By Frank Dennaoui
Global Legal Law Firm
Recently, the Fifth Circuit Court of Appeal in Louisiana unanimously affirmed a trial court ruling that Walmart.com is liable for sales tax on transactions made by third-party sellers hosted by its online marketplace. (Normand v. Wal-Mart.com USA, LLC, No. 18-CA-211 (La. 5 Cir., Dec. 27, 2018)). The Court used a broad interpretation to hold that Walmart.com could be classified as a "dealer" for purposes of third-party sales on its marketplace and is responsible for collecting sales tax.
The sole issue the court considered was whether the trial court correctly ruled that Walmart.com could be liable for taxes as a dealer under Louisiana law. The Louisiana statutes state that sales tax is to be collected by the dealer from the consumer. La. Rev. Stat. Sec. 47:301(4) defines "dealer" as:
Every 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.
This sweeping definition of "dealer" has major implications to multiple third parties involved in transactions. This is the first ruling to hold an online marketplace liable for tax on third-party sales. The court's reasoning could extend beyond marketplaces and impact all sorts of intermediaries.
The most obvious threat for now is to online marketplace owners who facilitate checkout and payment processing for their third-party sellers. If other jurisdictions take similar views, online marketplaces could be subject to wide-reaching tax implications and liability for third-party sellers across Louisiana and potentially into other states.
In making this decision, the court relied on antiquated sales tax laws that never contemplated the existence of new technology such as electronic marketplace facilitators like Walmart.com. Yet the court broadly interpreted these laws to hold that a third-party non-seller can be liable for the seller's tax obligations.
The court's reasoning could affect other third parties tangentially related to a sale in Louisiana's Fifth Circuit. The court focused heavily on Walmart.com's role as a payment processor as a key factor for holding Walmart.com responsible. The court focused on factors including: Walmart.com facilitating payment processing; Walmart.com accepting risk for fraudulent transactions; third-party marketplace sellers utilizing Walmart.com's checkout system; and Walmart.com collecting payments from transactions before they are redirected to sellers.
Typically, third parties to sales aren't liable for the seller's tax obligations. Imposing a sales tax collection obligation on third parties who aren't sellers would be highly problematic for any third party indirectly involved in any sale including payment processors, ISOs, marketers, advertisers and more.
These third-party intermediaries typically have no role in the actual sale of goods or services. They help facilitate transactions between buyer and seller in ways such as hosting a marketplace or advertising to bring people to that marketplace or seller.
An analogous situation would be if the organizer of a local farmers market were held liable for sales tax of every good sold during the farmers market. It would be an impossible task and unfair burden for the marketplace facilitator. The ever-evolving payments ecosystem is unable to nor should it have to calculate and pay taxes owed by sellers to different state tax agencies.
Many legal questions and complications will arise if this decision stands. For instance, would the seller still be responsible for collecting taxes? Could advertisers and others involved in a transaction possibly be defined as dealers? It is unlikely but theoretically possible that taxing authorities could come after multiple "dealers" involved in a single transaction. While this ruling is unprecedented, if it expands into other circuits or across states, the landscape of electronic transactions could be significantly shaken.
Walmart is appealing this decision. Should it be overturned, things will likely remain as they were. However, should the appeal be denied, the landscape of electronic payments and processing could be disturbed, albeit limited to only a portion of Louisiana for now. 
Frank Dennaoui is a corporate law attorney with Global Legal Law Firm representing clients in business litigation, transactional business matters, employment law, and electronic payment processing. Contact him at fdennaoui@attorneygl.com.
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