A new class action lawsuit has been filed against Papa John’s Pizza for charging sales taxon its delivery charges. Papa John’s is the fourth largest take-out and delivery pizza chain in the United States. The lawsuit argues that Papa John’s orchestrated an improper billing practice that automatically assessed Illinois customers sales tax on its delivery charges. Under the Illinois Supreme Court’s decision in Walmart, delivery charges are not taxable if the purchaser has an option to acquire goods without delivery (i.e. carryout the pizza). This class action suit was originally filed in Illinois Circuit Court, but was removed to the federal Southern Judicial District Court of Illinois in May. A similar Florida state court suit against Papa John’s, based on Florida sales tax law, was also recently removed to federal court in Florida.
This litigation is in its initial stages with the parties continuing to contest whether federal or state courts have jurisdiction.
This new class action suit emphasizes that retailers cannot simply error on the side of collecting sales taxes on shipping, handling or other charges. Rather, retailers should have procedures in place to carefully scrutinize all customer charges in order to ascertain their taxability.