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Challenge to Louisiana Sales Tax System Barred by the Tax Injunction Act

Tax Development Jul 14, 2023

Challenge to Louisiana Sales Tax System Barred by the Tax Injunction Act

The Fifth Circuit Court of Appeals ruled1 on July 7, 2023 that the Louisiana decentralized sales tax system could not be challenged in federal court because the court lacked jurisdiction under the Tax Injunction Act (TIA).

Halstead Bead, Inc. (“Halstead”) is an Arizona online retailer selling products throughout the country. Halstead filed suit arguing that Louisiana’s parish-by-parish sales and use tax system is so costly to comply with that it runs afoul of the Dormant Commerce Clause doctrine and violates its due process rights. The company sought declaratory and injunctive relief against the enforcement of the tax system as well as nominal damages against various state and local governmental defendants. The district court dismissed the matter for lack of jurisdiction, reasoning that the TIA barred it from hearing Halstead’s claims. In the alternative, the district court refrained from exercising jurisdiction on grounds of comity.

The Court of Appeals agreed with the district court in holding that the TIA was clear in barring federal jurisdiction over Halstead’s claims. Under the TIA, “[t]he district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” Halstead’s proposed solution would halt the collection of sales tax in the state, thereby restraining tax assessment.

The second part of the court’s analysis reviewed the applicability of the TIA, with the question as to whether Halstead had a “plain, speedy, efficient remedy…in the courts of the state.” Louisiana law permits a declaratory judgment action to be heard in state courts as well as through the Board of Tax Appeals. Halstead failed to explain why it would be subject to any payment under protest requirement.

Finding that the district court was correct in invoking the TIA, the Court of Appeals declined to address the lower court’s decision to refrain from exercising jurisdiction on comity grounds.

Separate from the Halstead case, Governor John Bel Edwards has signed into law two bills aimed at reducing some of the sales tax compliance burdens in Louisiana. Edwards signed Act 15 (House Bill 171) and Act 375 (House Bill 558), both sponsored by state Representative Beau Beaullieu, R-New Iberia. Act 15 removed the remote sellers trigger of 200 or more transactions, while retaining the $100,000 threshold. The act also stipulated that the $100,000 sales revenue applies to retail sales only. Act 375 established a uniform electronic local return and remittance system under the control of the Louisiana Uniform Local Sales Tax Board (LULSTB). The existing Parish E-File will continue to be operated and maintained by the Louisiana Department of Revenue (LDR) through December 31, 2025, or until the LULSTB certifies to LDR that the new/revised uniform electronic local return and remittance system is fully operational. LULSTB will then be responsible for operating and maintaining the new system and staffing. There will also be a change to the composition of the LULSTB advisory board, increasing the membership from five to seven members, two of the members being representatives from business.

While the above acts are a step in the right direction, Louisiana will continue to be a complex state for companies to navigate. Lack of centralized audits, inconsistency in taxable bases between state and locals or even between locals, and numerous optional exemptions are some of the many factors that keep taxpayers nervous about the complexities of doing business in Louisiana.

Ryan’s Louisiana tax experts are here to help you navigate the complexities of Louisiana taxes. Please contact the individuals listed below to assist you in your dealings with the state.

1 Halstead Bead Inc. v. Richards, Case No. 22-30373 (July 7, 2023).


Susan Bittick

Matt Zagotti

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