Louisiana Supreme Court “Deals” a Win to Wal-Mart.com and other Online Marketplaces
Today, in a case of first impression that has captured national attention, the Louisiana Supreme Court held in a 4-3 decision that Wal-Mart.com (an online marketplace facilitator) is not required to collect and remit Jefferson Parish sales tax on behalf of its third-party sellers.
Wal-Mart.com operates an online marketplace, where third-parties can sell their products directly to customers on the Wal-Mart.com website. Wal-Mart.com argued that it did not have to collect and remit local sales tax to Jefferson Parish for third-party transactions on the marketplace, because it was not the “dealer” required to do so on these transactions under Louisiana law. Wal-Mart.com argued that the obligation to collect sales tax is limited to the party who actually transfers title or possession of the merchandise to an end consumer for a stated price (i.e., the actual third-party seller). Jefferson Parish, conversely, argued that Wal-Mart.com should have collected and remitted the tax, alleging that the applicable definition of “dealer” is broader than the seller.
As is the case in many other states, “dealer” is defined in Louisiana to include “every person who engages in regular or systematic solicitation of a consumer market in the taxing jurisdiction by the distribution of catalogs, periodicals, advertising fliers, or other advertising, or by means of print, radio or television media, by mail, telegraphy, telephone, computer data base, cable, optic, microwave, or other communication system.” See La R.S. 47:301(4)(l). The local collector relied on this provision to impute a tax collection responsibility to marketplaces. Wal-Mart.com, however, argued that this specific “dealer” definition is simply a statutory “jurisdictional hook” to apply to out-of-state sellers who solicit sales within Louisiana, and does not impose the duty on marketplaces to collect and remit sales tax on third-party sales.
Ultimately, the Court agreed with Wal-Mart.com, explaining:
The statutory and regulatory scheme does not contemplate the existence of more than one dealer that would be obligated to collect sales tax from a purchaser. An online marketplace in its role as a facilitator for sales of third party retailers does not fall in these groups.
Further, the Court explained that the contractual arrangement/agreement between Wal-Mart.com and the third-party sellers did not operate so that Wal-Mart.com somehow stepped into the shoes of the third-party sellers as some sort of “co-seller.” Thus, the Court concluded:
Wal-Mart.com did not contractually assume the obligation of the third-party retailers, as dealers, to collect and remit sales tax.
Additionally, the Court held in favor of Wal-Mart.com on a separate, Louisiana-specific procedural issue in this case relating to the use of summary proceedings and the timeliness of Wal-Mart.com’s writ application to the Court. Finding that the Jefferson Parish collector had converted the matter from a summary proceeding to an ordinary proceeding based on the collector’s actions during litigation, the Court ruled that Wal-Mart.com’s writ application was timely, and thus the Court could address the merits of the case. The Court explained:
Undisputedly, there were numerous acts of noncompliance with various provisions of La. R.S. 47:337.61 [the summary proceeding statute], while Tax Collector (the beneficiary of this statutory scheme which chose to proceed by summary proceeding did very little, if anything, to hasten the collection of unpaid taxes or ensure that this matter received preferential treatment by the courts. … Based on the facts and circumstances of this case, Tax Collector by its acts and omissions waived its right to demand strict compliance with La. R.S. 47:337.61, implicitly converting its summary proceeding to an ordinary proceeding.
This case is likely to have far-reaching implications in Louisiana and beyond. Other sales tax administrators in Louisiana would have undoubtedly attempted to rely on the decision to pursue sales tax collections from marketplaces, and perhaps on a retroactive basis. Such action from other local collectors is now unlikely, given today’s decision from the Court. Also, on a national level, even though the Court’s decision will not be binding in jurisdictions outside of Louisiana, other states with similar statutory schemes may be persuaded to follow suit when addressing the scope of collection requirements on marketplaces under their own laws.