Who owed and collected Louisiana advance, sales, or use tax when catalog incentive merchandise moved through a distributor and end client to a Louisiana participant?

Plain-English summary

Louisiana tax duties depended on whether the distributor was a Louisiana dealer or had Louisiana nexus, while the Louisiana end client ultimately owed sales or use tax on merchandise delivered into the state.

The catalog company sold award merchandise to a distributor, which resold it to the end client; the company shipped directly to the Louisiana employee or customer receiving the award.

Four scenarios

Advance-tax credit

A distributor that actually paid advance tax could claim the advance-tax credit when it collected tax on resale. A distributor that used an exemption number or other documentation and paid no advance tax could not claim the credit.

Taxable amount

When sales or use tax was due, it applied to the total amount paid by the purchasing party—distributor or end client—for the property. Separately stated delivery charges were excluded.

Common questions

Q: Did the Louisiana participant's receipt make the merchandise taxable?

A: The ruling imposed Louisiana sales or use tax on the retail transaction into Louisiana unless an exemption applied.

Q: Could a nondealer distributor avoid advance tax?

A: Yes, by documenting that it was not a Louisiana dealer and was not required to register.

Q: Who collected final tax when the distributor had nexus?

A: The distributor.

Q: Were separately stated delivery charges included?

A: No.

Citations and references

• La. R.S. 47:301(3), (10), and (13)
• La. R.S. 47:302(A), 47:303(A), 47:304, 47:306(B), 47:321(A), and 47:331(A)
• LAC 61:III.101 — Private Letter Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA PLR 03-022

Original ruling text

Private Letter Ruling 03-022
Redacted Version
Taxability of Certain Sales for Employee or Customer Incentive Programs
January 21, 2004
A Private Letter Ruling based upon the following scenario was requested:
A company (the “Company”) that has nexus in all 50 states and is not based in Louisiana
uses agents or distributors to solicit catalogs to companies that run employee or customer
incentive programs. The companies that select these catalogs to best fit their needs are
referred to as “End Clients.” The agents or distributors are referred to as “Distributors.”
When an employee or customer qualifies for an item in one of Company’s catalogs, he fills
out an order form and sends it to Company’s office. Company processes the order and ships
the merchandise to the employee or customer and bills the Distributor, who is purchasing
the items of tangible personal property from Company at a discounted price. Distributor
then sells the item to End Client at a negotiated price.
A ruling was requested to determine who is responsible for the Louisiana sales or use tax and on
what amount in the following scenarios:
1) The Distributor and End Client are both located outside of Louisiana and neither have nexus in
Louisiana. Merchandise is being shipped to participants who live in Louisiana.
2) The Distributor and End Client are located in Louisiana, both have nexus in Louisiana, and
merchandise is being shipped to participants in Louisiana.
3) The End Client in located in Louisiana, the Distributor is located outside of Louisiana and does
not have Louisiana nexus, and merchandise is being shipped into Louisiana.
4) The End Client is located in Louisiana, the Distributor is located outside of Louisiana and does
have Louisiana nexus, and merchandise is being shipped into Louisiana.
Following is a discussion of the Louisiana sales and use tax as it applies in general. Thereafter each
specific scenario is addressed.
La. R.S. 47:302(A), 321(A) and 331(A) provide that tax is due “upon the sale at retail, the use, the
consumption, the distribution, and the storage for use or consumption in this state, of each item or
article of tangible personal property…” The term “sale at retail” is defined in La. R.S.
47:301(10)(a)(i) as “a sale to a consumer or to any other person for any purpose other than for resale
as tangible personal property…” If sales or use tax is due, the purchaser is responsible for paying the
tax and the dealer is responsible for collecting the tax. (La. R.S. 47:303(A) and 304). If, however,
the purchaser is buying the item in order to resell it, the transaction is not a retail sale according to
La. R.S. 47:301(10), but rather a sale for resale. If this is the case, the seller must collect advance
sales tax from the purchaser. When the purchaser resells the item and charges sales tax, he may
deduct the amount of advance sales tax he has paid from the amount of sales tax he collected on his
sales tax return. (La. R.S. 47:30(B)(3)). However, if the purchaser has an exemption identification
number

