Metropolitan News-Enterprise


Friday, May 2, 2014


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S.C. Rejects Suit Against Target for Collecting Tax on Coffee ‘to Go’


By a MetNews Staff Writer


A retailer cannot be sued for collecting sales tax on an allegedly non-taxable item, the state Supreme Court ruled yesterday.

The court did not reach the issue of whether such sales are taxable. Instead, in a 4-3 decision that the dissenters said may prevent the substantive issue from ever being resolved, the court held that the refund procedures of the Revenue and Taxation Code are the exclusive means of deciding “taxability.”

     The ruling affirms a 2012 decision of this district’s Court of Appeal, Div. Three, although the high court applied a different analysis. Both appellate courts agreed that purchasers of hot coffee “to go” at Target stores cannot sue the retailer for collecting sales tax on their purchases.

The customers, who had hoped to have their suit certified as a class action, cannot sue, Chief Justice Tani Cantil-Sakauye wrote. Because the statutory refund procedures are exclusive, she wrote, it is unnecessary to rule on whether the claims are also barred by the state prohibition against enjoining taxes, as relied on by the Court of Appeal.

Refund Claim

Under the statutes, the only way to challenge the legality of a tax is to pay it and make a refund claim—which can be sued on if denied. Customers cannot claim sales tax refunds because the retailer is considered the taxpayer, although reimbursement of customers may be ordered by the State Board of Equalization if it finds the tax to have been improperly collected. 

The plaintiffs contended that by charging tax on their purchases of hot coffee drinks, Target violated a Revenue and Taxation Code provision that exempts “food products for human consumption” from sales tax unless “served as meals on or off the premises of the retailer,” “sold as hot prepared food products,” or, in some circumstances, “furnished in a form suitable for consumption on the seller’s premises.”

The regulations implementing that statute are “of amazing complexity,” the chief justice wrote yesterday, and make it difficult for a retailer to distinguish between different types of sales.

She cited the board’s amicus brief to the high court, which explained:

“Target would have to distinguish sales of coffee where the customer bought the coffee and immediately left the store from those where the customer bought the coffee but continued to shop in the same store or drank the coffee at tables and chairs in the coffee sales area. In addition, since the analysis must be made on a location-by-location basis, Target would need to conduct investigations in each of its California locations….The amount of administrative expense incurred to obtain such figures and maintain proper records would likely be passed on to Target’s customers in the form of higher prices.”

‘Inconsistent With the Code’

Cantil-Sakauye wrote:

“[W]e conclude that permitting plaintiffs to use the [Unfair Competition Law] or [Consumer Legal Remedies Act] to challenge Target’s collection of a sales tax reimbursement on the ground that the sale was not taxable is inconsistent with the tax code provisions relating to the sales tax, particularly in light of the primary role assigned to the Board with regard to the resolution of sales tax issues and the presumption that all sales are taxable unless the taxpayer demonstrates otherwise to the satisfaction of the Board.”

Justices Marvin Baxter, Ming Chin, and Carol Corrigan concurred in the opinion.

Justice Goodwin H. Liu, joined by Justice Kathryn M. Werdegar and Fourth District Court of Appeal Justice Eileen Moore, sitting by assignment, dissented.

Liu wrote:

“Whether Target may charge sales tax on a cup of coffee is probably not the most gripping issue before the California Supreme Court this term. But this is not really a tax case. This is a case about the reach of consumer protection statutes that prohibit unfair business practices, including misrepresentations by a retailer as to what its customers are actually paying for. Today’s decision weakens those statutes by blessing an arrangement that mutually benefits retailers and the state treasury at the expense of everyday consumers. Because our tax laws do not foreclose private enforcement of consumer rights in the manner the court suggests (if they do at all), I respectfully dissent.”

The case is Loeffler v. Target Corporation, 14 S.O.S. 2138.


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