Louisiana Sales Tax & Audit Guide
Straightforward Answers to Your Louisiana Sales Tax Questions.
- Do I need to collect Louisiana sales tax?
- Should I be collecting or paying Louisiana use tax?
- What do I do if I should have been collecting but haven't?
- I received an audit notice. What should I do?
- Guidance on fighting a sales tax assessment in Louisiana.
Who Needs to Collect Louisiana Sales and Use Tax?
Like most states, to be subject to Louisiana sales tax collection and its rules, your business must:
1) Have nexus with Louisiana, and
2) Sell or use something subject to Louisiana sales tax.
How is Nexus Established in Louisiana?
According to the Louisiana Department of Revenue, sales tax nexus is created in Louisiana if a business has a physical presence in Louisiana, such as:
- Occupying and maintaining an office, distribution center, warehouse, or physical location where business is conducted.
- Having independent sales reps, employees, or agents conducting business in the state, including selling, delivering, or taking orders for taxable items in Louisiana.
- Assembling, installing, servicing, or repairing products in Louisiana.
- Owning, renting, or leasing real property or tangible personal property in Louisiana, including a computer server or software to solicit orders for taxable items.
- Delivering goods to Louisiana customers using your company-owned or leased truck.
- Maintaining inventory in Louisiana using a third-party fulfillment service, such as Fulfilled by Amazon (“FBA”).
Additionally, business that do not have a physical presence in Louisiana, can establish economic nexus by exceeding a certain annual sales threshold in the state. See the next section for details.
Economic Nexus (Wayfair Law) and Internet Sales in Louisiana
Louisiana requires that an out of state business, referred to as “dealers,” register with the Louisiana Department of Revenue to collect and remit sales and use tax if the business has a gross sales revenue in the state of more than $100,000 OR the business has made 200 or more transactions, regardless of amount, in the current or previous calendar year.
Total sales revenue, as defined by Louisiana, includes the following:
- Gross revenue from all sales of tangible personal property, products transferred electronically, or services for delivery within Louisiana.
- Any separately stated handling, transportation, installation, and other similar fees collected by the seller in connection with the sale.
- All sales for resale and sales to exempt entities.
- Sales made through a marketplace should NOT be included because those sales determine whether the marketplace itself meets the economic nexus threshold.
Once the sales threshold is exceeded, the seller must register with the state within 30 calendar days and must begin collecting Louisiana sales and use tax within 60 days.
Businesses with no physical presence in the state conducting internet sales may register to collect and remit the combined state and local sales tax amount of 8.45% on all taxable purchases of property.
Here is some additional information for remote sellers.
Louisiana Sales Made Through a Marketplace
As of July 1, 2020, Louisiana requires Marketplace Facilitators to register to collect and remit state and local sales and use tax on all taxable sales into Louisiana. This applies to sales made on the Marketplace Facilitators behalf as well as sales made on the behalf of a Marketplace Seller. As such, remote sellers do not need to worry about sales tax on sales made though a marketplace into Louisiana.
Which Sales Are Subject to Louisiana Sales Tax?
If you have nexus in Louisiana, the next step is to determine whether the products or services you sell are subject to Louisiana sales and use tax. Like most states, unless an item is specifically exempt, sales and rentals of tangible personal property are subject to Louisiana sales tax.
All sales, distribution, use, consumption, storage for use or consumption, rentals, and leases of tangible personal property are taxable, unless an exemption or exclusion is provided by law for a particular transaction.
While the general rules seem straightforward, the application of Louisiana’s sales tax rules to your business can get complicated.
We recommend scheduling a time to review your specific situation with one of our sales tax professionals.
Common exemptions from Louisiana sales and use tax
Commonly exempt items include:
- Food for home consumption
- Utilities such as electricity, natural gas and water
- Drugs prescribed by a physician or dentists
- Articles traded-in on new articles
The exemption for food sold for preparation and consumption does not apply to most local sales tax levies in Louisiana. More info on exemptions can be found here.
In the case of service transactions, only the specific transactions spelled out in the law are taxable.
Furnishing any of the following services is taxable in Louisiana:
- Sleeping rooms in hotels
- Admissions to amusement facilities, athletic, and recreational events
- Privileges of access to amusement, entertainment, athletic, or recreational facilities
- Storage or parking privileges by auto hotels and parking lots
- Printing and overprinting services
- Laundry, cleaning, pressing, and dyeing services
- Cold storage space and the preparation of property for cold storage
- Repairs to tangible personal property
- Telecommunications services
The state of Louisiana offers some general definitions related to the taxability of software which can be found in Chapter 2 of the Louisiana Revise Statutes. In general, canned software is taxable irrespective of it is downloaded or delivered on a tangible medium. However, pursuant to a revenue ruling, custom software is not taxable.
Under current Louisiana tax law, Software as a Service is nontaxable in Louisiana.
For more information, we recommend discussing your specific situation with a tax professional.