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issued by the Louisiana Department of Revenue in accordance with La. R.S. 47:306(B), he will not
be responsible for paying the advance sales tax and the seller will not be responsible for collecting
the advance sales tax. Finally, La. R.S. 47:302 provides that there shall be no duplication of the tax.
This means that either the sales or the use tax will be due on the transaction, but not both.
When sales tax is due on a transaction, it is due on the sales price. (La. R.S. 47:302(A)(1), 321(A)(1)
and 331(A)(1)). “Sales price” is defined in La. R.S. 47:301(13) as:
“The total amount for which tangible personal property is sold, less the market value of any
article traded in including any services, except services for financing, that are a part of the
sale valued in money, whether paid in money or otherwise, and includes the cost of
materials used, labor or service costs, except costs for financing which shall not exceed the
legal interest rate and a service charge not to exceed six percent of the amount financed,
and losses; provided that cash discounts allowed and taken on sales shall not be included,
nor shall the sales price include the amount charged for labor or services rendered in
installing, applying, remodeling, or repairing property sold.”
When use tax is due on a transaction, it is due on the cost price. (La. R.S. 47:302(A)(2),
321(A)(2) and 331(A)(2)). “Cost price” is defined in La. R.S. 47:301(3) as:
“The actual cost of the articles of tangible personal property without any deductions
therefrom on account of the cost of materials used, labor, or service cost, except those
service costs for installing the articles of tangible personal property if such cost is
separately billed to the customer at the time of installation, transportation charges, or any
other expenses whatsoever, or the reasonable market value of the tangible personal
property at the time it becomes susceptible to the use tax, whichever is less.”
Application to specific scenarios
1) The Distributor and End Client are both located outside of Louisiana and neither have nexus
in Louisiana. Merchandise is being shipped to participants who live in Louisiana.
Sale from Company to Distributor
Neither party is located in Louisiana and Distributor does not have Louisiana nexus. The fact that
Company has Louisiana nexus does not affect the situation since the purchaser, Distributor, does not
have Louisiana nexus. Therefore, as long as Distributor provides documentation to Company that it
is not a Louisiana dealer and not required to be registered to collect Louisiana sales and use tax,
Company is not required to collect the advance sales tax and Distributor is not required to pay the
advance sales tax. However, if Distributor is registered to collect sales or use tax in Louisiana, even
though not required to be because it lacks nexus, it must pay the advance sales tax on this purchase
and Company must collect the advance sales tax since it has Louisiana nexus. If Distributor has an
exemption identification number issued by the Department of Revenue as discussed above, the
advance sales tax will not be due.

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Sale from Distributor to End Client
Louisiana use tax is due on sales made outside of Louisiana when the item is brought into Louisiana
for use, consumption, distribution or storage for use, consumption or distribution in this state, as
discussed above. End Client is responsible for the Louisiana use tax since it purchased the item and
had it shipped to Louisiana. If Distributor is registered to collect sales or use tax in Louisiana, it is
responsible for collecting the use tax from End Client.
If Distributor is registered to collect Louisiana sales or use tax, did not have an exemption
identification number and was required to pay tax on its purchase from Company, when it resells the
item it is eligible to claim the advance tax credit on its sales tax return. (La. R.S. 47:306(B)).
However, if Distributor did present an exemption identification number or other documentation to
Company on the original purchase and did not pay sales tax, it is not entitled to claim the advance
tax credit.
2) The Distributor and End Client are located in Louisiana, both have nexus in Louisiana, and
merchandise is being shipped to participants in Louisiana.
Sale from Company to Distributor
Because the Distributor is located in Louisiana and has nexus with Louisiana, it must pay the
advance sales tax. Company has Louisiana nexus and is therefore required to collect the advance
sales tax from Distributor. If Distributor has an exemption certificate number as discussed above it
will not have to pay the advance sales tax on the transaction.
Sale from Distributor to End Client
Because Distributor and End Client are both located in Louisiana and the property is shipped into
Louisiana, Louisiana sales tax is due on the sales price. Distributor is responsible for collecting the
tax and End Client is responsible for paying the tax as discussed above since they are both located in
Louisiana and both have Louisiana nexus.
If Distributor was required to pay the advance sales tax on its purchase from Company, when it
resells the item it is eligible to claim the advance tax credit on its sales tax return as discussed above.
However, if Distributor presented an exemption certificate number to Company on the original
purchase and did not pay sales tax, it is not entitled to claim the advance tax credit.
3) The End Client is located in Louisiana, the Distributor is located outside of Louisiana and does
not have Louisiana nexus, and merchandise is being shipped into Louisiana.
Sale from Company to Distributor
Distributor is not required to pay the advance sales tax because it is not located in Louisiana and
does not have Louisiana nexus. However, Distributor must provide documentation to Company that
it is not a Louisiana dealer and not required to be registered to collect Louisiana sales or use tax. If
Distributor is registered to collect sales or use tax in Louisiana, even though not required to be
because it lacks nexus, it must pay the advance sales tax on this purchase and Company must collect

