Louisiana Supreme Court Finds Wal-Mart.com Does Not Have to Collect Sales Tax on Behalf of Third-Party Sellers
The U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair opened the door for states to require out-of-state sellers to collect sales tax even if they lacked a “physical presence” within that state. A majority of states have subsequently imposed such requirements. For example, as of July 1, 2020, businesses that sell their products online to customers in Louisiana must start collecting state and parish (county) sales taxes.
There is also the separate but related issue of “marketplace facilitators.” These are businesses that allow or facilitate third-party sales. Amazon and Wal-Mart, for example, allow third-party merchants to conduct sales through their websites. Most states included language in their post-Wayfair legislation that require these marketplace facilitators to collect and remit sales tax on behalf of third-party sellers. Louisiana’s law, however, did not include such language.
Despite this, Louisiana’s Jefferson Parish attempted to force Wal-Mart.com to remit taxes on third-party sales made through the site between 2009 and 2015. The parish’s sheriff, who also serves as its tax collector, argued that under pre-Wayfair law, Wal-Mart.com was properly classified as a “dealer” required to collect tax. On this basis, the sheriff sought a court order directing Wal-Mart.com to pay nearly $1.9 million in back sales taxes.
Although two lower courts ruled in favor of Jefferson Parish, a divided Louisiana Supreme Court agreed with Wal-Mart.com that it was not a dealer for purposes of sales tax collection. Justice John L. Weimer, writing for a 4-3 majority, said the legislature broadly defined “dealer” in the pre-Internet age to include out-of-state businesses that primarily sold goods through a mail-order catalogue. The key, however, was that these dealers actually owned the goods they were selling. In contrast, Weimer said there was no evidence the legislature ever intended dealer to cover “intermediaries that are only tangentially involved in sales transaction, such as a marketplace facilitator relative to sales by third party retailers.”
Court Points to Special Exception for Auctioneers as Proof Marketplace Facilitators Are Not “Dealers”
Weimer compared marketplace facilitators like Wal-Mart.com to auctioneers. It was generally accepted in Louisiana that auctioneers did not have to collect sales tax on goods sold at auction. The legislature therefore adopted special legislation requiring auctioneers to register as “dealers” and start collecting sales tax. The need for such legislation at all meant that third-party facilitators are presumably not “dealers,” Weimer noted. Indeed, to assume that facilitators were dealers, as Jefferson Parish urged, would mean that “any intermediary that aids or enables sellers to reach new customers although not selling anything” directly could be held responsible for collecting sales tax. Weimer said that would be an “absurd result.”
In a dissenting opinion, Chief Justice Bernette Joshua Johnson said she would hold that Wal-Mart.com “is responsible for collecting and remitting the taxes from sales of third party retailer items on its online Marketplace.” As the chief justice saw the case, Wal-Mart.com was not a “hands-off bystander” to these transactions. To the contrary, she noted that Wal-Mart.com “has sole control over the website as well as sole control of marketing of products.” More importantly, it owned the actual transaction information–the customer’s credit card information. Johnson said she was also troubled that the terms of Wal-Mart.com’s marketplace retailer agreements “effectively disallows collection of sales taxes by remote sellers.”
Louisiana Legislators May Moot Long-Term Impact of Court’s Ruling
In the end, the Supreme Court’s decision may only give Wal-Mart.com and other marketplace facilitators a brief reprieve. Two bills are currently pending before the state legislature that would bring Louisiana in line with the majority of states that now require marketplace facilitators to collect and remit sales tax on behalf of third-party sellers. One of the bills, SB 138 expressly states a marketplace facilitator must collect tax even if it is not a dealer. However, the bill would only apply to marketplace facilitators that derive more than $100,000 in gross sales or complete at least 200 transactions in Louisiana annually.