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I have a client Located in Louisiana performing online sales inside Louisiana which is in a destination-based sales tax state. I have run into an issue where they are using the town name from the delivery address to collect town sales taxes; however, some towns have unincorporated zones where the residents use the name of the closest town for address reasons, but they are technically outside of town limits meaning that the sales tax should not apply to them.

Below is a map of one such town where the red-dotted line is the town limits, but the yellow line represents the unincorporated zone where people use the town's name in thier address.

Due to how these lines fall, how do destination-based sales tax states expect sales tax to be collected when the City and Zip code of an address can not be used to determine if a particular address is inside of a local tax area?

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  • I'm not familiar with this particular law to speak to specifics, but usually sales taxes are reserved to powers of a state government and cannot be imposed by a local (county/parish, city, town, etc.), which typically will tax based on real property values. So the town being incorporated or not shouldn't matter. It's still under state law.
    – hszmv
    Commented Nov 3, 2022 at 15:59
  • @hszmv The above town (Mandeville, LA) has a city level sales tax. State Law says that online sales are taxed using destination-based method, so I would assume this means that local sales taxes also must use destination-based method unless I am mistaken
    – Nosajimiki
    Commented Nov 3, 2022 at 16:15
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    @hszmv That is not correct -- at least not in the United States. Among the states that have sales taxes at all, a very large majority permit local jurisdictions to impose their own sales taxes on top of the state sales tax. Altogether, there are something like 12,000 different sales tax jurisdictions across the country.
    – bdb484
    Commented Nov 3, 2022 at 16:26
  • @hszmv Your argument generally applies to all local taxes, including property tax. Generally, local governments may only collect taxes as authorized by the state government. In all cases, sales/use, property and local income, states will have statutes dictating the conditions (e.g. maximum rates, applicability/exemptions, necessary elections) to impose a local tax.
    – user71659
    Commented Nov 4, 2022 at 2:33

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There are vendors providing software to facilitate this sort of task. Avalara is perhaps the best known, but I don't have any experience with it and couldn't say whether it's actually any good or not.

But the bottom line is that in a destination-based sourcing regime, sales taxes must be computed based on the address of the destination, not city or ZIP code associated with that address. As Avalara has noted, this is a giant hassle, but it's nonetheless the current state of the law.

Of course, this assumes the seller has sufficient nexus with Louisiana to trigger a duty to collect sales taxes in the first place. From the question, it is not clear whether this is true.

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  • I looked at Avalara's tax tables, and they do not seem to differentiate incorporated and unincorporated town limits in many cases.
    – Nosajimiki
    Commented Nov 3, 2022 at 16:12
  • I'd imagine that in many cases, there may be no relevant tax implications from crossing those lines.
    – bdb484
    Commented Nov 3, 2022 at 16:20
  • After much more head-ache, the Louisiana Sales and Use Tax Commission for Remote Sellers has basically passed on trying to fund the public API that they were supposed to put out there, and is now referring people to Avalara (if you jump through enough hoops to get that far). While Avalara offers free tax tables that are not 100% compliant, they do sell a Geofencing API option that is compliant.
    – Nosajimiki
    Commented Dec 6, 2022 at 17:25

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