House rejects governor's half-cent sales tax proposal

BATON ROUGE — The House on Thursday rejected a bill that would have extended a half-cent of sales tax that Gov. John Bel Edwards has said is needed to avoid significant budget cuts.

The vote was 60-40 in favor of the bill, but it needed a two-thirds majority, or 70 votes, to pass. Thirty-six Democrats, 21 Republicans and three independents voted for the bill, and 38 Republicans and two Democrats voted against it.

The vote came after a Republican bill to limit the sales tax extension to four-tenths of a cent was amended to half a cent. Democrats said they will continue to seek the higher amount, which many Republicans have opposed in an effort to shrink the size of state government.

Another bill that would have temporarily renewed a half-cent of sales tax was withdrawn earlier Thursday after a U.S. Supreme Court ruling on internet sales-tax collection added another complication to the tension of the 10-day special session to deal with a projected $648 million budget shortfall.

The ruling was good news for Louisiana, which should be able to collect sales taxes from more Internet retailers, including those without a physical presence in the state.

When those online tax collections will kick in — and how much revenue they will generate — was in dispute, which makes it more difficult for legislators to compromise over how much of an expiring penny of sales tax they should extend.

Republican leaders seemed likely to focus on trying to pass the four-tenths of a cent bill, which was co-authored by Rep. Paul Davis, R-Baton Rouge, and House Speaker Taylor Barras, R-New Iberia.

“I did think it was a good compromise,” Davis said about her bill, adding that her proposal was a compromise between the one-third of a cent extension preferred by the Republicans in the last special session and the half cent that the Senate voted for then.

Davis’ proposal for a four-tenths of a cent renewal would bring in roughly $424 million in revenue, while a half-cent renewal would provide about $510 million.

The Supreme Court’s 5-4 decision Thursday overturned a 1992 ruling limiting states’ ability to collect taxes on online purchases by residents. That ruling had said that the Constitution’s interstate commerce clause prohibited states from requiring businesses to collect sales taxes if the company had no property or employees there.

The ruling should lead to more revenue for Louisiana because Edwards signed a bill earlier this month with an intent to expand the sales tax base to include Internet merchants.

The law’s wording mirrors the South Dakota law passed in March 2017 that served as the subject of the Supreme Court case, and the law hinged upon the court’s decision.

The uncertainty about when it will lead to more revenue for Louisiana, however, triggered new disputes on Thursday and may have worsened conditions for a compromise.

Rep. Walt Leger, D-New Orleans, and Edwards’ floor leader, and Rep. Julie Stokes, a moderate Republican from Kenner, told fellow House members that it could take a year or two before Louisiana could began collecting more online sales taxes.

Edwards’ aides said that because the Supreme Court remanded the South Dakota case to a lower court for a rehearing, Louisiana might have to wait until the process was finished.

Rep. Alan Seabaugh, R-Shreveport, disagreed, saying that the bill Edwards signed explicitly states that it would go into effect immediately upon the Supreme Court’s ruling. The bill’s language said it would take effect after a final ruling finding South Dakota’s bill to be constitutional.

Rep. Nancy Landry, R-Lafayette, said on the House floor that the court ruling could enable Louisiana to begin receiving online sales taxes right away.

Rep. Terry Landry, D-New Iberia, said in an interview that Republicans were using the court’s decision as “an excuse” to avoid voting on tax bills needed to avoid significant cuts in state services.

But Seabaugh stated that Edwards’ proposal “is already the largest budget in Louisiana history.”

“The collection of these additional sales taxes is going to make it grow even more,” he added.

Earlier in the day, Rep. Stuart Bishop, R-Lafayette, withdrew his bill that would have extended the state sales tax by half a cent, to 4.5 percent, until 2021 and then gradually reduce the rate until it expired in 2025.

Bishop said he withdrew it because the Supreme Court ruling helped make it clear that there would not be enough votes to pass the half-cent extension, which many Republicans oppose.

His move disappointed Democrats, who had planned to amend Bishop’s bill to maintain the half-penny extension after 2021.

Louisiana’s new Internet sales tax law would require out-of-state entities who earn $100,000 or more in revenue from retail sales to Louisiana residents or who conduct 200 or more separate transactions in Louisiana to collect the state sales tax.

Local businesses, familiar with collecting state sales taxes, have long contended that online competitors free of tax obligations like Amazon and Etsy create an unfair playing field. States lost roughly $13.7 billion in taxes from online sales, according to a 2017 report from the federal Government Accountability Office.

Amazon began collecting both state and local sales taxes for Louisiana in 2017 after lawmakers pressured them to either include sales taxes or issue paperwork to customers reminding them of what they owe in taxes.

Although House Republicans were quick to argue Thursday that any projected online tax collections should be counted toward what is needed to ease the budget shortfall, Cameron Henry, the chairman of the House Appropriations Committee, had cautioned Wednesday in another context about budgeting revenue not recognized by the state’s Revenue Estimating Conference.

“REC has to recognize it, so you don’t give false hope there that it’s not going to come through,” he said then.

The Revenue Estimating Conference, responsible for establishing projected state tax collections, does not plan to meet again until July, and Edwards has pressed the Legislature to solve the budget problems before the end of the fiscal year on June 30.

In the case decided Thursday, Wayfair vs. South Dakota, Supreme Court Justice Kennedy wrote for the majority along with Justices Thomas, Ginsburg, Alito and Gorsuch. Chief Justice Roberts filed the dissent and was joined by Justices Breyer, Sotomayor and Kagan.

Louisiana, along with 30 other states, currently have laws taxing Internet sales. A state law implemented in 2016 requires shoppers to pay sales taxes for in-state and out-of-state online purchases but out-of-state retailers rarely charge them.

It has always been difficult for the state to enforce the internet tax laws. If retailers do not collect the taxes, Louisianans are supposed to report online purchases without state sales tax on their income tax returns.

PHOTO: Rep. Paula Davis, R-Baton Rouge, proposed extending four-tenths of a cent of sales tax as a compromise between Democrats and Republicans. (Photo by Sarah Gamard / LSU Manship School News Service)