PITTSBURGH – A federal judge has dismissed a class action lawsuit which claimed a wide variety of retailers have been unlawfully charging sales tax on the purchases of face masks during the coronavirus pandemic.
The lawsuit took aim at a series of retailers, including Amazon, Zazzle, Etsy, Brave New Look and Outdoor Research.
“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 suit said – constitutes unfair methods of competition and unfair and deceptive practices in stark violation of the Unfair Trade Practices and Consumer Protection Law.
The lawsuit sought class action status for all those who purchased face masks from those businesses since March 6 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.”
Both Etsy and Outdoor Research filed to dismiss the lawsuit for failure to state claims on June 11, seeking to dismiss the counts of violating the Unfair Trade Practices and Consumer Protection Law, Pennsylvania Fair Credit Extension Uniformity Act, fraud, misappropriation/conversion and unjust enrichment.
U.S. District Court for the Western District of Pennsylvania Judge Robert J. Colville granted those defendants’ motions to dismiss, in a memorandum opinion issued on Nov. 5.
“Here, plaintiff Ranalli alleges that Outdoor Research and Etsy violated three subsections of the UTPCPL. We note that plaintiff does not allege that either defendant misrepresented the characteristics of the face masks he purchased, only that they were not taxable, which is not a characteristic of the product in and of itself. Plaintiff does not set forth any factual allegations as to representations made by defendants or what his understanding of such representation was at the time of his purchase,” Colville said.
“Nor is there an allegation that either defendant intentionally engaged in false advertising, or the proverbial ‘bait and switch.’ We see no factual allegations in support of the claim that the defendants acted unfairly or deceptively such that those actions would tend to deceive. In addition, plaintiff has not alleged an ascertainable loss of money or property in that he is entitled to a refund from the Department of Revenue.”
Colville found that the UTPCPL “does not apply to plaintiff’s claims as the assessment of sales tax does not fall within the meaning of ‘trade or commerce’ and the “collection of sales tax by retailers, acting as agents of a state government, is an activity ‘divorced from private profit’ that does not occur ‘in the conduct of any trade or commerce.”
Because the UTPCPL counts were dismissed, the PFCEUA count was likewise dismissed. As to the fraud, misappropriation/conversion and unjust enrichment claims, Colville ruled that they too were dismissed.
“Plaintiff has filed to allege facts which can be said to plausibly support his claim of fraud. He has merely alleged he was charged a sales tax and paid the sales tax. His allegations, otherwise, are nothing but legal conclusions. Accordingly, the motion to dismiss will be granted with respect to Count VIII. Plaintiff’s claim for conversion failed because, not only did he voluntarily part with his money, but once he paid the sales tax, regardless of whether the tax was imposed correctly, it became the property of the Commonwealth,” Colville said.
“Here, there are no facts to plausibly support a claim that the tax was actually appropriated for the defendants’ own use, especially as they are legally required to hold said funds in trust for the Commonwealth. Accordingly, for these reasons, plaintiff has failed to state a claim of conversion under Pennsylvania law, and Count XI will be dismissed. It is clear that collection of the sales taxes was not for profit or revenue but rather for basic compliance with the law. Accordingly, the motion to dismiss will be granted with respect to Count XI, unjust enrichment.”
The plaintiffs were represented by Joshua P. Ward and Kyle H. Steenland of J.P. Ward & Associates, LLC, in Pittsburgh.
The defendants were represented by Gary P. Hunt and Kathleen A. Nandan of Tucker Arensberg in Pittsburgh, plus Kevin Broughel, Zachary Zwillinger and Stephen Joseph Turanchik of Paul Hastings in New York, N.Y. and Los Angeles, Calif.
U.S. District Court for the Western District of Pennsylvania case 2:21-cv-00088
Allegheny County Court of Common Pleas case GD-20-011702
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com