Louisiana Sales and Use Tax Generally
The State of Louisiana, the various parishes and other political subdivisions, including school boards, water and drainage districts impose a tax on the sale at retail, the use, consumption, distribution and storage for use or consumption of tangible personal property, as well as on the lease or rental of such property and on sales of certain services (hereinafter collectively, the “sales tax”) within their jurisdictions.1
Sales tax is the largest single source of state revenue representing more than forty (40%) percent of the total for the second quarter of the fiscal year 2001-2002.2
The following is a discussion of taxpayer procedural rights and remedies, administrative and judicial, incident to a Louisiana sales tax audit.
General Powers of the Collector
The Secretary of the Louisiana Department of Revenue and Taxation (the “Collector”) is statutorily vested with the power to collect and enforce collection of all taxes, penalties and interest due under Title 47 of the Louisiana Revised Statutes, including sales tax.3
The Collector has a duty to keep an accurate record of all taxpayers, payments and reports necessary to administer the tax laws, all of which are confidential and may be disclosed only to statutorily listed parties, subject to criminal penalties.4 The Collector is authorized to promulgate and publish reasonable regulations to administer and enforce the tax laws which, when not inconsistent with state law or the state constitution, shall have the force of law.5
The Collector has all of the authority necessary to conduct audits, including the power to examine and inspect a taxpayer’s place of business, tangible personal property, books, records, papers, etc., as well as such property in the hands of third parties to the extent necessary. The Collector may conduct hearings and has the power to employ private counsel and to pass on the cost as an additional charge of ten (10%) percent of the taxes, penalties and interest due.6 The Collector also may employ alternate dispute resolution procedures as long as the aggregate tax, penalties and interest does not exceed One Million and No/100 ($1,000,000.00) Dollars.7 Although the Collector has a duty to determine the correct tax, the taxpayer and Collector can agree to use sampling procedures developed by the AICPA8. The Collector also is empowered to contract with local political subdivisions to collect and enforce local sales and use tax.9
After the audit has commenced, the Collector will make a determination of the tax, interest and penalty due, if any, and will set forth those amounts in a notice sent by regular mail to the taxpayer’s address set forth in the most recent return, or, if no return is filed, to any address that may be obtainable. This notice, normally referred to as the “15 day notice” will advise the taxpayer that assessment will take place fifteen (15) calendar days from the date of the notice (thirty (30) days for audits using sampling procedures).
At this point, the taxpayer has two (2) choices:
If the taxpayer has not filed a protest during the fifteen (15) day period, the Collector will assess the tax, interest and penalties and send a second notice, known as the “60 day notice”, to the taxpayer, this time by certified mail. At this point, the taxpayer will have sixty (60) days to take action. There are four possibilities:
These are the four (4) options available to the taxpayer. There are no other options. The taxpayer may not file a written protest at this point, nor may the taxpayer move from one option to another. The taxpayer may pay under protest at any time before an appeal to the Board of Tax Appeals, before the assessment becomes final (at the expiration of the sixty (60) day period) or before court action has commenced, but not afterwards. There can be no extensions of the sixty (60) day period although it can be shortened by a written waiver by the taxpayer.
