State Tax Heads to Weigh in on Famous Dave’s Case

(CN) - A federal judge has stayed claims that Famous Dave's overcharges patrons for drinks with a bogus 8 percent tax, while the barbecue chain's operator seeks a review by the Pennsylvania Department of Revenue.

Lead plaintiff Alan Johnson says the popular restaurant imposed an unwarranted 8 percent tax on alcoholic beverages on top of the mandatory 10 percent Philadelphia liquor tax.

Pit Masters, which operates three Famous franchises in the Philadelphia area, admitted that its restaurants improperly charged an 8 percent sale tax when the 10 percent liquor tax should have been imposed alone.

But it said the overcharged amount included a 6 percent tax that the commonwealth of Pennsylvania collects, plus an additional amount collected by the city of Philadelphia. It also claims to have remitted the overcharged amount to the relevant state taxing authorities.

Pit Masters moved to dismiss or to stay, citing Stoloff v. The Neiman Marcus Group, a 2011 decision by the Pennsylvania Superior Court that found "any dispute involving the payment of sales tax must first be resolved by the Pennsylvania Revenue Department."

In Stoloff, the plaintiff purchased a dress by phone from a Neiman Marcus catalogue. The company charged her a 6 percent Pennsylvania sales tax, even though most articles of clothing are not subject to such taxation.

In that case the Superior Court held that the plaintiff had to petition the Department of Revenue for remedy "because of the agency's expertise in the area, its primary policy role in determining issues of taxation, and the statutory requirements of the internal revenue code."

Fighting application of this decision in the case against Famous Dave's, Johnson argued that there is no a complicated taxation issue requiring agency expertise. While U.S. District Judge Mary McLaughlin seemed sympathetic, she said the facts of Stoloff are on point in this case.

"The department is ... in the best position to determine whether [the defendant] appropriately taxed the instant consumers," McLaughlin wrote. "In fact, Section 7253 mandates that the department cannot authorize a refund of improperly collected taxes unless the taxpayer has filed a petition for refund with the department."

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