Walmart Focuses on ‘Dealer’ Definition in Louisiana Tax Argument

The Louisiana Supreme Court is being asked to weigh in on the definition of a “dealer” in a sales tax dispute hinging on retail giant Walmart.com’s role as a facilitator of third-party sales.

Louisiana’s Jefferson Parish, which is allowed under state law to administer and collect its own sales taxes, says Walmart.com dodged its tax obligations for years on sales through its online marketplace.

Louisiana’s sales tax code defines a “dealer” so broadly that almost anyone participating in a transaction—marketplaces, payment processors, communications companies, advertisers—could have tax liability on the same sale, Walmart.com attorney Jeffrey Friedman said in oral arguments at the state’s high court Oct. 22.

That liability, he said, is in addition to that of the third-party seller who sold the goods—who Friedman called “the true dealer, the only dealer subject to sales tax in Louisiana.”

Walmart.com doesn’t deny its status as a dealer, Friedman said. But, he said, a lower court’s reliance on the state’s definition “cannot legally form the basis of determination as to who or which dealer is subject to tax and which dealer is not subject to tax, because as I said at the outset, we’re all dealers.”

Walmart.com and its supporters argue the issue should be decided by the Louisiana Legislature, not a state court, in the wake of the U.S. Supreme Court’s Wayfair decision, which changed the remote-sales taxation landscape.

The company’s challenge to Jefferson Parish’s tax is being watched for its implications for other online marketplace providers as well as for Walmart in Louisiana and possibly elsewhere.

Parish Sought $1.8 Million

Based on an audit of tax returns Walmart.com filed in Jefferson Parish from 2009 through 2015, the parish’s sheriff and tax collector at the time, Newell Normand, in 2017 sought over $1.8 million in unpaid sales taxes from the company.

All sales made by Walmart.com to customers in the parish were reported, and the company remitted the required sales tax. But it neither reported nor remitted the sales tax for sales made by third-party retailers through its online marketplace.

The Louisiana Department of Revenue also audited the company’s state sales tax returns, from January 2013 through December 2014, but concluded Walmart.com wasn’t liable for tax on sales made by third-party sellers, according to court documents. No other parish in the state has assessed Walmart.com for sales taxes on third-party sales, Friedman said.

Louisiana’s 24th Judicial District ruled in March 2018 that Walmart.com owed Jefferson Parish roughly $140,000 in uncollected taxes, plus interest and legal fees.

The Louisiana Fifth Circuit Court of Appeal in December 2018 upheld the trial court’s determination that Walmart.com fit the legal definition of a “dealer” and therefore was responsible for sales tax obligations arising from sales by third-party retailers through its online marketplace.

Third-party retailers never had a duty to collect and remit sales taxes under court precedents in effect for the tax returns in question, the parish tax collector’s attorney, Ken Fonte, told the court.

The 2018 South Dakota v. Wayfair decision overturned the physical presence standard the U.S. high court affirmed in its 1992 Quill Corp. v. North Dakota, which limited the ability of states to tax remote sales. Since Wayfair, dozens of states have passed versions of a South Dakota law requiring collection of sales tax from remote sellers with more than $100,000 of in-state sales or 200 in-state transactions. Many states also are pushing to make marketplace facilitators—such as Etsy and eBay—collect and remit sales tax for transactions on their online platforms.

Louisiana lawmakers set a July 1, 2020, deadline to streamline a system for collecting the 4.45% state sales tax, along with local sales taxes, from remote sellers. They haven’t passed any tax laws governing marketplace facilitators.

Marketplace Agreement

Under Walmart.com’s marketplace retailer agreement, third-party sellers currently cannot collect or separately invoice for sales taxes, Fonte said.

“When you create a situation where only one party can collect sales taxes, then that party is acknowledging its status as a dealer,” Fonte said. “Only a dealer can collect sales taxes under Louisiana law.”

Walmart.com requires customers to have an account with the company’s website to make purchases from third-party retailers, it controls all aspects of the payments for those sales, and it assumes responsibility for customer service responses to credit card fraud and payment problems, Fonte said.

“Walmart.com would have you believe they simply provide a platform and everybody gets together and cuts their deals. That’s not what happens. Walmart is in the thick of it. Walmart has exclusive control of it, not only with respect to the collection of the sales taxes and the price but also in the formation of the contract itself,” Fonte said.

“What they should have done is collected the sales tax and remitted it to the sheriff. And they didn’t do it. So for that reason, they’re liable,” he said.

Walmart.com is represented by Friedman and Charles Kearns of Eversheds Sutherland and Martin Landrieu of Gordon Arata Montgomery Barnett McCollam Duplantis & Eagan LLC.

The case is Normand v. Wal-Mart.com USA LLC, La., No. 2019-C-263, oral arguments 10/22/19.