If the Collector believes the taxpayer will quickly leave Louisiana, remove assets, discontinue business or otherwise hinder collection, the assessment can be made immediately and the tax will be due (even if payable at a later date). These “jeopardy” assessments can be made from any available information, including estimates by the Collector and, without notice, the Collector can begin distraint proceedings. However, as soon as feasible thereafter, but not less than two (2) days later, the Collector must give written notice to the taxpayer by certified mail with a demand for immediate payment. If a jeopardy assessment is issued, the taxpayer has only three (3) choices:
If the taxpayer is adjudicated bankrupt or a receiver is appointed, the Collector may immediately assess any tax, interest and penalty when due (even if payable later) and the assessment is presented in the bankruptcy or receivership proceeding, even if the fifteen (15) or sixty (60) day notice periods may be pending or a petition before the Board of Tax Appeals is still pending. 13
The Board of Tax Appeals
The Board of Tax Appeals is an independent agency of the executive branch of state government, composed of three (3) members who are appointed and serve at the pleasure of the governor. The Board is organized and statutorily designed with a purpose of resolving tax disputes at a minimum of inconvenience and cost to the taxpayer.14
The Board has jurisdiction over all matters relating to appeals for redetermination of assessments or for determination of overpayments, including all matters related to waiver of penalties. The Board has all of the normal powers and authority of a court to find facts and make determinations a law, including the power to administer oaths, issue subpoenas, compel obedience through contempt powers, issue discretionary written opinions, etc.15
The taxpayer or a corporate officer may represent themselves before the Board of Tax Appeals but this is not advisable since the rules of evidence of Louisiana district courts apply.16 Furthermore, stenographic records of the proceedings are taken and maintained like any other court proceeding. Within thirty (30) days after the judgment of the Board of Tax Appeals, either party may appeal solely to the district court for review. An appealing taxpayer must file a notice of appeal with the Board and post a bond in an amount not to exceed one hundred fifty (150%) percent of the full tax, interest and penalty. The district court’s scope of review is limited to the record before the Board of Tax Appeals.17 No new evidence may be admitted in the district court reviewing the Board. As a result, a taxpayer representing himself in the Board of Tax Appeals does so at his peril.
Payment Under Protest/Suit for Refund
In Louisiana, the selling dealer is the agent of the government for collection of sales tax and, as such, is required to collect and remit the tax. The purchaser (the “true” taxpayer) must remit protested sales or use tax to the selling dealer and must retain copies of documentation evidencing the amount of the sales or use tax paid to the dealer on the transactions. On or before the 20th day of the month following the month of the transactions on which the selling dealer charged the tax, the purchaser must inform the Collector by certified mail or other reasonable means of the dates and amounts of the protested taxes that were charged by the selling dealer, and must give notice of the purchaser’s intention to file suit for recovery of the tax within thirty (30) days.18
On receipt of this notice, the amount remitted to the Collector that had been paid to the selling dealer must be placed in an escrow account and held by the Collector for a period of thirty (30) days. If suit is filed for recovery of the tax within the thirty (30) day period, the funds in the escrow account will continue to be held in escrow pending the outcome of the suit. Funds will be released from escrow if the suit is not filed. If the taxpayer prevails, interest at the legal rate will accrue and be paid to the taxpayer, but only from funds derived from current collections.19
Suit must be filed in the 19th Judicial District Court for East Baton Rouge Parish which is the only court of proper venue since the Collector is the party defendant and is domiciled there.20 That court has jurisdiction to entertain taxpayer claims that the sales tax unlawfully burdens interstate commerce or otherwise violates the U.S. or Louisiana constitutions. If another case is pending concerning the same issue, the taxpayer and Collector can agree to abide by the pending case’s outcome, and payment under protest can take place without the necessity of filing suit.21 No court has jurisdiction to enjoin or restrain the collection of any tax, interest or penalty.22
The Collector has three (3) options available, namely, distraint, summary court proceedings or an ordinary lawsuit.23
Unlike the taxpayer in response to a sixty (60) day letter, the Collector can begin with distraint and thereafter move to summary or ordinary court proceedings to enforce the same tax obligation. Distraint is the right of the Collector to levy upon and seize and sell any property of the taxpayer to pay tax, interest and penalties. The only property exempt from distraint are items generally exempted by Louisiana law from seizure generally, such as seventy-five (75%) percent of disposable earnings, tools of the trade, household contents, etc. A list of the property is made by the Collector, a copy of which is sent to the taxpayer by certified mail, setting forth the time and place of sale in not less than fifteen (15) days. A newspaper advertisement is published in the Parish journal. Upon demand, the property is surrendered to the Collector and is sold to the highest bidder for cash at public auction. The proceeds are applied first to the cost of the sale, then to the assessment, with any excess remitted to the taxpayer.24
As an alternative to distraint, the Collector may utilize a summary court procedure in the nature of a rule to show cause which is tried and heard in preference to all other matters, either in open court or in chambers, at a time fixed by the court, but not less than two (2) nor more than ten (10) days after notice is served on the taxpayer. The burden of proof is on the taxpayer.25
The use of summary procedure is often selected by the Collector because of speed and efficiency. Additionally, there is an inherent procedural trap for the unwary general practitioner representing the taxpayer in these proceedings. All defenses and exceptions must be presented at one time and prior to the time set for hearing. Although continuances may be granted by the judge for good cause, the taxpayer must file an answer with all defenses on or prior to the original date for hearing. Thus, an attorney brought into a summary court procedure with little time to react will naturally ask for an extension of time but will lose all taxpayer defenses unless an answer is filed timely, regardless of the extension.26
The court must decide summary tax matters within forty-eight (48) hours of submission, even on appeal, and the judgment becomes final on the 5th calendar day after rendition. Once the rule is made absolute, the taxpayer may not then pay under protest and sue for a refund. No new trials or rehearings are permitted. Only suspensive appeals are allowed, upon posting of a bond, whether the appeal is to the Court of Appeal or the Louisiana Supreme Court.
