Walmart and the Louisiana Tax Case

Originally published in The Green Sheet, March 25th, 2019

On December 27, 2018, the Fifth Circuit Court of Appeal in Louisiana unanimously affirmed a trial court ruling that is liable for sales tax on transactions made by third-party sellers hosted by its online marketplace. (Normand v. USA, LLC, No. 18-CA-211 (La. 5 Cir., Dec. 27, 2018)). The Court used a broad interpretation to hold that 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 considered by the Court was whether the trial court correctly ruled that 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 broad 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 begin to take similar views, online marketplaces could be subject to wide reaching tax implications and liability for their third party sellers across Louisiana and potentially into other states.


Payment Processors and Other Third Parties Are Also Affected by This Decision

The court in making their decision relied on antiquated sales tax laws that never contemplated the existence of new technology like electronic payment processing or electronic marketplace facilitators like 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 is not limited to marketplaces and could affect other third parties tangentially related to a sale in Louisiana’s Fifth Circuit. Interestingly, the Court focused heavily on’s role as a payment processor as one of the key factors for holding responsible. The Court focused on a few factors here including: facilitating processing of payments; accepting risk for fraudulent transactions; third party marketplace sellers utilizing’s checkout system; and collecting payments from transactions before they are redirected to seller.

Typically, a third party to a sale such as an online marketplace or a payment processor are not liable for the seller’s tax obligations. The possibility of imposing a sales tax collection obligation on third parties who are not sellers would be highly problematic for any third party indirectly involved in any sale including payment processors, ISO’s, marketers, advertisers, and more.

These third party intermediaries to a sale typically have no role in the sale of the actual goods or services. They merely help facilitate the transaction 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 would be liable for the sales tax of every good sold during the farmers market. It would be an impossible task and is an unfair burden to place on the marketplace facilitator. It would be similarly absurd if an advertising agency had to collect sales tax for every good sold that was generated through their ad campaign. The ever evolving payments ecosystem is unable to nor should they have the burden of calculating and paying taxes owed by sellers to different state tax agencies.


New Issues Will Arise If This Decision Stands

Many legal questions and complications will surely 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 a dealer? It is unlikely but theoretically possible that taxing authorities could come after multiple “dealers” involved in a single transaction.

Further, this should be a major concern for other payment processors, including vendors who operate nationwide such as Square and other mobile transaction facilitators. These facilitators after all also provide similar services to those factored into the Court’s decision of being classified as a “dealer.” While this ruling is unprecedented, if it expands into other Circuits or even across States, the landscape of electronic transactions could be significantly shaken.


What Will This Mean For The Payments Industry?

Payments companies and merchants may be forced to navigate a minefield of potential legal and operational pitfalls when operating in Louisiana’s Fifth Circuit. Walmart is understandably appealing this decision. Should the decision be overturned, things will likely remain as they were. However, should the appeal be denied, the whole landscape of electronic payments and processing could be disturbed, albeit limited to only a portion of Louisiana for now. These developments will be interesting to observe as the ever growing electronics payment industry and the laws governing it rapidly grow and evolve.


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