Walmart.com is an e-commerce platform operated by Walmart, Inc. In addition to products offered for sale directly from Walmart, the site allows third-parties to sell products using the Walmart.com digital infrastructure. Pursuant to contract, third-party retailers are “the sellers of record.”[1] Walmart.com’s service includes connecting customers to retailers, providing a checkout system, processing payments, and protecting against fraud.[2] Although retailers may authorize Walmart.com to collect sales taxes on items sold, they are not required to do so and remain responsible for any tax liabilities, including sales taxes, related to their sales on Walmart.com.[3]

In Normand v. Walmart.com, the Louisiana Supreme Court overturned lower court decisions that found Walmart.com liable for the payment of sales tax on items sold on its online marketplace by third-party retailers.[4] The case was brought on behalf of the tax collector for Jefferson Parish for unpaid sales taxes from 2009 to 2015. Although Walmart.com paid the sales tax due on the sale of its own items, it had not paid or reported sales tax due from online sales made by third party retailers.

The case turned on the interpretation of the word “Dealer” under La. R.S. 47:301(4)(l).[5] Under that statute, a dealer is defined broadly to include retail sellers, manufacturers and producers, lessors and lessees, service providers, recipients of services, and certain persons who make deliveries. The definition also encompasses out-of-state sellers who operate in Louisiana. The statute imposes on the dealer the responsibility for collecting and paying sales tax. Notwithstanding the broad definition, the court held that the statute does not apply to the facilitator of a sale between two parties, such as an online marketplace. Walmart.com was therefore not liable for the taxes at issue.

Specifically, the court noted that pursuant to its contract with third-party retailers, “Wal-Mart.com never had title or possession of the property being sold by third party retailers and did not transfer title or possession of the property to purchasers.”[6] It therefore concluded that “an online marketplace is not a party to the underlying sales transaction between the third party retailers and their customers, but rather a facilitator of the sale.”[7] The court also reviewed related statues and regulations to explain that:

it is the seller of merchandise, the performer of taxable services, and the rentor or lessor of property as parties to the underlying transactions that are liable for collection of the tax. 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.[8]

The court also discussed the special statutory provisions relating to auctioneers, who are responsible under Louisiana law for the collection and payment of sales taxes. The court acknowledged that, like an online marketplace, auctioneers are facilitators between the seller and purchaser. Because of the unique nature of that relationship, specific legislation was required to obligate auctioneers to collect and pay sales taxes. No such legislation exists for online marketplaces, and absent that legislation:

double taxation could result if both online marketplaces and third party retailers are obligated to collect sales tax on the same transaction. It is not in the province of the judiciary to create an exception (in the context of a retail sale) to the seller’s obligation to collect sales tax for a marketplace facilitator, similar to that legislatively enacted for auctioneers.[9]

Finally, the court looked to the contract between Walmart.com and third-party retailers to find that, “Wal Mart.com did not contractually assume the obligation of the third party retailers, as dealers, to collect and remit sales tax.”[10] Therefore, the third-party retailers remained liable for the payment of sales tax.

The decision of the majority earned a dissent from the court’s chief justice, who argued that Walmart.com should be considered a dealer within the meaning of the statute. The dissent argued that the definition of dealer in the statute was sufficiently broad to encompass an online marketplace such as Walmart.com. It focused on the fact that Walmart.com controlled all aspects of the online sales experience, including the collection of any payments. “Wal-Mart.com processes all payments and collects all proceeds from the sales, thereby retaining exclusive actual control over the collection of sales taxes from customers for all online market sales transactions, yet refuses to collect those taxes unless expressly requested to do so by the third party seller.”[11] Finding Wal-Mart.com to be a dealer would “eliminate[] this problem and increase[] compliance with sales/use tax collection and remittance, allowing these tax proceeds to benefit the citizens of Jefferson Parish as intended.”[12]

In the wake of the Supreme Court’s decision in South Dakota v. Wayfair, which found that states may impose sales tax on purchases made from out-of-state sellers without a physical presence in the state, this case raises the broader question of whether and to what extent an online marketplace that facilitates third-party transactions should be responsible for the collection of sales tax on those transactions. State legislatures that want to increase the collection of sales tax revenues may start amending their statutes to place the obligation to collect and pay the sales tax directly on online marketplaces.

 

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The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We do invite responses from our readers. To join the debate, please email us at info@fedsoc.org.


[1] Normand v. Wal-Mart.com USA, LLC, No. 2019-C-00263, slip op. at 27 (La. Jan. 29, 2020).

[2] Id. at 4.

[3] Id. at 27.

[4] The decision was issued on January 29, 2020.  On April 9, 2020, the Louisiana Supreme Court denied an application for rehearing.

[5] The case also involved a detailed issue of procedural law relating to tax collection, discussed at length by both the majority and a dissent.

[6] Normand v. Wal-Mart.com USA, LLC, No. 2019-C-00263, slip. op. at 17 (La. Jan. 29, 2020).

[7] Id.

[8] Id. at 23.

[9] Id. at 26.

[10] Id. at 28.

[11] Id. at 3 (Johnson, C.J., dissenting).

[12] Id. at 4.