Arizona Business Owner Complains Louisiana Sales Tax is Unconstitutional for Out-of-State Sellers

Louisiana is facing complaints from an Arizona jewelry wholesaler claiming that their sales tax system is unconstitutional due to its compliance burdens on out-of-state sellers. Louisiana is a home rule state and has 64 parishes (localities) with different sales tax administration requirements. Other states with local taxes such as Texas and South Dakota are examples of states that were able to simplify their sales tax administration for out-of-state sellers. The Arizona business argues that this violates the 2018 Supreme Court South Dakota v. Wayfair decision’s commerce clause and due process clause. There have been indications of further lawsuits. (Eastern District of Louisiana, Halstead Bead, Inc. v. Lewis et al 2:21-cv-02106, filed November 15, 2021)

UPDATE (JUL 23): On July 7, 2023, the U.S. Court of Appeals for the Fifth Circuit affirmed in an unpublished opinion that the Tax Injunction Act precluded Halstead Bead from issuing a constitutional challenge to Louisiana’s sales tax system in federal court. Prior to the Court’s ruling, on June 15, 2023, Halstead Bead sent notice to the Court that recently enacted Louisiana legislation (H.B. 558) requiring the implementation of a single remittance system for taxpayers “resolves Halstead’s complaint and ensures that Halstead is no longer subject to Louisiana’s unconstitutionally prolix tax system.”

(Unpublished opinion, filed July 7, 2023, United States Court of Appeals for the Fifth Circuit; RE: Supplemental Authority, Halstead Bead, Inc. v. Richard, et al., No. 22-30373, June 15, 2023)

UPDATE: Halstead Bead filed a response brief in the U.S. District Court for the Eastern District of Louisiana that explains the argument against Louisiana’s sales tax systems as an unconstitutional burden on interstate commerce. The new Secretary of Revenue for Louisiana, Kevin Richard, is trying to dismiss the case under several federal procedural rules and has questioned the court’s jurisdiction to hear the case. Richard argues that “in the absence of a waiver, the Eleventh Amendment bars Halstead from obtaining an award of damages against him.” Halstead argues in response that Louisiana defendants are violating federal law by enforcing the filing and reporting requirements.

UPDATE: Halstead Bead has filed an opening brief to the U.S. Court of Appeals for the Fifth Circuit, urging them to reopen its case against the state of Louisiana, after it had been dismissed by a federal judge. On May 23, 2022, U.S. District Judge Jane Triche Milazzo granted a motion to dismiss Halstead Bead’s lawsuit, saying that the Tax Injunction Act (TIA) required the case to be filed in Louisiana courts. In its brief to the U.S. Court of Appeals for the Fifth Circuit, Halstead Bead claimed that the U.S. District Judge applied too broad of a reading of the TIA and that the company is not challenging a tax assessment. Per the brief, “Halstead does not challenge an assessment, collection, or levy. It challenges the burdensome regulatory requirements imposed by Louisiana’s locality-by-locality compliance rules.” Halstead is challenging the regulatory burden of registration in each Louisiana parish, not the collection of tax. Per the brief, “That burden is so extreme that Halstead is forced to curtail sales into Louisiana—thereby restricting interstate commerce—in order to avoid the costs and risks of liability. Halstead is willing to pay the state and local sales and use taxes due.” The brief asks the U.S. Court of Appeals for the Fifth Circuit to reverse the lower court’s decision and remand the trial. We will continue to monitor for developments in this case. (Halstead Bead Inc. v. Kimberly Lewis et al., Case number 22-30373, in the U.S. Court of Appeals for the Fifth Circuit)

Posted on October 17, 2022