Travel Markets Insider / March 2006
By Larry Luxner
NEW ORLEANS — It's a little-known fact, but Louisiana is the only state in the nation that offers foreign visitors a sales-tax refund on their purchases upon departure.
And now, in the aftermath of Hurricane Katrina, state officials are using those refunds to lure Europeans and Latin American tourists back to flood-ravaged New Orleans.
Lisa Ponce de León is executive director of the Louisiana Tax Free Shopping Commission, which was established by the state legislature in 1989 and has been renewed every three years since then. The commission is chaired by Eugene Schreiber, managing director of the New Orleans World Trade Center, and also includes Lt. Gov. Mitch Landrieu, State Treasurer John N. Kennedy and Cynthia Bridges, secretary of the Department of Revenue.
Ponce de León calls Louisiana Tax Free Shopping a "marketing tool, a feel-good program" to promote tourism to her city.
"I always tell people they can go to Europe without having to cross the ocean, just by coming to New Orleans," she said. "It's so different than the rest of the United States. The tax-free program is just a little something extra we add, so they'll hopefully extend their visit by one or two days more to go shopping."
Yet shopping was hardly on anybody's mind in the days and weeks after Katrina, which hit New Orleans on Aug. 29 and was among the worst natural disasters in U.S. history. The hurricane and the flooding that resulted when the city's levees ruptured killed over 1,000 people, caused more than $100 billion in damage and has slashed New Orleans' pre-hurricane population of 500,000 by more than half.
In recent months, one of the city's biggest challenges has been getting residents — and tourists — to return to the Big Easy.
"People still think we're under water. That's the feedback we're getting from our international contacts," Ponce de León told Travel Markets Insider. "I'm not saying we're back to pre-Katrina levels yet. People have suffered great losses and yes, we've seen terrible images on TV and terrible suffering. But the French Quarter and other tourist attractions were not hit, and we want people to come back."
LTFS operates two refund centers. One is located at Louis Armstrong New Orleans International Airport, right across from the American Airlines ticket counter; the other is on Julia Street at the Riverwalk Marketplace in downtown New Orleans. Hibernia National Bank is also authorized to issue refunds at its branches in Lafayette and Shreveport.
The way the program works is simple: tourists shopping at any one of 960 participating retail outlets pay for their purchases plus sales tax, which varies from 8.5% to 9.5% depending on the parish, or county, where the shop is located.
They then receive a voucher for the purchase, and upon leaving Louisiana, they present the vouchers to receive a cash refund of up to $500 on their purchases. Checks are issued for refunds over $500. The program is nearly identical to those found throughout Europe, in which foreign tourists get a refund on the value-added tax (VAT) they paid on souvenirs — provided they immediately take those purchases out of the country.
Refunds apply only to tangible, non-food items that are permanently removed from the United States. No refunds are given for sales taxes paid for services such as hotels, taxis, restaurants or sightseeing tours.
Under Louisiana law, until recently, foreign visitors had to present their passports at the time of purchase to receive vouchers. Thanks to new legislation, merchants may accept picture IDs to issue vouchers. However, the foreign visitor must still provide a valid passport with current U.S. visa, international airline ticket and/or proof of the duration of stay in the United States in order to process cash refunds.
Not to be confused with duty-free shops at airport departure terminals, the LTFS program is available at well-known retail stores such as Saks Fifth Afvenue, Best Buy, Macy's, JC Penney, Gucci, The Gap and Sears. It also includes manufacturers' outlets, jewelry stores, antique shops, computer outlets and smaller specialty shops throughout Louisiana.
In addition, all major shopping malls in the New Orleans and Baton Rouge metropolitan areas qualify as tax-free zones for international visitors.
In 2005, according to LTFS figures, the state refunded just over $1.5 million to tourists in 27,083 separate transactions involving $18.76 million in purchases. More than 114,000 vouchers — corresponding to specific purchases — were issued. That translates into an average sale of $163.39 and an average sale per visiting party of $692.36.
Top categories ranked by amount spent by foreign visitors in 2005 were apparel ($5.1 million), computer equipment ($1.5 million); gifts and souvenirs ($1.0 million); jewelry ($697,000) and small electronics ($515,000).
The largest purchases were made by citizens of Mexico ($1.82 million), followed by Honduras ($1.76 million); United Kingdom ($1.52 million); Canada ($887,000) and Brazil ($693,000). Ranked by number of transactions, the top countries were the United Kingdom (2,562 transactions); Canada (2,093); Mexico (1,853), France (1,618) and Honduras (1,208).
As a direct result of Katrina, 2005 figures were down sharply from those of 2004, when LTFS refunded $2.08 million in sales tax on total purchases of $25.68 million. But even those statistics compare unfavorably with 1996, when foreigners spent a record $35.7 million and received refunds totaling $2.8 million.
From then on, the numbers slid downhill until 2000, when things began turning around. The attacks of Sept. 11 stopped that recovery in its tracks, much the same way Katrina would do four years later.
In fact, prior to Katrina, LTFS had seen a 30% jump in tax-free purchases following the December 2004 opening of its downtown refund center, which for the first time allowed foreign visitors to obtain their refund swhile still in the city. Because all refunds under $500 are paid in cash, many visitors remarked that they would probably spend their refund on more local purchases.
"Had Katrina not hit, 2005 would have been our best year in 10 years," said Ponce de León, who was expecting $25 million in sales last year. "It's a roller-coaster, and it also has to do with the value of the dollar abroad. When the euro gets stronger against the dollar, we see sales increase."
Since Katrina, about 70% of the stores participating in the LTFS program have reopened, including all 15 shops at New Orleans International Airport. Yet in Katrina's aftermath, the program itself — which costs the state around $300,000 a year to operate — has been forced to slash its workforce from 16 before the hurricane to just four today.
"Eventually it'll just be Lisa and I," said Denise Thevenot, the programs' managing director. She said that in addition to European cruise-ship tourists and air arrivals, LTFS is counting on the large population of Latin Americans, particularly Hondurans, who come to New Orleans mainly to shop.
Another important segment includes Mexicans and other Latins who have studied at Tulane, Loyola, LSU and other are universities, and come back often to visit friends and family.
"We're unique in that we have enough international traffic that the program will encourage people to come to Louisiana, but we don't have so much that giving taxes back would really affect us," Thevenot explained. "If Arkansas did it, it wouldn't be enough, and if Florida did it, it would be too much. This is a happy medium that encourages visitors who might go to Miami once a year for shopping to come to New Orleans instead."
Added Ponce de León: "Hopefully , we're going to cruise through the year. This city is rebuilding and tourism is down in the meantiem, but we're trying to keep things going. If we can hold out for another year, we'll be back on our feet for 2007."