Shipping & Handling
Charges by a seller for shipping or delivery connected with the sale of tangible personal property are excludable from sales tax in Louisiana if the charges are separately stated and optional and avoidable by the buyer. For example, if the buyer has the option to come and pick up the property or have his own agent or delivery pick it up, it is not subject to sales tax.
While the general sales tax rules seem straightforward, applying those rules can get tricky when gray areas come up. The Louisiana Department of Revenue provides some specific guidance for the following:
- Telecommunications Sales of Services
- Cleaning and Cold Storage Sales of Services
- Sales Tax - Prepaid Wireless
- Boat Registration
- State Tax Reporting and Filing Requirements for Religious Organizations
- Printing Sales of Services
- Orthopedic Disability Sales Tax Rebate for the Taxpayer
- Commercial Farmer's Exemption Certification Program
- Purchase of Lease or Rental Vehicles Tax Exemption
Determining Local Sales Tax Rates in Louisiana
Louisiana's sales tax rate is 4.45%. 263 local governments and tax jurisdictions collect local tax sales tax of up to 7%. The average local tax rate is 5.076%
Local Sales and Use Tax Tables
We’ve included some of the most requested local tax rates in the chart below.
*Exact tax rates vary. Occupancy fees and taxes are not included in this table.
I Should Have Collected Louisiana Sales Tax, But I Didn't
Many of our competitors will suggest Filing a Voluntary Disclosure Agreement in each state. This is a one-size-fits-all solution that isn't always the best. Our sales tax professionals will work with you to determine the best and most cost-effective solution for your business.
If you determine your business has nexus, but you have not collected Louisiana sales tax, here are your options:
1. Register and pay back taxes, penalties, and interest, or
2. Complete a VDA to cut penalties (and, in some cases, reduce your tax liability and avoid interest).
Here is what you need to know about each option to make the best decision for your business:
Option 1: Register to Pay Back Taxes, Penalties, and Interest.
A VDA is not cost-effective if the past liabilities and penalties are minimal. Sometimes the best resolution for a business is to register with Louisiana and pay back taxes, penalties, and interest.
Be wary of the tax professionals that recommend doing a VDA in these cases. They are looking to make a buck rather than looking out for your best interests.
When to consider registration and payment:
- If you established nexus less than 3 or 4 years ago.
- The sales tax penalty is LESS than the professional fees charged for the VDA.
- Your business does NOT have a sales tax collected issue.
Beware: Registering does not generally end past liabilities.
If you're unsure what your past liabilities are, contact us. Our state tax professionals work with you so you can make the right choice for your business.
Option 2: Voluntary Disclosure Agreement (VDA)
Louisiana's lookback period: The standard lookback period is three years.
In many situations, voluntary disclosures are a valuable tool to reduce extended periods of past exposure.
The voluntary disclosure limits the lookback period to three years. Suppose you should have collected sales tax over the past ten years but didn't. If that is the case, you may benefit from doing a VDA.
A VDA may be a good option for you if:
- You established nexus more than 3 or 4 years ago.
- You have a sales tax collected but not remitted issue.
- The sales tax penalty savings is MORE than the professional fees charged for the VDA.
What to Expect During an Audit
The typical audit process usually follows the process laid out in this flowchart. See the detailed guidance for each stage of the process in the sections below.
Louisiana regularly audits businesses required to charge, collect, and remit various taxes in the state. Many audits begin with a call from a Louisiana Department of Revenue's sales tax auditor or a notice of tax due. If you agree with the tax due, you can pay the amount on the notice. If not, you have 30 days to formally protest the auditor’s assessment.
It’s good to start by getting a state and local tax professional involved to prepare for the audit.
I Received a Louisiana Sales Tax Audit Notice. What Should I Do?
Businesses that receive a sales tax audit notice need to consider the following questions:
- Without any sales tax audit experience, how can you trust that the state's auditor abides by the rules and follows proper procedures?
- How will you know when to provide documents or when to push back?
- Do you have a thorough understanding of your sales and use tax areas of exposure?
- Controlling the audit is paramount to limiting exposure and shaping the results. Are you confident in doing that on your own?
Unless you can confidently answer these questions, hiring a professional is most likely to be the best option.
Contact us to learn how our sales tax professionals can give you the peace of mind and confidence you’ll need during your audit.
Visit our resource pages for more information to help you make critical decisions during your Louisiana sales and use tax audit.
What to Expect from a Louisiana Sales Tax Auditor
If you want to know what to expect from an auditor, the Louisiana Department of Revenue provides a description of the process, which you can access here.
If you have questions about your situation, contact us to discuss it with one of our tax professionals.
For now, here is the summary of the general audit process:
- The auditor will conduct pre-audit research.
- The auditor will often schedule and perform an entrance conference.
- The auditor will request records (many of which the auditor is not entitled to and does not need)
Once the auditor receives the necessary records, they will compare your Louisiana sales and use tax returns to your federal income tax returns or bank statements to determine whether you reported all applicable or gross sales on your Louisiana sales tax return(s).
