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    The Lawletter Blog

    TAX: Sales Tax Pandemic—Facemasks

    Posted by James P. Witt on Mon, Sep 13, 2021 @ 12:09 PM

    The Lawletter Vol 46 No 5

    Jim Witt—Senior Attorney, National Legal Research Group

                In addition to the direct health issues caused by the COVID-19 pandemic, given the economic disruption the pandemic has caused, it is obvious that the pandemic will indirectly be giving rise to countless legal issues (for instance, in the construction/real estate field alone, with government mandates halting some projects and granting waivers as to others, and with issues related to supply chain, employee safety, construction disputes, defaults, loans, and leases, there will be important questions up for decision for a long time to come). As exemplified by the case of McLean v. Big Lots Inc., No. 2:20-CV-02000-MJH, 2021 WL 2317417 (W.D. Pa. June 7, 2021), however, there will also be COVID-19-related cases concerning far less momentous topics.

                In McLean, the plaintiffs in a putative class action asserted claims under the Pennsylvania Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), 73 P.S. §§ 201-1 et seq., against defendants Big Lots, Inc., Dollar General Corp., Jo-Ann Stores, LLC, Home Depot, Inc., and Wal-Mart, Inc., alleging that the defendants charged sales tax on otherwise exempt protective face masks. The plaintiffs alleged that the defendant retailers knowingly, negligently, or deceptively falsely advertised the price of protective face masks, representing that protective face masks were subject to Pennsylvania sales tax and collecting the tax from the plaintiffs. In fact, under sales tax exemptions for medical supplies and clothing, 72 P.S. §§ 7202, 7204, the masks were not subject to sales tax. The Pennsylvania Department of Revenue indicated on its website that protective face masks sold at retail during the March 6, 2020 emergency disaster declaration were exempt from sales tax. In effect, the designation of nonsurgical masks shifted to medical purposes. On January 20, 2021, the Department issued a Sales and Use Tax Bulletin with an effective date of October 30, 2020, explaining that face masks were taxable prepandemic, but nontaxable postpandemic. The plaintiffs alleged that the defendants’ conduct constituted unfair methods of competition and unfair or deceptive acts or practices under the UTPCPL because they represented that goods had characteristics they did not have.

                Based on appellate decisions from Pennsylvania, Massachusetts, and Connecticut, the McLean court granted the defendants' motion to dismiss:

    The collection of sales tax is divorced from private profit. Retailers, like the Defendants here, collect sales tax on behalf of the Commonwealth's Department of Revenue because state law requires them to do so. See 72 P.S. § 7237(b)(1). Once collected, retailers hold the tax in trust before remitting to the Commonwealth. See 72 P.S. §§ 7225 and 7217(a)(2)-(4). A retailer's conduct in collecting taxes is not for purposes of profit, private gain, or greed. The retailer realizes no increase in revenue or profit in a transaction that charges a sales tax. Indeed, a retailer has little incentive to engage in "deceptive" or "unfair" practices by charging more than it must at the expense of its competitors charging a better price. Therefore . . . , the collecting of sales tax would appear to not fit the definition of "trade or commerce" under the UTPCPL.

    2021 WL 2317417, at *4. As trivial as this case seems in the face of the upheaval wrought by the pandemic, it is cases like this that are bound to clog court calendars in the near future.

    Topics: James P. Witt, sales tax, pandemic, face masks

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