Pennsylvania: Retailer did not Violate Unfair Trade Practices and Consumer Protection Law

Listen to a brief overview of state tax developments this week, including Pennsylvania, or read the full Pennsylvania development below.

Detailed Pennsylvania Development

Recently, a federal district court dismissed a class action suit alleging that a multistate retailer’s purportedly erroneous sales tax collection violated Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL).  The suit was filed by an individual who was charged sales tax on purchases of “5-Hour Energy” drinks. The plaintiff later came to believe that the drinks were exempt dietary supplements and filed suit alleging violations of the UTPCPL, as well as several common law claims (conversion, unjust enrichment, and breach of trust). The retailer subsequently moved to dismiss the case.

The UTPCPL is concerned with unfair or deceptive activity "in the conduct of any trade or commerce."  Specifically, the statute aims to address the “evils of deception and unfairness in the commercial sphere—where greed, competition, and information asymmetry between buyers and sellers create unique opportunities for fraud and exploitation.” The retailer’s first argument was that the alleged improper collection of sales taxes was not an act in the conduct of any trade or business. Interestingly, the plaintiff tried to argue that the retailer was engaged in “trade or commerce” with respect to sales tax collection because (up until the law changed in 2016 to provide a flat $25 a month credit) it received a one percent tax credit as vendor compensation. In other words, the plaintiff argued that before the law change, the retailer had an incentive to over collect.

The court disagreed with the assertion that the retailer had a profit motive. Relying on cases from other jurisdictions interpreting nearly identical unfair trade practice statutes, the court concluded that when a retailer acts as a tax collector for the Commonwealth, it wears a different hat than when it is marketing and selling products. In this instance, the retailer is no different from a governmental entity that is carrying out its public duty. Collection of sales taxes, the court noted, has little to do with profit and revenue and is compelled by law. The court concluded that the collection of sales taxes was not an activity that occurred in the conduct of any trade or commerce. As such, the plaintiff’s claim failed as a matter of law. The court next addressed the plaintiff’s common law claims and held that they all failed because Pennsylvania law provides that the exclusive remedy for this situation was for the customer to request a refund of improperly collected sales tax from the Department of Revenue. Please contact Mark Balistrieri with questions on Lisowski v. Wal-Mart Stores, Inc.


This Week's Developments

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Featured Speaker

Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US