The city of New Orleans has collected $466,671 in sales taxes through July of this year through a special French Quarter sales tax even though the tax expired at the end of last year, according to records obtained by The Lens. But it appears that the city won’t be able to use any of that money.
“There is absolutely no way we can ever spend this money,” city analyst Eric Smith told The Lens. “And it’s unfortunate that it was collected by businesses and remitted to the city.”
The tax, sometimes known as “quarter for the quarter,” was a 0.25 percent sales tax applied to French Quarter businesses from 2016 until it expired at the end of 2020. The tax was formally levied by the French Quarter Economic Development District — a state-created agency governed by the New Orleans City Council — and collected by the city on its behalf. The tax was used exclusively to fund Louisiana State Police patrols in the French Quarter and surrounding area.
French Quarter residents voted to reinstate the tax through an April ballot measure that authorized the tax to begin July 1 of this year. But due to a series of disagreements between the city and the French Quarter Management District — the state-created board that was supposed to manage the tax revenue under the language in the ballot initiative — officially sanctioned collections won’t happen until October.
In the interim, it appears that some French Quarter businesses have continued to erroneously collect the additional tax from customers and remit the money to the city.
“This is a matter of extreme concern for the French Quarter Business Association,” FQBA Executive Director Brittany Mulla McGovern said in a presentation during a Monday meeting of the French Quarter Management District.
McGovern, who is also on the FQMD board, said the issue came on her radar in August, when the city hand-delivered an invoice to one French Quarter business indicating that it owed tax proceeds from the expired FQEDD tax. Since the tax was expired, that invoice appears to have been an error.
“We reached out to the finance department and they assured us this was a segregated case of a business being invoiced for an expired tax,” McGovern said.
But while the invoice may have been an isolated incident, some businesses have apparently continued to collect the expired tax. And McGovern argued that even without actively trying to collect the tax, the city is still at fault for failing to notify businesses that the tax was expiring and for failing to remove the tax from a sales tax form filled out by businesses when they remit taxes.
“To the best of our knowledge, the City of New Orleans never notified businesses within the FQEDD boundaries to cease collection,” McGovern told The Lens in August.
In response to those concerns, Mayor LaToya Cantrell’s spokesperson Beau Tidwell told The Lens in August that the city had, in fact, notified businesses. But the notification he pointed to was a press release issued on June 30, six months after the tax expired. And the press release wasn’t about the expiration of the previous tax. It was about the delayed collection of the new one.
Smith said that initially, there was some confusion in December about whether the responsibility to inform businesses that the tax was expiring fell to the city or the FQEDD.
“I think that’s kind of where the miscommunication originated from,” Smith said.
It’s unclear what will happen to the funds now. The money cannot simply be returned to the businesses, Smith said.
“The problem is that if a business collects a tax, they are then legally obligated to remit it to the city because otherwise businesses could just decide to collect whatever they want,” he said.
He said that customers could apply for refunds if they had itemized receipts. But given the small amount, that may be unlikely. Thet tax only added a quarter to a $100 bill.
“Obviously it would be very difficult for customers to get a refund,” Smith said.
He said for now, the city is segregating the funds to make sure they aren’t spent. Smith said he wasn’t entirely clear on what will eventually happen to the funds, but said that they might eventually go to the state as unclaimed property.
History of the tax
The original FQEDD tax was approved by voters in 2015. It went into effect the following year and expired at the end of 2020. The money was used to fund supplemental Louisiana State Police patrols.
Mayor LaToya Cantrell’s administration tried to renew the tax in a December ballot measure to ensure the tax would continue to be collected without interruption. But that effort stumbled due to disagreements between the city and FQMD over how the money would be spent and how much formal control FQMD would have over the funds.
Cantrell wanted to split the money between funding police patrols and funding additional grounds patrol units to deal with quality of life issues. FQMD wanted the money to be exclusively used on police patrols, rather than grounds patrol, and wanted to have a formal role in the administration of the funds. The FQMD ultimately came out against the December ballot measure being championed by Cantrell.
The FQMD’s opposition may have been an influential factor in the ballot measure’s failure, given the small number of voters eligible to cast a ballot on the issue. The December ballot measure was shot down with 595 no votes and 297 yes votes.
After that loss, the FQMD began working directly with the City Council on a new ballot measure that would reinstate the tax. Unlike the December ballot measure, the new one guaranteed that almost all the funds would be used on police patrols and gave the FQMD an explicit administrative role.
That ballot measure was approved by voters in April. According to the ballot language, the tax could be collected starting July 1. The FQEDD had scheduled a meeting on June 30 to authorize the new tax collection. But at the last minute, the FQMD asked Councilwoman Kristen Palmer to cancel the meeting and delay the tax. Because new sales taxes have to be implemented at the beginning of a fiscal quarter, that decision meant the new tax wouldn’t go into effect until October at the earliest.
The FQMD gave several justifications as to why it requested the delay, including that they didn’t think businesses had enough time to prepare to collect the tax. But the central reason appeared to be that FQMD wanted to ensure that hotel room sales were exempted from the tax.
Hotel room sales had been exempt from the tax from 2016 through 2020. Although, as The Lens has previously reported, the legal justification for that exemption isn’t entirely clear. And in 2021, the State Bond Commission and attorneys for the Cantrell administration raised objections to the legality of the hotel exemption.
Despite those objections, the FQEDD authorized the collection of the tax and the hotel room exemption in August, and the tax is now set to go into effect on October 1.