In a decision long awaited around the nation, a split Louisiana Supreme Court Wednesday overruled Jefferson Parish, finding that the big online marketplaces, like eBay, Etsy, and in this case Wal-Mart, don't have to collect sales taxes on internet transactions they handle for small businesses.
National groups from the U.S. Chamber of Commerce to the Tax Executive Institute had weighed in, volunteering their opinions, backing Wal-Mart’s contention that state legislators need to decide – not the courts.
Only seven states have passed laws that require a “marketplace facilitator” to collect sales taxes for online sales involving “third party vendors.” The 4-3 Louisiana Supreme Court majority said in Normand v Wal-Mart.com USA, basically, legislators are going to have to join the seven and draft a new law that specifically addresses the responsibilities of everyone involved with this relatively new way of doing business – if the state wants to collect taxes on third-party transactions. Otherwise, barring the judges abruptly changing their minds, which is unlikely, this decision applies in all 64 parishes from now on.
Newell Normand v Wal-Mart.com USA decision by the Louisiana Supreme Court, Jan. 29, 2020
“Other states out there have old statutes that look like Louisiana’s, and they would have said, 'If Louisiana prevails then maybe we should try the courts too,'” said Bill Backstrom, who heads the tax practice at Jones Walker law firm in New Orleans. Backstrom specializes in state and local taxes and was not involved in this case.
“The decision, maybe, sends a message to other states, as well, that their legislators are going to have to tackle these pretty dramatic changes in the way business is done,” he added.
“We agree that existing Louisiana state law does not support the actions taken by Jefferson Parish,” Randy Hargrove, Wal-Mart’s senior director of corporate communications, said in a prepared statement. “As a long-time leader in the movement to level the sales tax playing field for all retailers, we remain committed to supporting Louisiana’s elected lawmakers toward the passage of a state law that requires marketplace facilitators to collect sales tax on behalf of third-party sellers.”
Jefferson Parish had argued that the state’s laws on “dealers,” which is about 30 years old, was good enough to require a marketplace facilitator to collect and remit sales taxes for third-party transactions.
Small businesses contract with companies that have a large web presence, called “marketplace facilitators” that will, for a fee, include the product on the larger website. Facilitators handle the transaction, collect the money and subsidize shipping. In addition to opening the product to millions of potential buyers, the facilitators cover most of the costly problems that prevent small vendors from expanding their businesses. But the contracts require the third-party sellers to remit the sales taxes to the proper jurisdiction.
Amazon reports that about 60% of its total sales in 2019 – roughly $200 billion – were from the 3 million active third-party sellers associated with the largest marketplace facilitator.
In the laws and regulations put in place after a 2018 U.S. Supreme Court decision allowing the collection of taxes for online sales by vendors located out-of-state, Louisiana exempted small businesses that have few transactions with consumers in this state. When Wal-Mart and other large online sellers peddle one of their products, however, sales taxes must be collected and sent to the appropriate state and local authority.
Legislators set a July 1 deadline to streamline a system for collecting the 4.45% state sales on internet sales along with whatever local taxes are levied and to remit those taxes to the proper authorities. They excluded vendors from other states who sold less than $100,000 or had less than 200 transactions sold for delivery in Louisiana.
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But the laws and regulations don’t mention how to handle the big "marketplace facilitators” that sell products from small businesses that otherwise are excluded from having to collect sales taxes.
From 2009 through 2015, Wal-Mart paid its taxes for sales in Jefferson Parish both online and in their stores. But the company did not report or remit the sales taxes for sales made by the third-party retailers.
Arguing that Wal-Mart’s online store amounted to a “dealer” under Louisiana law, then-Sheriff Newell Normand, who is the ex-officio tax collector for Jefferson Parish, in February 2017 demanded $1.89 million along with interest and penalties for the uncollected taxes on third-party sales.
Judge Stephen D. Enright Jr., of the 24th Judicial District Court, and the Louisiana 5th Court of Appeal agreed, for the most part, with Jefferson Parish's reasoning.
The Louisiana Supreme Court did not.
Writing for the majority, Associate Justice John L. Weimer likened online marketplaces to auctioneers, who are not parties to the sales but merely facilitate the transactions. “It is not in the province of the judiciary to create an exception (in the context of a retail sale) to the seller's obligation to collect sales tax for a marketplace facilitator, similar to that legislatively enacted for auctioneers,” he wrote.
Associate Justices William J. Crain, Scott J. Crichton, James T. Genovese, joined Weimer to form a majority.
Chief Justice Bernette J. Johnson and Associate Justice Jefferson D. Hughes III and Justice ad hoc Freddie Pitcher Jr. dissented from the majority.
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