Walmart.com has only about $140,000 directly at stake in a tax fight with a Louisiana parish. But the company’s court challenge to that amount may have ramifications for other online marketplace providers and for Walmart’s operations elsewhere in the state and nationwide.
The case has to do with Walmart.com’s role as facilitator of third-party sales. Jefferson Parish, which is allowed under Louisiana law to administer and collect its own separate sales taxes, says the company shirked its tax obligations for years on those sales through its online marketplace.
Walmart.com and its supporters say the issue should be a matter for the Louisiana Legislature, not the courts.
If the Louisiana Supreme Court rules for the parish, the Washington-based Tax Foundation says, it could signal “open season on retroactive tax collection from out-of-state sellers and marketplace facilitators.” It would also be unconstitutional and would undermine the U.S. Supreme Court’s decision in South Dakota v. Wayfair, the think tank said in a brief.
The court is to hear oral arguments Sept. 4.
The 2018 Wayfair decision tossed out 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.
Not a Wayfair Issue: Parish
Wayfair may change tax collection in Louisiana going forward, but it shouldn’t be considered in the Walmart.com case except as an illustration of the situation the U.S. Supreme Court sought to correct, Ken Fonte, the attorney representing Jefferson Parish Sheriff and Ex-Officio Tax Collector Joseph Lopinto, wrote in a brief to the Louisiana Supreme Court.
“While it may sound harsh to say that Walmart.com has promoted and facilitated tax evasion by its refusal to collect and remit sales and use taxes from the customers of its online market who purchase merchandise supplied by out-of-state third party vendors, that is exactly how the U.S. Supreme Court characterizes it in Wayfair,” Fonte wrote.
“Tax evasion” is a strong charge without evidence of Walmart.com’s intent to defraud, former Internal Revenue Service trial attorney Bill Neilson, a tax expert at Loyola University New Orleans College of Law, told Bloomberg Tax.
In an email, Walmart spokeswoman LeMia Jenkins said, “We take our tax obligations seriously and have processes in place to comply with all state, local and federal laws. We continue to believe that Louisiana state law does not support the actions by Jefferson Parish. As with any other state law, tax law should be made by Louisiana’s elected lawmakers.”
According to the Tax Foundation’s brief, Wayfair lets states tax out-of-state sellers, but only above a small amount, non-retroactively, and only after streamlining their tax collection systems. Jefferson Parish is trying to tax out-of-state sellers without adhering to Wayfair’s
guidelines, its tax operates retroactively, and Louisiana has yet to take steps to reduce administrative and compliance costs, the think tank said—making the tax an unconstitutional burden on interstate commerce.
Initial Tax Bill of $1.8 Million
The dispute arises from tax returns Walmart.com filed in Jefferson Parish from 2009 through 2015.
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.
Based on an audit he ordered, the parish’s sheriff and tax collector at the time, Newell Normand, in 2017 sought over $1.8 million in unpaid sales taxes from Walmart.com. Lopinto succeeded Normand in office.
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.
“The amazing thing about the Normand case is that the state Department of Revenue passed on their ability to tax these marketplace sales, but Jefferson Parish has a separate taxing system and said, ‘We think they’re taxable,’” Neilson said. “That makes it more difficult for the Walmarts of the world to adjust to this Louisiana system, where everybody’s got their own little fiefdom.”
Louisiana’s 24th Judicial District ruled in March 2018 that Walmart.com owed Jefferson Parish just under $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.
Walmart.com argues the lower courts erred, noting in its brief to the state supreme court that under its marketplace retailer agreement, third-party sellers are responsible for remitting sales taxes to the appropriate authorities. Operating the marketplace doesn’t make the company the dealer for third-party sales, the company said.
Pointing to what it called the “mind-numbing complexity” of Louisiana’s state and local sales tax systems, the Council on State Taxation said in a June 20 brief that it’s up to the state Legislature, not individual parishes, to clarify whether Walmart.com should be regulated differently from other online marketplaces, such as Craigslist.
“This Court should reverse the Fifth Circuit Decision and reiterate that the power and authority to expand the state and local sales tax collection and remittance responsibilities of marketplace facilitators is reserved solely to the Louisiana Legislature, and not the Parish of Jefferson through a secret, singular, unilateral, administrative action,” the COST brief said.
But instead of blaming Louisiana lawmakers and the state’s sales and use tax structure for the dispute, Walmart.com should be asking the court to limit the state’s legal definition of a “dealer,” Loyola professor Neilson said.
Even so, legislators still have to tackle these questions in the wake of Wayfair, he said.
“They’ve got to make it easy for everybody, and there’s a lot of money at stake,” Neilson said.
Walmart.com is represented by Jeffrey 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, in the Louisiana Supreme Court, No. 2019-C-263.