Type: Client Alerts
On March 17, 2015, Laura Bugliaro (the “Plaintiff”) filed a class action lawsuit against BJ’s Wholesale Club, Inc. (“BJ’s”) in the Circuit Court of the 11th Judicial Circuit of Florida. The complaint alleges that BJ’s collects sales tax on the full price of items on sale, instead of applying the discount and then collecting sales tax on the discounted amount. The Plaintiff is claiming that BJ’s practices are contrary to regulations promulgated by the Florida Department of Revenue (the “Department”). The complaint alleges violations of Florida’s Deceptive and Unfair Trade Practices Act, fraudulent misrepresentation, negligent misrepresentation, and unjust enrichment. This case is similar to other cases being filed around the country against different retailers.
Background. The Plaintiff claims that on November 22, 2014, she bought a television from a BJ’s location in Florida for a “discounted sales price” of $769.99 (the original price of the television was $1,399.99). The Plaintiff claims she was wrongly charged sales tax based on the full $1,399.99 price of the television because the reduced price was not the result of a manufacturer’s coupon or discount. If the Plaintiff is correct, this resulted in an additional $37.80 being collected by BJ’s (based on Florida’s 6% state sales tax rate).
The Plaintiff also claims that she bought another television at a different BJ’s location in Florida on November 30, 2014, for a discounted sale price. The Plaintiff again alleges that sales tax was collected on the full price, not the discounted price of the television. In this instance, the television was discounted by $200.00, meaning an extra $12.00 was collected if the Plaintiff’s claims are true. Based on these two incidents, the Plaintiff asserts that BJ’s regular practice is to charge sales tax on the full price of discounted purchases made in Florida.
Florida sales tax regulations. According to regulations promulgated by the Department, the tax base for discounted sales depends on whether the discount originates with the manufacturer of the product or with the retailer. Coupons, rebates, or discounts issued by the manufacturer of a taxable good are not treated as a reduction in the tax base, and therefore, sales tax is to be charged on the full price of the item. Discounts and coupons issued by the retailer, on the other hand, are supposed to be considered a reduction in the sales tax base, and thus, tax should only be charged on the discounted price paid for the product (i.e., full price less the discount).
Florida’s sales tax rules pose compliance challenges for retailers. While sales tax decisions are nominally made by the company’s legal, tax, or accounting department, those policies must be implemented by sales clerks or cash register software programs. Sales clerks often lack the knowledge of whether a discount originates from the manufacturer or the retailer, and regardless, such employees should not be expected to interpret complicated tax regulations as part of their job. Further, it is difficult to program software for every possible deal, sale, coupon, rebate, incentive, or other price reduction that manifests itself in the real world. Indeed, depending on how a particular reimbursement is booked and treated for income tax purposes, it may be that the reimbursement should be treated as a manufacture discount in one instance, but a retailer discount in another. Therefore, even retailers who are earnestly attempting to comply with Florida’s and other states’ sales tax laws can inadvertently collect the wrong amount of tax on certain discounted sales.
Implications for retailers. There is no allegation that BJ’s pocketed the “overcharged” sales tax collections or profited in any way from such collections. In fact, there is no indication that BJ’s did not remit all collected tax amounts to the Department. Hence, there was no motive or incentive for BJ’s to collect excess sales tax from its customers. This suggests that even if the allegations in the complaint are true, any incorrect sales tax practices were inadvertent, contrary to the complaint’s assertions of fraudulent activity.
There has been a rash of similar class-action lawsuits filed around the country alleging improper collection of sales tax in connection with discounts or coupons, e.g., Wong v. Whole Foods Market Group, Inc., Case 1:115-cv-00848, U.S. District Court, Northern District of Illinois, Eastern Division (filed Jan. 28, 2015); Wong v. Target Corp., Case 1:115-cv-01985, U.S. District Court, Northern District of Illinois, Eastern Division (filed Mar. 5, 2015). While the stakes are low for any individual customer who claims to have been overcharged, the stakes are high for retailers subjected to the machinations of aggressive law firms hoping for a lucrative payday. Retailers should ensure they are diligently complying with each state’s unique sales tax rules. Reed Smith’s State Tax Group will continue to closely monitor this case and similar cases across the United States.
For more information on the growing risks that businesses face from the application of consumer class action and false claims act statutes to state and local tax matters, contact the authors of this Alert or another member of the Reed Smith State Tax Group.
About Reed Smith State Tax Reed Smith’s state and local tax practice is composed of more than 30 lawyers across seven offices nationwide. The practice focuses on state and local audit defense and refund appeals (from the administrative level through the appellate courts), as well as planning and transactional matters involving income, franchise, unclaimed property, sales and use, and property tax issues. View our State Tax team.
Client Alert 2015-092