Online Marketplace Did Not Have to Report Sales Tax on Items Sold by Third-Parties

A big box retailer with an online marketplace that sold items for third-party retailers was not a “dealer”  and did not have to report Louisiana and parish sales tax.

The retailer operated an online marketplace where customers could buy its products or products from third-party retailers. Tax was reported for online sales made for products carried by the big box, but not for sales made by third-party retailers through the online marketplace. The tax collector sought, from the online marketplace, unpaid sales tax, interest, and penalties on the sales made by third-party retailers. Both the trial and appellate courts ruled in favor of the tax collector.

Dealers Must Report, But Who is a “Dealer?”

Under Louisiana law, dealers are responsible for collecting and remitting sales and use tax. “Dealers” include sellers but also include:

                –manufacturers and producers

                –lessors and lessees

                –service providers and recipients and

                –certain persons that make deliveries

Online Marketplace Was Not an Actual Party to the Sale

The Louisiana statutory sales tax scheme provides that in a retail sale between a dealer and a purchaser, the dealer is responsible for collecting and remitting sales tax. However, when an online marketplace was involved, the actual parties to the sale were the third-party retailers and their customers; the online marketplace only facilitated the sale. The third-party transferred title and physical possession to the customer, reinforcing the online marketplace’s role as a mere facilitator. Requiring the online marketplace to collect may result in confusion and double taxation.

 Court Suggests Legislation is Needed

The court noted that legislation was enacted that specifically imposed the responsibility for collecting and remitting sales tax on third-party auctioneers. Noting that the online marketplace in this case occupied a position similar to an auctioneer, the court suggested the need for legislation addressing the obligation of an online marketplace to collect and remit sales tax.

 Online Marketplace had no Responsibility Under Agreement

Finally, the online marketplace did not contractually assume sales tax obligations. Under a marketplace retailer agreement, the online marketplace collected taxes for third-parties that requested the service. However, third-parties may collect on their own, and the agreement provided that third-parties are solely responsible for tax liabilities.

By Emily Baugh, J.D., LL.M

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All stories by: CCHTaxGroup