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the advance sales tax since it has Louisiana nexus. If Distributor has an exemption identification
number issued by the Department of Revenue as discussed above, the advance sales tax will not be
due.
Sale from Distributor to End Client
Louisiana use tax is due on sales made outside of Louisiana when the item is brought into Louisiana
for use, consumption, distribution or storage for use, consumption or distribution in this state, as
discussed above. End Client is responsible for the Louisiana use tax since it purchased the item and
had it shipped to Louisiana. If Distributor is registered to collect sales or use tax in Louisiana, even
though it is not required to be since it lacks nexus, it is responsible for collecting the use tax from
End Client.
If Distributor is registered to collect Louisiana sales or use tax, did not have an exemption
identification number and was required to pay tax on his purchase from Company, when it resells the
item it is eligible to claim the advance tax credit on its sales tax return as discussed above. However,
if Distributor did present an exemption identification number to Company on the original purchase
and did not pay sales tax, it is not entitled to claim the advance tax credit.
4) The End Client is located in Louisiana, the Distributor is located outside of Louisiana and does
have Louisiana nexus, and merchandise is being shipped into Louisiana.
Sale from Company to Distributor
Although Distributor is located outside of Louisiana, it does have Louisiana nexus. Therefore, it is
required to pay the advance sales tax. Company has Louisiana nexus and is therefore required to
collect the advance sales tax from Distributor. If Distributor has an exemption certificate number as
discussed above, it will not have to pay the advance sales tax on the transaction.
Sale from Distributor to End Client
Because End Client is located in Louisiana, Distributor has Louisiana nexus and the property is
shipped into Louisiana, Louisiana sales or use tax is due on this transaction. End Client is
responsible for the Louisiana tax since it purchased the item and had it shipped to Louisiana.
Because Distributor has Louisiana nexus, it is responsible for collecting the tax from End Client.
If Distributor was required to pay the advance sales tax on its purchase from Company, when it
resells the item it is eligible to claim the advance tax credit on its sales tax return as discussed above.
However, if Distributor presented an exemption certificate number to Company on the original
purchase and did not pay sales tax, it is not entitled to claim the advance tax credit.
In each of the above scenarios, when the sales or use tax is due, it is due on the total amount paid by

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the purchasing party, either Distributor or End Client, for the property. The definitions set forth
above provide for this. The total amount that is taxable does not include any separately stated
charges for the delivery of the property.
If you should have any questions or need additional information, please contact the Policy Services
Division at (225) 219-2780.
Sincerely,
Cynthia Bridges
Secretary
By:

Cynthia D. Pugh
Attorney
Policy Services Division

This correspondence constitutes a private letter ruling (PLR) by the Louisiana Department of Revenue, as provided for by
section 61:III.101 of the Louisiana Administrative Code. A PLR provides guidance to a specific taxpayer at the taxpayer's
request. It is a written statement that applies principles of law to a specific set of facts or a particular tax situation. A PLR
does not have the force and effect of law, and is not binding on the person who requested it or on any other taxpayer. This
PLR is binding on the department only as to the taxpayer to whom it is addressed, and only if the facts presented were
truthful and complete and the transaction was carried out as proposed. It continues as authority for the department’s
position unless a subsequent declaratory ruling, rule, court case, or statute supersedes it.