Pennsylvania Appeals Court Invokes Primary Jurisdiction to Stay Sales Tax Class Action
A recent class action involving the propriety of collecting sales tax from customers highlights the importance of the Executive Branch in the three-branch system of government, and the deference that courts will give it -- particularly in the area of taxation.
In Stoloff v. Neiman Marcus Group, Inc., 2011 WL 1957694 (Pa. Super. May 23, 2011), a mail order shopper who bought a little black dress from Neiman Marcus objected to the retailer's collection of 6% sales tax on the dress, since most clothing items in Pennsylvania (except accessories, ornamental wear and formal wear) are not subject to tax. She filed a class action suit, alleging breach of contract, unjust enrichment, violation of the consumer protection statute, and conversion. She sought injunctive relief to prevent the retailer from collecting such tax in the future and force it to return the tax collected, as well as damages and punitive damages.
The trial court dismissed the claim, arguing that the plaintiff had failed to exhaust her administrative remedies before the Pennsylvania Department of Revenue, thus depriving it of subject matter jurisdiction. The intermediate appellate court disagreed, but only slightly. It held that the Department did not have the authority to give the plaintiff all of the relief she sought, so exhaustion of remedies was not really the issue. Rather, the injunctive relief was within the province of the courts to grant. But where a party holds on behalf of the State taxes that it has collected for the State, the Department of Revenue has primary jurisdiction on questions of whether the tax should have been collected in the first place.
Thus, the court -- recognizing the primary authority of the Department to interpret legislation and determine whether taxes should be collected -- directed the trial court on remand to reinstate the complaint and then stay the action, giving the plaintiff time to seek an administrative remedy first from the Department of Revenue on the issue of whether the tax was rightfully collected. If it was not, then the courts could deal with the issue of how to award relief to the class.
