narrower than the NCSL’s opt-out provision as it only applies to certain telecommunications providers that are marketplace sellers;
- “Marketplace facilitator” carve-outs, including for third-party payment processors, advertising services platforms or forums, and derivative clearing organizations; and
- The election to file separate or combined returns for 1P and 3P marketplace sales.
If S.B. 138 is enacted, only four states that impose a sales tax will remain without a marketplace collection law. While the Florida, Kansas, and Missouri Legislatures each proposed marketplace collection bills during their respective 2020 legislative session, each Legislature adjourned without passing marketplace collection legislation. However, marketplace legislation is still pending in Mississippi.
Because S.B. 138 will be presented to Governor Edwards within the last 10 days of the legislative session, he has 20 days from the delivery date to act on the legislation before it becomes law without his signature. Assuming the bill is delivered on passage, Governor Edwards would have until June 17 to sign S.B. 138 before it becomes law without signature, although we fully expect him to sign the legislation. Therefore, marketplaces selling into Louisiana will need to comply with S.B. 138 for sales made on and after July 1.