Local Louisiana Jurisdiction Rules That Walmart.com is Required to Collect Sales Tax on Third-Party Sales
February 4, 2019
In this Louisiana court decision, one local parish argued successfully that Walmart.com was responsible for collecting and remitting local sales tax on sales made by third-party retailers on its website, potentially exposing marketplace facilitators to a myriad of complex local sale tax compliance obligations.
By Jess Johannesen, SALT Manager
In Aprio’s October 2018 SALT Newsletter, we discussed an approach being taken by some states that require “marketplace providers” or “marketplace facilitators” to collect and remit sales tax on sales by third-party “marketplace sellers.” In other words, your company may not be obligated to collect and remit sales tax on your sales through the Amazon marketplace, but Amazon itself may be obligated to collect and remit the sales tax on your company’s sales made through the marketplace. More than 10 states have developed some form of this marketplace facilitator sales tax rule.
However, a recent ruling from Louisiana’s Fifth Circuit Court of Appeals (the “Court”) raises the possibility that jurisdictions could require a marketplace facilitator to collect and remit sales tax on third-party sales made through the marketplace even without an express marketplace facilitator rule requiring them to do so.
In the case, Jefferson Parish, Louisiana, audited Wal-Mart.com USA, LLC (“Walmart.com”) for sales tax from 2009 through 2015. Walmart.com operates an online marketplace where it sells its own goods along with third-party retailers’ goods. Specifically, Walmart.com facilitates the sales of goods owned by third-party retailers who list their goods on Walmart.com’s marketplace pursuant to the terms of an Agreement. Once a customer places an order, Walmart.com collects the proceeds and then transmits electronically the order information to the third-party retailer, whose responsibility it is to fulfill the order and handle all customer service, including refunds and returns. Products cannot be picked up at or returned to a Wal-Mart store. The Agreement provides that the third-party retailer is responsible for all sales and use taxes, and it provides an option for Walmart.com to collect on the third-party retailer’s behalf, but the third-party retailer is responsible for remitting to the appropriate taxing authorities. In return for providing these services, Walmart.com receives a referral fee.
Walmart.com filed its quarterly sales and use tax returns to report all sales made by Walmart.com to customers in the local jurisdiction, but it did not report or remit sales tax for those sales made by third-party retailers through Walmart.com’s marketplace.
The auditor determined that Walmart.com owed sales tax related to the third-party retailers’ sales through the Walmart.com marketplace. A trial court upheld the audit assessment explaining that the obligation to collect and remit the local sales tax is imposed on a “dealer” and that a “dealer” is not limited to a retail seller. In other words, Louisiana’s obligation to collect and remit sales tax does not rest upon a “retailer” or a “seller” but rather a “dealer,” and Walmart.com’s role in facilitating the sale of the third-party retailers’ goods through its marketplace made Walmart.com a “dealer.”
Louisiana defines a “dealer” to include, “[e]very 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.”  Walmart.com argued that it cannot be held liable for the sales tax on the third-party retailers’ sales because it never had or transferred title or possession of the property being sold. The Court explained that the legislature specifically used the word “dealer” as opposed to “seller” when setting forth the party responsible for collecting sales tax. Had the legislature intended that a “dealer” be limited to a “seller,” it would have used such term. The Court concluded that the legislature’s choice of the term “dealer” and its definition clearly encompasses a wider group of people than “seller.”
The Court continued on to detail the specific ways in which Walmart.com’s activity and agreements with the third-party retailers constituted regular and systematic solicitation of customer located in Jefferson Parish, which satisfied the statutory definition of a “dealer.” Accordingly, the Court affirmed the trial court’s judgment to uphold the sales tax audit assessment for the uncollected taxes involving sales of third-party retailers on Walmart.com’s online marketplace. This ruling raises several issues in the evolving remote seller sales tax landscape.
First, not only does sales tax application and administration vary from state to state, but within home rule states, such as Louisiana, there can be variation among local jurisdiction. In today’s post-Wayfair environment, it is important not to forget local jurisdictions that are also becoming more aggressive at targeting remote sellers.
Second, sales tax collection and remittance obligations may overlap among remote sellers and marketplace facilitators. A remote seller may or may not be required to collect sales tax on its sales through an online marketplace, while the marketplace facilitator itself may or may not be required to collect sales tax on that third-party retailer’s sales. Understanding each party’s obligations is crucial to making sure that the appropriate amount of sales tax is collected and remitted. More guidance is needed from the states to address this process.
Lastly, while state legislatures have taken the steps to enact rules for both the remote sellers and/or marketplace facilitators, this case illustrates that states’ existing sales tax statutes may make such rules unnecessary. While Louisiana has a version of remote seller economic sales tax nexus, this case reached its conclusion based on previously existing statutes and addressed a period long before these new rules were enacted. Do you know how your state defines the party that is obligated to collect and remit sales taxes?
Whether your business sells direct to consumer or through an online marketplace, states are taking more aggressive steps to collect sales taxes. States are continuing to develop these rules, and all sellers are advised to address the impact of these rules immediately. Aprio’s SALT team follows these state developments daily and can help your business navigate your place within the evolving sales tax nexus and collection rules to ensure that your business is complying with its sales tax obligations and does not generate unexpected sales tax liabilities. In addition, through our Sales Tax Outsourcing services, we can provide a turn-key solution for your sales tax compliance needs. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.
This article was featured in the January 2019 SALT Newsletter.
 Newell Normand, Sheriff & Ex-Officio Tax Collector for the Parish of Jefferson v. Wal-Mart.com USA, LLC, 18-CA-211, 12/27/2018.
 Louisiana is one of several states, called “home rule” states that authorize local jurisdictions to administer their own sales tax. Those jurisdictions typically have their owns sales tax rules (although some may incorporate state rules), rates, and forms, and are therefore able to audit and make determinations regarding a taxpayer’s obligations independent of the state.
 La. Rev. Stat. Ann. §47:301(4)(l). The Jefferson Parish sales tax code incorporates the state’s definitions.
Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.
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About the Author
Jess Johannesen, Senior Tax Manager at Aprio, is a state and local tax advisor with expertise in sales/use tax and state income tax matters, state tax credits and incentives, and state and local tax M&A due diligence. Known for quick response times and technical expertise, Jess helps business leaders and decision makers in an array of industries maximize state tax benefits, and minimize risks and exposures while keeping in compliance. Defined by kindness and passion for Georgia sports, Jess is a thoughtful, curious and detail-oriented advisor.