By Matthew Santoni

Law360 (February 2, 2021, 6:08 PM EST ) A group of retailers has urged a Pennsylvania federal court to dismiss a proposed class action over whether they improperly collected sales tax on face masks amid the pandemic, arguing the customers could not support their unfair trade practices claims for the state-mandated tax.

The customers' lawsuit, focused on claims that face masks should not be subject to the state sales tax that was collected by nine retailers, should be tossed because collecting the tax was not a "commercial transaction" subject to the Pennsylvania Unfair Trade Practices and Consumer Protection Law, and customers who did not object to the taxes collected at the time of purchase could seek refunds directly from the state, according to the brief the retailers filed Monday with their motion to dismiss the case.

"When retailers do collect sales tax, they act as mere agents of the commonwealth. They briefly hold these funds in trust for the commonwealth and promptly remit them to the Department of Revenue," the brief said. "If consumers believe that they have paid sales tax in error, the Pennsylvania General Assembly created a statutory procedure for them to seek refunds from the department. … Ignoring that procedure, plaintiffs filed this lawsuit, seeking a windfall $100 penalty under the UTPCPL for each allegedly improper sales tax transaction."

The retailers, comprising Walmart, The Home Depot, Big Lots, Dollar General, Giant Eagle, Jo-Ann Crafts, Ollie's Bargain Outlet and Ulta Beauty, asked the Pittsburgh court to dismiss the suit. A ninth retailer, Tuesday Morning Corp., was voluntarily terminated from the suit on Jan. 4.

The proposed class action suit, filed in state court in November, claims the retailers had wrongly charged and collected state sales tax on masks, which the consumers said were exempted under Pennsylvania Gov. Tom Wolf's emergency declaration for the COVID-19 pandemic. Walmart had the case removed to federal court in late December.

In Monday's motion to dismiss the case, the retailers argued that the Unfair Trade Practices law didn't apply to the collection of sales tax, and even if it did, the mask purchasers had notice of the tax on their receipts, hadn't claimed they were "deceived" about the tax, and hadn't suffered losses if they could still seek refunds from the state.

Pennsylvania's sales tax exemptions specified that "surgical masks" were exempt from sales tax, but it wasn't until after the suit was filed and well into the pandemic that the state issued guidance clearly stating that nonsurgical masks and face coverings could be exempted from tax, the brief said. Even then, it noted that purchasers who paid sales tax could ask the Department of Revenue for refunds.

"Because non-medical protective face masks historically were subject to taxation as ornamental wear or clothing accessories, the department noted that 'retailers were not obligated to determine whether a non-medical mask or face covering would be used for medical purposes,'" the brief quoted from the state's Jan. 20 Sales and Tax Use Bulletin.

"While the department acknowledged that retailers were not required to determine if non-medical masks were subject to a tax exemption, it nevertheless stated it would 'not assess retailers for failing to collect sales tax on purchases of non-medical masks and face coverings. … Consumers who can certify to the department that a cloth or disposable non-medical mask or face covering was purchased and used as a means of protection against the virus can petition the department for a refund of any sales or use tax paid.'"

The brief cited rulings in Massachusetts and Connecticut, two states with consumer protection laws similar to Pennsylvania's, as support for its contention that collecting sales tax was not part of the "commercial transaction" but rather a statutory requirement for retailers to follow.

"A retailer gains no personal benefit from the over collection of taxes. In fact, such activity only increases the retailer's prices, working against its economic interest," the brief said, quoting from the Supreme Court of Connecticut's 2009 ruling in Blass v. Rite Aid of Connecticut Inc.

And since the purchasers should have known they were being charged sales tax — and had not claimed they relied on any assertions that there was no tax when buying their masks — their claims should have been barred by the so-called voluntary payment doctrine, which says buyers who know all the facts or have a way to know all the facts before purchasing can't get a refund based solely on a mistake or error interpreting the law, the brief said. Since the retailers had disclosed the sales tax on the receipts and hadn't advertised the masks as tax-exempt, there was no fraud that would have let the buyers duck the doctrine, the retailers argued.

"That plaintiffs implausibly claim they initially 'did not discover' the sales tax — when the facts were fully available to them, including on the face of the receipts provided to them at the time of the purchases — does not avoid the application of the voluntary payment doctrine," the brief said. "Plaintiffs cannot avoid the consequence of their voluntary payment of the tax by claiming that the tax was improper."

Counsel for the retailers and the buyers did not respond to requests for comment Tuesday.

The buyers are represented by Kevin W. Tucker and Kevin Abramowicz of East End Trial Group LLC.

Walmart Inc. is represented by Michael W. McTigue Jr. and Meredith C. Slawe of Cozen O'Connor; Home Depot is represented by Molly E. Meacham of Babst Calland Clements and Zomnir PC; Big Lots Inc., Dollar General Corp. and Jo-Ann Stores LLC are represented by Courtney S. Schorr, Gerald J. Stubenhofer Jr. and Bethany Gayle Lukitsch of McGuireWoods LLP; Giant Eagle is represented by Robert M. Barnes and Darlene M. Nowak of Marcus & Shapira LLP; Ollie's Bargain Outlet Holdings Inc. is represented by Jack B. Cobetto of Eckert Seamans Cherin & Mellott LLC; and Ulta Beauty Inc. is represented by Kenneth M. Argentieri of Duane Morris LLP.

The case is Duranko et al. v. Big Lots et al., case number 2:20-cv-02000, in the U.S. District Court for the Western District of Pennsylvania.

--Editing by Bruce Goldman.

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