Class Action Alleging Target Improperly Collected Sales Tax on Sale of Hot Coffee “To Go” Properly Dismissed because Plaintiffs do not have Standing under California Statutory Scheme to Seek Reimbursement from Retailer of Sales Taxes Paid to State and Lack Standing to Directly or Indirectly Enjoin the Collection of Sales Taxes California State Court Holds
Plaintiffs filed a putative class action in California state court against Target alleging that it unlawfully collected sales taxes on purchases of coffee; the class action complaint sought reimbursement of the sales taxes paid by class members, and an injunction against the collection of such sales taxes in the future. Loeffler v. Target Corp., 173 Cal.App.4th 1229, 1234 (Cal.App. 2009). According to the allegations underlying the class action, Target “charged and collected sales tax” on purchases of “to go” and “take-out” hot coffee even though California law allegedly exempted these items from sales tax; accordingly, “plaintiffs suffered monetary loss.” Id., at 1237. “In California, retailers are obligated to pay sales taxes to the state on their gross receipts, subject to certain exemptions,” but they “may, however, seek sales tax reimbursement from their customers.” Id., at 1234. The allegations underlying the class action focused on the theory that Target “was not entitled to collect sales tax reimbursement on purchases of hot coffee ‘to go’ because sales tax was allegedly not due on such purchases.” Id. The class action alleged that Target’s conduct violated California’s Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA), id., at 1237-38. Defense attorneys demurred to the class action: Target argued that Article XIII, section 32 of the California Constitution “prohibits injunctions against the collection of state taxes and provides that refunds of taxes may only be recovered in a manner provided by the Legislature.” Id., at 1234. “The purpose of this constitutional provision is to ensure that governmental entities may engage in fiscal planning so that essential public services are not unnecessarily interrupted.” Id. The trial court agreed, sustained the demurrer without leave to amend, and dismissed the class action complaint. Id. The Court of Appeal affirmed.
The Court of Appeal explained that only a retailer – as the party who paid the tax – has standing to seek a sales tax refund. See Loeffler, at 1234-35. The California Legislature “has created a comprehensive system for sales tax and sales tax reimbursement refunds,” see id., at 1239-41, and under that scheme plaintiffs do not have standing to commence a sales tax refund suit. Id., at 1242. The appellate court rejected plaintiffs’ novel theory that they were not seeking to enjoin the State from collecting of sales taxes, merely to enjoin a retailer from collecting reimbursement of sales taxes. See id., at 1243-45. The Court of Appeal enunciated a bright-line rule that “a court may not directly or indirectly enjoin or prevent the collection of a sales tax.” Id., at 1235. Accordingly, it affirmed the trial court order dismissing the class action complaint, id., at 1250.