Hut, Hut, Phlmph — Florida Judge Denies Dismissal of Tax on Delivery Charges Lawsuit

Posted In Florida, Sales Tax

In the latest development in the Florida litigation regarding the taxation of delivery charges, Judge Jack Tuter of the 17th Judicial Circuit Court of Florida determined that the complaint against Pizza Hut was sufficient to withstand a motion to dismiss for failure to state a claim. Order, Lauren Minniti v. Pizza Hut of America, No. 14-023335 CACE (07), 2015 WL 5037164 (Fla. 17th Cir. Ct. Aug. 26, 2015). The case is fashioned as a class action, but it is still in the early stages and the class has not yet been certified.

The substantive tax question in this case is whether Pizza Hut is liable to Plaintiff (and possibly a class of plaintiffs) for damages based on sales tax charged on a delivery fee paid in connection with a food delivery. (Read previous discussion of delivery fee litigation). Pizza Hut charged the plaintiff $0.17 in sales tax on the separately stated charge for delivering food. The plaintiff asserts that Florida law does not impose sales tax on delivery fees if a customer has the option to pick up the delivered goods. The plaintiff raised three counts against Pizza Hut: (1) violation of the Florida Deceptive and Unfair Trade Practices Act; (2) negligence; and (3) unjust enrichment. The only issue in the motion to dismiss was whether the plaintiff had alleged sufficient facts to support the causes of action. A similar case is pending against Papa John’s Pizza.

In its motion, Pizza Hut had first argued that Plaintiff’s sole statutory remedy was the difference between what Pizza Hut collected and the amount Pizza Hut paid to the state. Because Pizza Hut remitted the entire amount, no remedy was available. Judge Tuter determined that this was not a proper assertion in a motion to dismiss, but that it could be raised as an affirmative defense to the plaintiff’s substantive claims.

Secondly, Pizza Hut argued that the actions alleged by the plaintiff did not amount to an unfair or deceptive act. The judge determined that this was a factual determination not subject to a motion to dismiss. Similarly, the judge also found the plaintiff had included sufficient factual allegations in her complaint to allege negligence.

Finally, Pizza Hut argued that the plaintiff had failed to state a claim, because she had not exhausted her administrative remedies—specifically, she had not requested a refund directly from the state. The judge rejected this position because Florida regulation provides that “[a] taxpayer . . . who has paid a tax to a dealer when no tax is due, must secure a refund of the tax from the dealer and not from the Department of Revenue.” Fla. Admin. Code R. 12A-1.014 (4).

Pizza Hut must now file an answer to the plaintiff’s complaint and dispositive motions will be heard regarding the appropriateness of certifying the case as a class action.

Practice Note — Taxation of delivery fees is complicated.

This case is an example of the complexity in dealing with sales taxes that may be imposed on delivery fees. The question of whether delivery charges are taxable has no universal or easy answer, and many states have quirky rules such as those in Florida. Taxability in each state depends upon many factors: who provides the delivery, who makes the delivery, who arranges for the delivery, how delivery charges are billed, where the delivery occurs and whether there is a pick-up option.

Companies that are engaged in, or are expanding into, food delivery should be careful when determining the taxability of delivery charges, particularly with the popularity of class actions being filed against vendors on the issue. Between audits from revenue authorities for under-compliance and class action suits for over-compliance, companies can be forced between the proverbial commissioner and a courthouse.

McDermott Will & Emery

Diann Smith
Diann Smith focuses her practice on state and local taxation and unclaimed property advocacy. Diann advises clients at any stage of an issue, including planning, compliance, controversy, financial statement issues and legislative activity. Her goal is to find the most effective method to achieve a client's objective regardless of when or how an issue arises. Diann emphasizes the importance of defining a client's objective - whether it is finality of a frequently audited issue, quick resolution of a stand-alone tax liability, or avoiding competitive disadvantages in the application of a tax. The defined objective then governs the choice of the path to a solution. Read Diann Smith's full bio.

Stephen P. Kranz
Stephen (Steve) P. Kranz is a tax lawyer who solves tax problems differently. Over the course of his extensive career, Steve has acquired specific skills and developed a unique approach that helps clients develop and implement holistic solutions to all varieties of tax problems. He combines strategic thinking with effective skills for the courtroom, the statehouse and the conference room. Read Stephen Kranz's full bio.




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