Louisiana was the first state to offer sales tax refunds to their international visitors. Unlike “duty free” shops at international airport departure terminals, Louisiana’s refund program is available at hundreds of stores throughout the state. International tourists must pay sales tax at the time of purchase and can then seek a refund later. The refund applies to tangible items purchased at tax-free stores and permanently removed from the United States. It does not cover sales taxes paid for personal services, such as hotels, restaurants, entertainment and transportation.
While many focus on the program’s influence on consumers, it also has an effect on retailers. To comply with reporting measures, businesses must often times develop new recordkeeping procedures, hire extra employees and, in previous years, pay fees.
In May, Louisiana enacted S.B. 51 to alleviate some of the costs incurred by retailers who participate in the program. For previous years, participating retailers were charged membership fees, which were set and adjusted by the Louisiana Tax Free Shopping Commission. The new legislation removes the Commission’s authority to charge such fees. Additionally, retailers who participate in the program will now register their location and the method of operating an international traveler's refund desk, including a system of record keeping for refund forms.
The new registration requirement reflects the fact that expenses incurred by the state are projected to be funded almost exclusively by international tourists instead of local retailers, according to the Louisiana Legislative Fiscal Office . Despite membership fees no longer being collected, the reduction in revenue from the fee is expected to be offset by growth in handling fee revenue charged to participating international tourists. Handling fees are charged when international tourists seek sales tax refunds.
The Fiscal Office determined that the bill is expected to reduce self-generated revenue by about $80,000 per year by eliminating the membership fee (approximately 800 participating retailers x $100 membership fee). However, even with the reduction, the Commission experienced increased revenue collections related to a flat-rate handling fee on sales tax refunds that has provided enough revenue to offset the proceeds of the membership fee.
Whether the removal of membership fees will have a lasting effect on state coffers remains to be seen. In the meantime, Louisiana businesses have a break on an annual fee.
Continue the discussion on Bloomberg BNA’s State Tax Group onLinkedIn: How effective are state tax holidays and how do they impact taxpayers?
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By Mark J. Kennedy
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