PITTSBURGH – Dollar General and Aldi have scored a dismissal of a lawsuit which alleged that they and other retailers unlawfully charged sales taxes on the purchases of face masks during the COVID-19 pandemic.
Joshua James of Freeport (on behalf of all others similarly situated) first filed suit in the Allegheny County Court of Common Pleas on Nov. 12.
(The case was later removed to the U.S. District Court for the Western District of Pennsylvania on Feb. 11.)
The lawsuit had taken aim at many different retailers, including Marshall’s, Forever 21, Sally Beauty Supply, Dry Goods, Amazon, Zazzle, Etsy, Brave New Look, Outdoor Research, Aldi, Dollar General and eBay.
“Retailers operating in Pennsylvania cannot collect sales tax on protective face masks or coverings because they are nontaxable as ‘medical supplies’. Retailers operating in Pennsylvania cannot collect sales tax on protective face masks or coverings because they are nontaxable as ‘clothing and accessories.’ In order to charge or collect sales tax, retailers must first obtain a license from the Pennsylvania Department of Revenue,” the suit stated.
“During Governor [Tom] Wolf’s declared state of emergency, [the plaintiffs] and others similarly situated purchased protective face masks and coverings from various Pennsylvania-licensed retailers and were charged an unlawful sales tax on said purchase. Defendants represent a fraction of retailers that failed to comply with 72 P.S. Section 7204(4) and 72 P.S. Section 7204(18) despite information readily available to them.”
During the coronavirus pandemic, charging consumers, like the plaintiffs and others similarly situated, sales tax on medical supplies and/or clothing and accessories – both of which are non-taxable, the suits say – constitutes unfair methods of competition and unfair and deceptive practices in stark violation of the Unfair Trade Practices and Consumer Protection Law.
The class action lawsuit sought damages for all those who purchased face masks from those businesses since March 6, 2020 and paid sales tax for them.
Since there are an estimated 12.8 million people in Pennsylvania and everyone was ordered to wear a mask in public since Wolf’s emergency orders were enacted in the spring, the lawsuit estimated the class of plaintiffs could number in the hundreds of thousands.
In a social media post, potential class counsel Joshua P. Ward of Pittsburgh-based law firm Fenters Ward stated, “It’s illegal to charge any sales tax on any COVID mask.”
Attorneys for Dollar General and Aldi first filed a motion on March 12 to dismiss the case and its counts with prejudice. Likewise, they filed to dismiss both the plaintiff’s first and second amended complaints.
In the joint motion to dismiss to the second amended complaint filed on May 12, the defendants are looking to throw out all of the counts in the lawsuit and prevent the levying of punitive damages.
“This Court should reject plaintiff’s brazen attempt to obtain such a windfall. Plaintiff’s assertion that defendants would intentionally or recklessly engage in illegal and deceptive conduct, the only result of which would be to fill the coffers of the Commonwealth, defies logic and common sense, and is belied by the facts alleged here,” the motion stated.
“While the backdrop of this case is the propriety of the collection of sales tax on face masks during the pandemic, the Court need not decide that issue to dismiss this second amended complaint. Plaintiff’s second amended complaint identifies the date he purchased protective face masks from each defendant and attaches purchase receipts as exhibits. The timing of the purchases cannot support his claims.”
UPDATE
U.S. District Court for the Western District of Pennsylvania Judge Marilyn J. Horan granted the defendants’ motion to dismiss the complaint on July 9.
According to Horan, the collecting of sales tax would appear to not fit the definition of “trade or commerce” under the UTPCPL and could not demonstrate justifiable reliance, an essential causation element under that law, which proved fatal to that claim.
Likewise, the PFCEUA and unjust enrichment claims failed, Horan said, because it “does not reference or allege a past due obligation that Mr. James and the putative class owed as a result of a point of sale purchase of protective face masks” and explained the plaintiff “also cites to no authority that the PFCEUA covers a sales tax collection at the point of sale.
“Here, Mr. James does not allege that paying sales tax to defendants conferred a benefit to them. He also does not allege that defendants retained the sales tax he paid on his purchases. Any such allegation or argument would strain reason. Retailers briefly hold all collected sales tax in trust and promptly remit it to the Commonwealth. As this Court noted in McLean v. Big Lots, Inc., ‘Common sense dictates that the collection and remittances of sales tax has little to do with profit and revenue, and instead, basic compliance with the law,” Horan said.
“If defendants failed to remit sales tax to the Department of Revenue, they would risk the suspension or revocation of their business license. The collected sales tax from the two defendants totaled $0.45 and $0.36. To suggest that defendants sought to retain those amounts of money or benefited from those amounts defies logic. Thus, Mr. James’s allegations and arguments fail to convince the Court that a plausible claim for unjust enrichment exists in these circumstances,” Horan said.
Horan added that since there was no proof the defendants misappropriated the collected sales tax amounts for their own use, the conversion claim likewise did not stand. And since the remainder of the complaint’s claims were dismissed, the punitive damages claim could not survive and was denied as moot.
The plaintiff was represented by Joshua P. Ward of Fenters Ward, in Pittsburgh.
The defendants were represented by Craig D. Mills, Samantha Southall and Bridget J. Daley of Buchanan Ingersoll & Rooney in Philadelphia and Pittsburgh, Courtney S. Schorr, Gerald J. Stubenhofer Jr. and Bethany Lukitsch of McGuire Woods in Pittsburgh and Los Angeles, Calif., plus Andrew J. Soven and Hyun Yoon of Holland & Knight, in Philadelphia.
U.S. District Court for the Western District of Pennsylvania case 2:21-cv-00209
Allegheny County Court of Common Pleas cases GD-20-011704
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com