Residents of Louisiana were not pleased in 2016 when their state legislature put in place a "temporary" state sales tax increase.  The word temporary often has a different meaning to state legislators than it does to the general public.  As of last month, lawmakers in the state decided to partially extend the increase by putting the state sales tax rate at 4.45% until 2025 citing budgetary shortfalls in the state government.

A Result Of Compromise

Although the reality of a state sales tax increase may still frustrate residents of Louisiana, the truth is that this rate was actually a compromise compared to where it had been set back in 2016.  A provision in the original tax increase bill back in 2016 has been dubbed as a "clean penny".  This means that the increase from 4% to 5% was done mostly arbitrarily because those are both round numbers.  They look easier on a spreadsheet than something like the 4.45% rate that has now been agreed upon until 2025.  Taxfoundation.org argues that scrapping the clean penny conception has actually been something worth cheering about in this legislation: 

One sizable improvement in the legislation is a removal of the roughest edges of what is known in the state as the "clean penny."  The clean penny was a temporary 1 percent sales tax hike that had been applied to a different basket of transactions than the underlying 4 percentage points that make up the majority of the state sales tax.

On the other hand, locking in a rate increase for the next seven years is something that Louisiana residents are just going to have to get used to.  Perhaps some in the legislature are hoping that people may not notice as much given the less than one percent increase. 

A Complex Structure Leads To The Possibility Of Legal Challenges

Louisiana has such a complex tax structure that most expect legal challenges to emerge as a result of both the changes to the state sales tax laws and also the recent Supreme Court ruling which held that states may opt to charge taxes on purchases made online.  While Louisiana lawmakers have been eager to put those online sales taxes into action, they have to contend with a complex tax structure that allows localities (in this case called parishes) to levy their own taxes as well. 

There are a total of sixty-four parishes in the state of Louisiana, and each of them has their own way of doing local taxes.  Not only do they have their own local rates, but they also have their own collection methods and auditing processes as well.  While this may have worked for the time being, all of the shifts in state sales tax policy are bound to create confusion and missteps along the way.  Tax experts are expecting a windfall of business for tax attorneys in the state of Louisiana as a result of these rule changes. 
Brian Greer

Written by Brian Greer