The Collector often does not utilize ordinary court proceedings due to normal delays and because of venue considerations.
The Collector can proceed personally against officers, directors, managers or members of corporations, limited liability companies and limited partnerships which fail to file returns or remit sales and use taxes and may utilize all available procedural means against those responsible parties.27
The tax, interest, penalty and any attorney’s fees is a lien, privilege and mortgage against all of the tax debtor’s property, both movable and immovable, and is enforceable against third parties when a notice of lien is recorded in the mortgage records in the parish where the Collector believes the tax debtor has property.28 The lien ranks like any other by order of the time of recordation. The lien can be cancelled under the following circumstances:
The Collector is barred by prescription from collecting sales tax three (3) years after the 31st day of December in the year in which the tax is due but prescription can be suspended for the following reasons:
Once a timely assessment is final, it is the equivalent of a judgment in favor of the state and, as between the taxpayer and the state, is imprescriptible. As to third parties, the recordation of the assessment has the same effect as the recordation of any judgment, namely, it preempts in ten (10) years unless reinscribed.31
Interest on sales tax is computed at one and a quarter (1-1/4%) percent per month from the date the tax is due until paid. Beginning in 2006, interest will be tied to the legal rate of interest but cannot exceed the one and a quarter (1-1/4%) percent per month amount. If the taxpayer signs a waiver, consents to immediate assessment, and pays the tax within ten (10) days after mailing of notice of assessment, interest is computed only through the 30th day after filing of the waiver or the date of payment of the deficiency, whichever is earlier. The Collector can not waive or remit interest.32
There are a number of civil penalties applicable to sales tax:
There are also criminal penalties that can be imposed in the sales tax area. For example, in addition to all other penalties, willful failure to collect or pay over the tax is punishable by a fine of Ten Thousand and No/100 ($10,000.00) Dollars or imprisonment, with or without hard labor, for not more than five (5) years, or both.41 Willful failure to file or filing of a false or fraudulent return, or willful aiding and abetting another to do so with an intent to defraud or evade, is a misdemeanor punishable by a fine of not more than One Thousand and No/100 ($1,000.00) Dollars or imprisonment for not more than one (1) year, or both.42 There is a four (4) year statute of limitations on these criminal penalties from the date an offense is committed.43
The Collector is obligated to refund any overpayment of tax from current collections of sales tax for one of the following reasons:
If none of the foregoing applies, the Collector can still make a refund if it is determined that there is clear and convincing evidence that an overpayment has been made. Nevertheless, no tax refund is authorized if it resulted from the misinterpretation by the Collector of the provisions of any law or the rules and regulations promulgated thereunder. If a taxpayer believes the Collector has misinterpreted the law or promulgated rules and regulations contrary therewith, his remedy is by payment under protest and suit for refund or by appeal to the Board of Tax Appeals.44
If the Collector takes no action for one (1) year on a claim for refund or if the Collector denies the claim, in whole or in part, the taxpayer may appeal to the Board of Tax Appeals at any time after one (1) year’s inaction or six (6) months after disallowance, as the case may be. The Collector can answer the appeal by claiming additional assessments. The Board of Tax Appeals has jurisdiction to determine the amount of any overpayment as a result of a direct appeal of a disallowed claim for refund or as a result of a taxpayer petition to redetermine an assessment.45
The Collector may offset the refund against any taxes due by the taxpayer, even different kinds of taxes.46 A claim for refund prescribes three (3) years from the 31st day of December in the year in which the tax became due or one (1) year from the date of payment, whichever is later. If the Collector and taxpayer have signed a consent to extend limitations on assessment, limitations on credit or refund will be extended on the same terms.47
Interest on refunds is computed at the prevailing judicial rate from the date the return was due or the date the tax was paid, whichever is later. No interest is due if, in the discretion of the Collector, it is determined that the taxpayer overpaid on purpose. Interest is derived from current collections. If a taxpayer files bankruptcy, no interest will accrue on a refund or credit attributable to a pre-petition tax period.48
A little used procedure, known as a “Claim Against the State”, may be used by a taxpayer who voluntarily has paid a tax without protest but later learns that the tax has been ruled unconstitutional in other proceedings.49 A Claim Against the State is made by filing a petition with the Board of Tax Appeals. If the amount of the approved Claim does not exceed One Thousand and No/100 ($1,000.00) Dollars, the Chairman of the Board of Tax Appeals can issue a warrant for payment to the state treasurer. If the claim exceeds One Thousand and No/100 ($1,000.00) Dollars, the Chairman must make a report to the legislature and a legislative act of appropriation is required for the refund. The taxpayer may not bypass the Board by going to the legislature first.
