Coupon Tax Suit Belongs in Federal Court, Says Wal-Mart

A lawsuit filed against Wal-Mart accusing the company of illegally charging sales tax on coupon discounts should stay in federal courts rather than return to Pennsylvania state court, the company has said.

The department is not a defendant.

The suit was filed after plaintiff Brian Farneth noticed that he was being charged sales tax on the full value of his purchases before discounts from coupons had been applied. This, he alleges, is in violation of Pennsylvania law, which makes it illegal to tax discounts gained from coupons. Tax should instead be applied to the post-discount total, Ferneth claims. Various other states may have similar laws.

Wal-Mart has filed a motion to stay in federal court, prompting plaintiffs to argue that the case is better suited to state courts under an exclusion to the 2005 Class Action Fairness Act. This exclusion states that if government or state entities are the defendants, jurisdictional provisions need not apply. Ferneth argues that the Pennsylvania Department of Revenue is the only body able to assist the class members, and this has prompted Wal-Mart’s request to stay in federal courts. Wal-Mart, in response, claims that the department is not acting as a defendant and so the exclusion from federal jurisdiction cannot be applied.

“The exclusion would apply only if the department were a ‘primary defendant,’ and the department is not a defendant. For this reason the CAFA exclusion … does not provide a basis for remanding this case to state court,” the company said, adding that the proposed class of consumers exceeds 100 members and the suit seeks more than $5 million in damages, both Class Action Fairness Act requirements for a case to be heard at the federal level.

Ferneth seeks to certify a class of all Pennsylvania Wal-Mart consumers who used coupons between June 2007 and the present and were subsequently charged sales tax on the discount value.

The case is Brian Farneth v. Wal-Mart Stores Inc., case number 2:13-cv-01062, in the U.S. District Court for the Western District of Pennsylvania.