NOTE: A slight error in how the tax was charged on even a single type of transaction can add up to a significant sales tax liability.
Once the auditor is confident all sales are accounted for, they will:
- Review your exempt and out-of-state sales.
- Conduct a use tax audit – the auditor will request documents of accounts to make sure the retailer paid use tax adequately on applicable purchases.
Common areas audited include:
- Advertising Expense
- Auto & Truck Expense
- Repair and Maintenance
- Rent (including related party rent)
- Office Expense
- Miscellaneous Expense
When a business buys an item online without paying sales tax, the business may still be obligated to remit use tax to Louisiana. Believing otherwise often leads to shocking results for the unsuspecting taxpayer during an audit. Here is more information on Louisiana Use Tax.
Audit Closing Conference
The taxpayer has a short period to contest the findings with the auditor. Any issues with the results are handled as follows:
1. Issues related to exemptions, proof of tax paid, and calculations are worth addressing with the auditor.
2. Legal interpretations of sales tax law are often not resolvable at this stage.
Adjustments to the audit determination will be made where necessary after this conference, and a formal assessment will be issued.
This notice will inform you that you have sixty calendar days from the date of the notice to do any of the following:
- Pay the amount of the assessment.
- Appeal to the Board of Tax Appeals for redetermination of the assessment.
- Pay under protest and then either file suit or file a petition with the Board of Tax Appeals.
After the Audit – Understand and Defend Your Businesses Rights
Upon completion of the audit, there will usually be an exit conference with the auditor. The auditor will produce an audit report with corresponding work papers to support the Louisiana sales and use tax assessment.
It is advisable to have a sales tax professional present during this meeting. This is your first opportunity to see the auditor's findings. You'll want to push back on areas where they have overstepped their bounds or misapplied Louisiana's sales tax laws.
It's best to hold off on agreeing to the sales tax assessment until a sales tax professional has reviewed it for issues that should be challenged.
|Many businesses wind up drastically overpaying the state because the business owner or in-house accounting personnel weren't well versed in the sales tax laws that, if challenged, could have reduced their sales tax liability.|
We'll cover the process of challenging a Louisiana sales tax audit assessment in detail in the following sections.
Contesting Audit Findings with the Auditor
Louisiana Sales Tax Audit Protest Process Flow Chart
NOTE: If the deadlines are missed, it can be tough to get the case reopened.
After an audit, the auditor will issue a Formal Assessment
It's essential to review and understand its implications carefully.
The audit report:
- Details the auditor's findings
- Describes any proposed audit adjustments
- Shows the amount of tax, interest, and penalty due
If you are unable to resolve the issue with the auditor, or if you did not protest the proposed notice of assessment within the time prescribed, the Department of Revenue may issue a formal assessment (60-day letter). The next step will be to appeal by applying to the Board of Tax Appeals within 60 days of the formal assessment date.
Appeal with Board of Tax Appeals
Protest Rights and Audit Finding Confirmation
- The appeal must state why the assessment, the tax, interest, or penalties are incorrect.
- You must complete an appeal within 60 days, sixty (60) days from the date of the Notice of Assessment.
If you have received a Notice of Assessment and haven't talked to someone experienced in Louisiana State tax, now is the time. Do it before these deadlines are missed.
Settling a Louisiana Sales Tax Liability
After any critical notices are issued, you can settle your Louisiana sales tax case with the Louisiana Department of Revenue by filing a Louisiana Offer in Compromise.
To qualify, the business must meet specific criteria, but often, you can get better results negotiating here than with the auditor. However, without experience and knowledge of Louisiana tax laws, knowing a fair settlement from an unreasonable one will be challenging.
DO NOT attempt to negotiate a settlement without an experienced Louisiana state and local tax lawyer or other professional.
Contest a Louisiana Jeopardy Assessment
Louisiana may issue a Notice of Jeopardy Determination in certain situations.
The jeopardy assessment gives the Louisiana Department of Revenue the right to try to collect immediately.
The taxpayer shall have sixty calendar days from the date of payment of a surety bond, or the date of posting bond, to appeal to the Board of Tax Appeals for a redetermination of the assessment.
Louisiana Board of Tax Appeals
Suppose you can't resolve the case within the agency. Or maybe you have missed your deadlines. There's still one chance to fight your Louisiana sales tax assessment: The Louisiana Board of Tax Appeals.
The Louisiana Board of Tax Appeals is similar to court. The case begins with a Petition and is ultimately heard by the Board. If you cannot resolve your dispute with the Board of Tax Appeals, the case can be appealed to the Court of Appeals.
We don't generally recommend it, but you always have the option to skip the agency protest process and file it in tax court. Neither party wants to spend the time and resources on the uncertainty of the tax court. So, challenging the assessment can effectively maximize your settlement potential, provided you have an experienced representative.
Our team has handled hundreds of administrative court cases. It can help your company receive the resolution you are entitled to. Get in touch with us today.
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