For those following the ongoing saga of retailers being sued by consumers for failing to withhold the correct amount of sales tax, below is an update on two leading cases:
Papa John’s International Inc., which operates the fourth-largest take-out and pizza delivery restaurant chain in the United States, has been the subject of two class action lawsuits, involving alleged over-collection of sales tax, in federal court in both Florida and Illinois. Both lawsuits involve similar state statutory provisions and assert that Papa John’s improperly collected state sales tax on delivery charges. Papa John’s recently settled its case in Florida; however, the Illinois case is continuing.
Whole Foods Market, Inc., an American supermarket chain specializing in organic food, in late January was the subject of a new class action lawsuit filed in the U.S. District Court for the Northern District of Illinois alleging that Whole Foods overcharged sales tax on purchases customers made using coupons. Specifically, the lawsuit alleges that Whole Foods incorrectly charged Illinois sales tax on coupons used by customers to purchase goods, for which the company did not receive reimbursement from the manufacturer or other third party. Other retailers have been subject to similar lawsuits.
This ongoing class action litigation emphasizes the importance of retailers understanding and correctly computing sales tax due on their retail sales. Over- or under-collection of tax is no longer simply subject to challenge by state revenue department audits conducted under the cloak of confidentiality governing state revenue department proceedings. Instead, the advent of sales tax class action, as well as whistleblower lawsuits, means that a retailer’s failure to collect the proper amount of sales tax is now subject to very public scrutiny once a class action or whistleblower complaint is filed in court.