In a short, terse per curium opinion issued this morning, the US Court of Appeals for the Fifth Circuit affirmed a district court’s ruling in Halstead Bead, Inc. v. Richard, et al. that the federal Tax Injunction Act (“TIA”) barred the federal courts from hearing the case. There had been some question as to whether the Court would issue an opinion in the case, despite oral arguments already having taken place, or, at the plaintiff’s prompting, declare the case moot due to recent legislation affecting the statutory nexus thresholds for remote sellers. But in four short paragraphs the Court made clear it did not view the case as moot; nor was it persuaded that the vagaries of Louisiana tax law overcame the TIA.
Halstead Bead, Inc. is an Arizona-based company that sells its products online to customers across the country. The company has no physical presence in Louisiana and voluntarily suspended sales into the state in 2021 to ensure it did not trigger the state’s post-Wayfair dual nexus thresholds for remote sellers – i.e., 200 separate transactions or $100,000 in retail sales revenue. The company later filed a lawsuit in federal court challenging Louisiana’s two-tiered system of state and local sales/use tax collection, administration and enforcement as unconstitutional, on its face and as applied, and seeking to enjoin the state and several local, parish-level tax collectors from enforcing registration and reporting requirements. The defendants argued the federal courts lack jurisdiction to hear the plaintiff’s lawsuit under the TIA (28 U.S.C. § 1341) and sought the suit’s dismissal. The district court agreed, holding that the TIA barred its consideration and granting the defendants’ Motion to Dismiss. The plaintiff appealed the decision to the appellate court.
On review, the Fifth Circuit noted the TIA’s provision that federal 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.” Finding, first, that the remedy the plaintiff sought, “if granted, would stop the collection of Louisiana sales and use taxes from remote sellers such as Halstead” and, second, that “Louisiana state law provides a ‘plain, speedy and efficient remedy. . . in the courts of [the] State’” via the declaratory judgment and claim for refund procedures, the Court determined the plaintiff could not overcome TIA prohibitions. The federal courts, the Court ultimately affirmed, lacked jurisdiction to hear the suit.
An interesting feature of the case is that, post-oral argument, the plaintiff notified the Court by letter that the recent passage of HB 171 (Act 15) rendered its case moot. That legislation removed the 200-transaction nexus threshold for remote seller registration and reporting requirements, leaving only the $100,000 retail sales threshold in place. The plaintiff stated in its notice to the Court that, due to the legislation’s enactment, and because its sales will likely never meet the remaining revenue threshold, its case is now moot. The local collector-defendants, for their part, argued the legislation did not moot the case because the plaintiff’s original complaint argued that both thresholds were problematic. Presumably the collectors argued against the mootness notice because they wanted a ruling they could hold out as affirming the constitutionality of Louisiana’s state and local sales/use regime. Giving no public response, but with the apparent determination that recent legislation did not moot the plaintiff’s case, the Court issued its decision.
It is necessary to note that the Courts’ judgments related to procedural questions only, specifically regarding the lack of federal court jurisdiction, and did not get to the merits of Halstead Bead’s suit. That is, the Courts made no ruling on whether Louisiana’s sales/use tax system is constitutional. The Court leaves that question for the state courts and/or Board of Tax Appeals to decide, should such a suit ever be brought. The state and the local tax collectors will undoubtedly hold the decision out as one upholding the constitutionality of the state’s sales/use tax system, albeit indirectly, but that is an overly-broad reading of the opinion. The question of whether Louisiana’s two-tiered system of sales/use tax administration, collection and enforcement is constitutional is still an open one. Indeed, even with the new requirements that the Uniform Local Sales Tax Board establish a uniform electronic local return and remittance system for the electronic filing of all local returns and payment of all local sales/use taxes, see HB 558 (Act 375), the problem of inconsistent administration and enforcement across more than fifty state and local tax collectors in the state remains. And while the ULSTB’s eventual local filing/remittance system – the system is not required to be online until January 1, 2026 – will alleviate some compliance burdens, many others will remain. Unless the state moves to a truly centralized regime, the potential for more challenges remains.