Pennsylvania Unfair Trade Practices and Consumer Protection Law; Unfair or Deceptive Miscollection of Sales Tax
Garcia v. Foot Locker Retail, Inc., 293 A.3d 262 (Pa. Super. 2023); Garcia v. Am. Eagle Outfitters, Inc., 293 A.3d 252 (Pa. Super. 2023), allocatur granted Oct. 31, 2023, appeal dockets 27-28 WAP 2023
In this matter of first impression, the Pennsylvania Supreme Court will consider whether clothing retailers’ collection of a tax on sales of allegedly nontaxable protective cloth face masks was not “in conduct of” trade or commerce, and thus not actionable under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL).
The UTPCPL forbids “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” 73 P.S.§ 201-3(a). The UTPCPL defines “trade” and “commerce” as follows:
(3) “Trade” and “commerce” mean the advertising, offering for sale, sale or distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value wherever situate, and includes any trade or commerce directly or indirectly affecting the people of this Commonwealth.
73 P.S. § 201-2(3).
This case arises from two class action complaints filed by Daniel Garcia against retailers, Foot Locker Retail, Inc. and American Eagle Outfitters, Inc., and their related entities under the UTPCPL, based on the retailers’ collection of tax on sales of allegedly nontaxable protective cloth face masks that were commonly sold during COVID-19 pandemic. Garcia alleges that he purchased a cloth face mask from each of the retailers for which he paid sales tax and that the sales tax was improper because the Pennsylvania Department of Revenue (DOR) treated cloth face masks as medical supplies during the pandemic. The retailers filed preliminary objections arguing that the collection of a tax does not meet the definition of “trade or commerce” to maintain the actions under the UTPCPL, that the DOR is responsible for determining which items are taxable and which are not, and that the DOR also offers a remedy for consumers who believe they have been charged tax they did not owe. The trial court in each case overruled retailers’ preliminary objections, finding that Garcia had stated a claim under the UTPCPL. Superior Court granted permission for interlocutory appeal in both cases.
Superior Court issued substantively identical opinions in both cases. Faced with an issue of first impression, Superior Court considered the proper interpretation of “trade or commerce,” as that phrase is defined in the UTPCPL, reasoning that:
As noted above, the UTPCPL defines trade and commerce as the advertising, offering for sale, sale or distribution of property and services. There is no dispute that the sale of cloth facemasks qualifies as trade or commerce. As for the concomitant sales tax, and whether it is actionable under the UTPCPL, we look to § 203-1(a), which forbids “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” 73 P.S.§ 201-3(a) (emphasis added). The parties dispute whether the collection of sales tax in this case happened “in the conduct of” selling cloth facemasks.
Because the UTPCPL does not define “in the conduct of,” we turn to the dictionary definition of “conduct.” According to Merriam Webster, “conduct,” when used as a noun, means “the act, manner, or process of carrying on.” https://merriam-webster.com/dictionary/conduct (last visited December 27, 2022). In our view, the dictionary definition of “conduct” does not support the trial court’s ruling. Collection of sales tax is not itself the “act, manner, or carrying on” of advertising or selling a product. Rather, it is a statutory obligation attendant to the conduct or commerce. 72 P.S. § 7202(a). By statute, retailers must collect sales tax at the time of sale and remit it to the DoR. 72 P.S. § 7237(b)(1). Tax, once collected, is held in trust for the Commonwealth. 72 P.S. § 7225. The DoR will refund any taxes to which the Commonwealth was not entitled. 72 P.S. § 7252. Thus, a remedy is available to a consumer who pays tax on a nontaxable item. The import of §§ 7225 and 7252 is that “once a purchaser pays the seller a tax, whether properly or improperly imposed, that tax effectively becomes Commonwealth property, whether the seller transfers it to the Commonwealth or holds it in a trust fund for the Commonwealth.” Stoloff v. Neiman Marcus Grp., Inc., 24 A.3d 366, 373 (Pa. Super. 2011) (emphasis added). In other words, even if a retailer collects tax where none is due, the money becomes the property of the Commonwealth. Id.
Am. Eagle slip op at 6-7; Foot Locker slip op. at 7-8.
In each case, Superior Court held that the collection of tax on sales of allegedly nontaxable protective cloth face masks was not “in conduct of” selling face masks because: the retailers had no discretion in determining which items were taxable or not; the retailers did not have a profit motive to collect tax on nontaxable items because tax revenue, collected properly or improperly, was held in trust for the government, and therefore did not enrich the retailers; and the retailers were prohibited by law from advertising a price for an item as inclusive of the tax, but were required to identify the tax as a separate item on receipts. Superior Court additionally noted that Pennsylvania federal district courts have concluded that collection of sales tax is not trade or commerce under the UTPCPL and that other states considering the issue had concluded that collection of sales tax is not a trade or commerce protected by those states’ similarly-worded consumer protection laws.
Issuing identical concurring opinions in each case, Judge McLaughlin, joined by Judge Stabile and Judge Murray, opined that:
In Feeney v. Dell Inc., 454 Mass. 192, 908 N.E.2d 753 (2009), the Massachusetts Supreme Judicial Court considered a similar issue regarding Massachusetts’ consumer protection statute. There, retailers argued that the erroneous collection of sales tax “falls outside ‘the conduct of trade or commerce’ as those terms are used in” the statute. Id. at 769. The Massachusetts statute uses terms identical in all material ways to Pennsylvania’s Unfair Trade Practice and Consumer Protection Law (“UTPCPL”) and prohibits “unfair or deceptive practices in the conduct of any trade or commerce.” Id. at 770 (quoting Mass. Gen. Laws ch. 93A, § 2).
Like the majority here, the Massachusetts Supreme Judicial Court in Feeney concluded that the allegations there did not fall within the scope of the statute. It did, however, identify a fact pattern that it concluded would compel a different result:
Of course, if a retailer deceptively collects a charge that the retailer terms a “sales tax” and keeps the proceeds of the “tax” for the retailer’s own enrichment rather than remit them to the Commonwealth, a different result would obtain. In such a circumstance, the collection of the “tax” would be motivated by business reasons, not by a legislative mandate, and would constitute a “deceptive practice” under G.L. c. 93A. There is no such allegation here.
Id. at 771 n.37.
I join the majority on the understanding that it addresses the allegations of the complaint in our case and expresses no opinion on whether a case such as the Massachusetts court identified would be actionable under the UTPCPL.
Am. Eagle & Foot Locker concurring slip ops. at 1-2.
The Pennsylvania Supreme Court will consider:
Did the panel’s precedential opinion erroneously hold that the unfair or deceptive miscollection of sales tax does not occur “in the conduct of any trade or commerce” as contemplated by the Unfair Trade Practices and Consumer Protection Law, misinterpreting the statute and opening the proverbial door for all manner of unfair and deceptive practices in connection with the collection of sales tax and other regulatory compliance, a question of first impression and substantial public importance?
For more information, contact Kevin McKeon or Dennis Whitaker.