The “Louisiana Way”

Dan Juneau


Louisiana has suffered over the years from a reputation of
having politics unduly and negatively influence the business
climate of the state. Louisiana’s nearly unique system for
collecting and administering sales tax revenues is a
particular problem when the Bayou State is compared to others.

These two factors converged recently in a way that sends
another negative message regarding how Louisiana businesses
are treated in matters of taxation.

The issue centers on Louisiana’s system of sales tax
collection, in particular the lack of centralized collection
of sales taxes. In almost every other state, there is only one
collector of the sales tax: the state. The money is collected
centrally and disbursed back to the local governments in
proportion to their local rate of taxation.

Local jurisdictions pay the state a small fee to collect their
taxes; however, they save money by not having to maintain an
expensive and duplicative local bureaucracy to do the
collections. In the other states, the central collector also
conducts audits of taxpayers. If taxes have not been paid
properly, the state collects the principal, interest, and
penalties for both the state and the local taxing entities.

Businesses have to fill out only one form—not a multiplicity
of them—when they submit their sales taxes. And they are
subject to only one auditing entity—not scores of them.

Our antiquated system of sales tax administration results in
Louisiana ranking at the bottom of “tax fairness” indicators
among the 50 states. Our laws in this regard are bad enough.
Unfortunately, a recent opinion written by our Attorney
General, Buddy Caldwell, makes a bad situation worse.

Louisiana law prohibits entities that collect local sales
taxes from contracting with private auditors on a contingency
fee basis to audit sales tax returns. The logic for this is
simple: auditing entities should not be tempted to treat
taxpayers unfairly in order to increase their compensation
from the local governments. These auditors have contracts that
give them a percentage of the amount of money collected
instead of being paid a flat fee or billing on an hourly basis
to do the audits.

Some local governments have defied the law and continue to use
contingency fee contracts. They have hidden behind the fig
leaf of a flawed Attorney General’s opinion from years ago
that found the contingency contracts not in conflict with the
law. An Attorney General’s opinion is just that—one lawyer’s
opinion, not something that changes a statute.

Senator Jack Donahue requested that Attorney General
Caldwell’s office revisit the opinion written by one of his
predecessors. Caldwell’s office did that and issued two new
opinions that clearly cited legal reasons why the previous
opinion was flawed. Then politics entered the equation. The
contract auditors and the local collectors they work for
leaned heavily on Caldwell to withdraw his new opinions.

Their arguments centered upon their desire not to pay auditors out
of their own funds rather than on any sound legal doctrine
proving that the current law somehow allows contingency fee
contracts. Attorney General Caldwell succumbed to the
“pressure” put on him by a few sales tax collectors and
reinstated the opinion written years ago.

In doing so, he confirmed to the national business community that anti-
business political chicanery is alive and well in Louisiana.
In the Bayou State, it often seems like for every step we take
forward in improving our business climate, we tend to take two
steps backward. Attorney General Caldwell’s recent sales tax
opinion is a prime example of that syndrome. Some call it the
“Louisiana Way.” It is the path to fewer jobs and less outside
investment, things that are sorely needed in these trying
times.