In a ruling that could have widespread implications, the Louisiana Supreme Court has found that Walmart.com USA LLC was not obligated to collect local sales tax on third-party sales facilitated through its marketplace program.
The state supreme court's 4–3 decision in Normand v. Wal-Mart.com USA LLC concluded that two lower courts erred in finding that Walmart.com is a "dealer" under Louisiana law in connection with third-party transactions conducted through the company’s online marketplace. The supreme court further found that Walmart.com’s marketplace retailer agreement did not transfer the third-party retailers’ tax obligation to the company.
“Because an online marketplace is not a ‘dealer’ under La. [Rev. Stat. section] 47:301(4)(l) for sales made by third party retailers through its website and because the online marketplace did not contractually assume the statutory obligation of the actual dealers, that is, the third party retailers, the judgment of the trial court and the decision of the court of appeal are reversed and vacated,” according to the majority’s January 29 decision.
Matthew Mantle of Jones Walker LLP told Tax Notes that the decision should have a broad reach. On behalf of the Council On State Taxation, Jones Walker had filed an amicus brief in support of Walmart.com.
“It’s a fantastic result for taxpayers and marketplaces,” Mantle said. “I think it will definitely be something that should have nationwide applicability — if nothing else, just persuasively — because the language that was utilized by the local collector is language that’s found in many other state statutes around the country.”
At the local level, Mantle noted that Louisiana’s parishes will be bound by the supreme court’s ruling, and the localities “hopefully [will] be advised by this decision not to try to impose any dealer status upon marketplaces that are like Walmart.com unless and until the Legislature affirmatively makes them as such.”
The case originated with Jefferson Parish’s audit of Walmart.com for 2009 through 2015, after which it sought close to $2 million in unpaid sales taxes on third-party marketplace sales from the company. However, the company maintained that it was not obligated to collect the tax because it was not the retail seller.
Louisiana District Court Judge Stephen Enright Jr. ruled in March 2018 that Walmart.com owed the parish approximately $140,000 in uncollected taxes because the obligation to collect and remit local sales and use taxes is imposed on a “dealer.” As set forth by La. Rev. Stat. section 47:301(4)(l), the statutory definition of dealer is not limited to the retail seller, according to the district court.
The Louisiana Fifth Circuit Court of Appeal agreed in a December 2018 decision, finding that the company was the dealer for sales by third-party retailers in its marketplace program, and was therefore responsible for collecting the sales tax.
Walmart.com appealed to the state supreme court, arguing that the appellate court’s decision could result in other facilitators of sales, like advertisers and payment processors, being obligated to collect the sales tax on a transaction in addition to the third-party retailer making the sale. But Jefferson Parish contended that a dealer is not required to be the retail seller under La. Rev. Stat. section 47:301(4)(l) and that Walmart.com is a dealer because it “engages in regular or systematic solicitation of a consumer market in the taxing jurisdiction.”
Not the Dealer
Analyzing Louisiana’s statutory sales and use tax regime, the supreme court observed that the 1990 enactment of La. Rev. Stat. section 47:301(4)(l) “did nothing to change the meaning of the expression ‘the dealer’ in the context of a ‘sale at retail’ in terms of its application to parties of the underlying transaction — the seller and purchaser.”
The seemingly broad definition of dealer under La. Rev. Stat. section 47:301(4)(l) “was enacted years before the commercialization of the internet, in an effort to govern the taxability of interstate sales that were escaping taxation due to jurisdictional issues,” according to the decision.
Lawmakers enacted La. Rev. Stat. section 47:301(4) to establish nexus for remote sellers “by declaring that regular or systematical solicitation of sales from in-state customers through a mail-order catalog was sufficient to subject out-of-state sellers to the state's tax-collection jurisdiction,” the supreme court said. It explained that the legislation requires out-of-state sellers to collect and remit sales tax on sales to Louisiana customers “if they regularly or systematically solicit sales from Louisiana customers through a mail-order catalog, commercial televisions, and phone sellers.”
“There is no indication in La. R.S. 47:301(4)(l) that the legislature intended to expand this definition of ‘dealer’ to include more than sellers that own the property being sold and are the parties to the underlying sales transactions,” the court added. “That is, there is no indication the legislature intended to tax intermediaries that are only tangentially involved in sales transaction, such as a marketplace facilitator relative to sales by third party retailers.”
Mantle said the majority arrived at the right result, finding that the statutory language was intended to deal with a seller and not an additional third-party entity.
“The court was able to read all the information and make that proper conclusion that what we’re dealing with is the dealer, not a dealer,” Mantle said. “So it’s one seller, one buyer, so to speak.”
Mantle noted that the Legislature can impose such an obligation on marketplaces so long as it’s constitutional. However, he stressed that lawmakers need to do that “affirmatively through proactive, prospective legislation — as opposed to allowing one collector out of 63 in the state to unilaterally try to grab a third party who had no idea that that would even be something people would think of, and do so retroactively with trying to impose penalties and interest on that as well.”
Denying Motion to Dismiss
Jefferson Parish had also argued that Walmart.com’s February 14, 2019, writ application was not timely filed because the case should be considered a summary proceeding, which requires writ applications to be filed within 30 days after the original judgment of the appeal court.
Denying Jefferson Parish’s motion to dismiss, the supreme court explained that “there were numerous acts of noncompliance with various provisions in La. R.S. 47:337.61, 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.”
“Although most of the acts of noncompliance did not originate with it, Tax Collector never objected to the manner in which this matter proceeded in the trial and appellate courts and many times consented to Walmart.com’s requests (which is laudable under the facts of this complicated case involving a res nova issue of law) to proceed in a manner inconsistent with the provisions of La. R.S. 47:337.61, without reserving its right to proceed summarily,” the court said.
Ultimately, the court concluded that Jefferson Parish waived its right to demand compliance with La. Rev. Stat. section 47:337.61, “implicitly converting its summary proceeding to an ordinary proceeding.”
While there was case law from other matters, the majority’s ruling “made it clear that in a situation where a collector has affirmatively slowed down a proceeding by his own actions, rather than the actions of the taxpayer, then that converts a summary proceeding scenario to an ordinary proceeding,” Mantle said. “Thus, all of the arcane requirements and rules related to summary proceedings should disappear based on the actions of the collector.”
Dissenting Opinions
Following his questioning during oral argument, Justice Jefferson D. Hughes III took issue with the procedural issue in one of the dissenting opinions. Hughes’s position was that Walmart.com’s writ application was untimely filed under Louisiana law, which divested the state supreme court of jurisdiction to review the lower appellate court’s decision. Retired Judge Freddie Pitcher Jr., who was filling a vacancy at the time of oral argument, dissented for the reasons articulated by Hughes.
In another dissenting opinion, Chief Justice Bernette Joshua Johnson maintained that the statutory definition of “dealer” covered Walmart.com’s online marketplace. “An expansive definition of ‘dealer’ makes sense to address changes and advances in business practices and changing marketplaces beyond the traditional brick and mortar stores, including sale and solicitation by electronic means on the Internet,” Johnson wrote.
Mantle noted that the tax collector can request a rehearing before the Louisiana Supreme Court.
Representatives for Walmart and Jefferson Parish did not respond to requests for comment by press time.
Andrea Muse contributed to this article.