garage sale

By Chris Dicharry and Jason Brown

The Louisiana state and local sales tax laws have historically included an isolated or occasional sale rule. In general, the rule looks at the characteristics of a seller to determine if a sales taxable transaction has occurred. If the seller is not engaged in the business of selling the type of property being sold and does not hold itself out as being engaged in such business (La. R.S. 47:301(1)), the transaction is not subject to sales/use tax regardless of the nature of the buyer. La. R.S. 47:301(10)(c)(ii)(bb)(the “Occasional Sale Rule”). It was the Occasional Sale Rule that not only allowed yard and garage sales without state or local sales tax, but allowed a grocer to sell used computers, a retailer to sell used display cases, and a vessel operator to sell used vessels without sales tax.

In the most recent Special Session that ended in March, the Louisiana Legislature limited the Occasional Sale Rule. Under the revisions, sales qualifying as isolated or occasional sales will be subject to state sales tax at the following rates:

  • 4/1/2016 – 6/30/2016 – 4% state sales tax
  • 7/1/2016 – 6/30/2018 – 2% state sales tax
  • 7/1/2018 and after – 0% state sales tax

The new 5th penny of the state sales tax effective April 1, 2016, recognizes the Occasional Sale Rule. Thus, only a 4% state sales tax from April 1, 2016 through June 30, 2016 and the reduced rate of 2% from July 1, 2016 through June 30, 2018 will apply.

The loss of the Occasional Sale Rule affects transactions far beyond yard and garage sales. The Occasional Sale Rule has been used to avoid sales tax (and collection responsibility) in connection with transfers of industrial facilities, even among related parties, and to avoid sales tax in connection with capital contributions of tangible personal property on entity formation. Titled vehicles have not had the benefit of the Occasional Sale Rule and have always been subject to state and local sales tax on the registration of the vehicles, but under the new law transfers of all sorts of corporeal movable (tangible personal) property will be subject to state sales tax. Incorporeal (intangible) and immovable property continue to be excluded from both state and local sales/use tax; however, there will be occasional sales issues related to property identified as movable “other constructions” (tanks, towers, pipelines, etc.) on leased or right of way land. The sales tax provision protecting “other constructions” on leased or right of way land from being subject to sales/use tax, La. R.S. 47:301(l6)(l), has also been limited as follows:

  • 4/1/2016 – 6/30/2016 – 4% state sales tax
  • 7/1/2016 – 6/30/2018 – 2% state sales tax
  • 7/1/2018 and after – 0% state sales tax

The Louisiana Department of Revenue (the “LDR”) is reviewing whether “other constructions” should be treated as taxable.

Under the new law limiting the Occasional Sale Rule, sellers of property are required to register with the LDR, collect state sales tax and remit collected tax on a proper LDR sales tax return. Failure to collect and remit can lead to personal liability for the tax, interest and penalties for the seller. While the LDR may be lenient for lawn and garage sales, it may be less so in connection with facility transfers, capital contributions and when a large non-profit conducts a silent auction or similar event involving the transfer of property.