Claims Against the State prescribe at the same time a Claim for refund prescribes, namely, three (3) years from the 31st day of December in the year in which the tax becomes due or one (1) year from the date of payment, whichever is later.50
Although a denial by the Board of Tax Appeals of a Claim Against the State may not be judicially appealed, a taxpayer whose Claim has been denied by the Board may petition the legislature for permission to file suit in a court of proper jurisdiction.
There are a number of procedural traps for the uneducated and the unwary in navigating a Louisiana sales tax audit, both at the administrative and judicial levels. Taxpayers should only attempt to navigate these treacherous waters with the assistance of competent legal counsel.
1 LSA R.S. 47:302(A),(B) and (C).
2 Revenue Quick Facts, Louisiana Department of Revenue, Vol. 5 No. 1 (March, 2002)
3 LSA R.S. 47:1502 and 1503.
4 LSA R.S. 47:1506-1508.1.
5 LSA R.S. 47:1511.
6 LSA R.S. 47:1542-1548.
7 LSA R.S. 47:1522.
8 LSA R.S. 47:1541.
9 LSA R.S. 47:1515.
10 LSA R.S. 47:1562 and 1563.
11 LSA R.S 47:1564 and 1565.
12 LSA R.S. 47:1566.
13 LSA R.S. 47:1567.
14 LSA R.S. 47:1401-1406.
15 LSA R.S. 47:1407-1416.
16 LSA R.S. 47:1414.
17 LSA R.S. 47:1434.
18 LSA R.S. 47:1576(A)(1)(b).
20 LSA R.S. 47:1576(B).
21 LSA R.S. 47:1576(D) and (E).
22 LSA R.S. 47:1575.
23 LSA R.S. 47:1561.
24 LSA R.S. 47:1571-1573.
25 LSA R.S. 47:1574.
26 LSA R.S. 47:1574(2).
27 LSA R.S. 47:1561.1.
28 LSA R.S. 47:1577.
29 LSA R.S. 47:1578.
30 LSA R.S. 47:1579.
31 LSA R.S. 47:1581.
32 LSA R.S. 47:1601.
33 LSA R.S. 47:1602.
34 LSA R.S. 47:1603.
35 LSA R.S. 47:1604.
36 LSA R.S. 47:1604.1.
37 LSA R.S. 47:1604.2.
38 LSA R.S. 47:1605.
39 LSA R.S. 47:1606.
40 LSA R.S. 47:1512.
41 LSA R.S. 47:1641.
42 LSA R.S. 47:1642.
43 LSA R.S. 47:1643.
44 LSA R.S. 47:1621.
45 LSA R.S. 47:1625-1627.
46 LSA R.S. 47:1622.
47 LSA R.S. 47:1623.
48 LSA R.S. 47:1624; La. Civil Code Art. 2924.
49 LSA R.S. 47:1481-1486.
50 Church Point Wholesale Beverage v. Tarver, 614 So.2d 697 (La. 1993). The Louisiana Supreme Court apparently ignored the 10 year prescriptive period specifically set for claims against the State in LSA R.S. 49:112.