(CN) - Claims that Wal-Mart made Pennsylvanians pay too much sales tax on discounted Gillette shave gel belong in state court, a federal judge ruled.
Brian Farneth filed the putative class action shortly after his June 2013 purchase of two cans of Gillette Fusion shaving gel from a Wal-Mart in Aspinwall, Pa., outside Pittsburgh.
Because the customer gave the cashier a "buy one, get one" (BOGO) coupon, Farneth allegedly had to pay only $2.97 - the price of one can - plus 7 percent sales tax.
But Wal-Mart calculated the tax on the nondiscounted price, $5.94, and thus charged Farneth an extra 21 cents, in violation of state revenue regulations, according to the complaint.
Although Farneth's receipt described both the shave gel and the coupon - thus establishing a "new purchase price" under state law - Wal-Mart taxed the original, higher price, he said.
Farneth seeks to represent all Pennsylvanians who allegedly have been overcharged on sales tax while using BOGO coupons at Wal-Mart, adding up to more than $5 million.
The corporation argues, however, that the state Department of Revenue's Office of Chief Counsel essentially approved Wal-Mart's tax-charging process in a 2005 staff opinion letter.
But Farneth has disputed the validity of the 8-year-old letter, which allegedly advised Wal-Mart that it could not deduct the value of a manufacturer's coupon before calculating sales tax when using its then-current point-of-sale technology.
Though Wal-Mart removed the case to federal court, U.S. District Judge Mark Hornak last week cited comity in remanding the case back to the Allegheny County Court of Common Pleas.
Remanding to state court would not rob the plaintiff of any relief sought, and both parties believe state remedies would be "adequate and complete," the ruling states.
"Wal-Mart argues vigorously for the preeminence of a state law resolution of these issues, and Wal-Mart's argument for deference to a state administrative process under the primary jurisdiction doctrine is a strong indication that federal court deference under comity principles is appropriate," Hornak wrote. "Mr. Farneth initially filed this action in state court, where he undoubtedly believed that he could obtain a sufficient remedy on his asserted causes of action. He has also filed a motion to remand the case to state court in the event that this court determines that the Pennsylvania Department of Revenue is an indispensable party and cannot be joined in federal court. Thus, Mr. Farneth plainly believes that Pennsylvania's adjudicative processes would afford him a full and adequate remedy."
Wal-Mart also failed to show that the state must be joined as a party.
"The court agrees that Pennsylvania has an undeniable interest in the interpretation and application of its own sales tax regulation (whether it is joined as a party or not), and this is yet another reason that considerations of comity prudentially divest the court of jurisdiction to hear the case," Hornak wrote (parentheses in original).
Pennsylvania has set up its own adequate procedures for precisely the issue at hand - recovering illegally exacted taxes - according to the ruling.
"Pennsylvania courts are simply better positioned than this court to ascertain and then correct any violation of state tax collection laws - they are presumably more familiar with the administration of Pennsylvania tax regulations and are wholly unburdened by the [Tax Injunction Act] TIA's limitations in fashioning proper and complete remedies," Hornak wrote. "Taken together, these considerations counsel deference to the state adjudicative processes."