Citing unclear and changing guidance from state officials on the tax status of masks during the pandemic, retailers including Walmart and Big Lots sought to toss the customers' claim that stores had violated Pennsylvania's Unfair Trade Practices and Consumer Protection Law. But attorney Kevin Abramowicz, representing the customers, said the law put the burden on the companies not to overcharge or collect taxes on tax-exempt goods, which customers couldn't realize they'd done until they got to the register.
"Consumers rely on businesses not to charge them amounts that are not owed, and the UTPCPL puts the burden on retailers not to charge amounts that are not owed," Abramowicz argued to U.S. District Judge Marilyn Horan via video conference.
The court heard arguments Wednesday on the retailers' motion to dismiss the customers' complaint, on the grounds that stores weren't engaged in a "commercial transaction" when collecting taxes that were to be forwarded to the state, and hadn't done anything to deceive customers.
"Both sides agree that before the [COVID-19 declaration of] emergency, non-medical face masks were considered 'clothing accessories' and were taxable," said Michael McTigue of Cozen O'Connor, representing Walmart and arguing for the retailers. "Even if the law had clearly changed… the interpretation of the Pennsylvania tax law can't be used as a basis to assert a claim under the UTPCPL … Every erroneous decision by a retailer could create liability."
But Abramowicz countered that the sales of the masks were the acts of trade and commerce as defined by the law, while charging a tax that wasn't actually owed was an act of unfair trade or deception. The retailers couldn't claim that they were merely acting as agents of the state because the state hadn't actually told them to collect the sales tax on masks, he said.
"If no tax is owed, the defendants aren't acting under a legislative mandate," he said.
Guidance that the Pennsylvania Department of Revenue put out in January clarifying that masks weren't taxable wasn't an out for the retailers, either, Abramowicz said. Medical masks and masks for "everyday use" had always been exempt, he argued, and the guidance said that retailers didn't have to ask if the cloth masks that proliferated during the pandemic were intended for such uses when exempting them from sales tax.
Nor could the retailers shift the burden to customers by claiming that they knew the masks were being taxed when they voluntarily bought them, Abramowicz said. Customers couldn't see that they'd been taxed until they got their receipts, and even those may not have clearly shown the masks had been taxed if there were other taxable items in the purchase, he said.
The customers had met another requirement of the law — showing that they relied on the businesses' representations when they made their purchases — because they'd effectively been forced to pay the 6%-7% sales tax in order to get their masks, Abramowicz said.
And although the retailers claimed the customers had ignored an alternative remedy — Pennsylvania had set up a way for customers who paid tax on masks to seek refunds directly from the state — Abramowicz said the defense hadn't been briefed, and so he didn't address it.
Judge Horan agreed to take the arguments under advisement.
The proposed customer class is represented by Kevin Tucker, Kevin Abramowicz, Chandler Steiger and Stephanie Moore 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.
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 Amy Rowe.
For a reprint of this article, please contact reprints@law360.com.