Target Miscalculates Sales Tax When Coupons Used, Class Action Says

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Target Corporation has been hit with a class action lawsuit in an Illinois federal court, alleging that the retailer miscalculates sales tax on purchases when coupons are used by customers.

Plaintiff Chang Wong of Illinois alleges that Target wrongfully calculates sales tax based on the entire purchase before coupons are accounted for, when it shouldn’t calculate the sales tax until after coupon amounts are subtracted from the total.

“On information and belief, the policy and practice of Target in Illinois, when it calculates sales tax for a transaction in which a coupon is issued, is to calculate the tax on the full amount of the purchase before deducting the amount of the coupon,” Wong states in the Target sales tax class action lawsuit.

According to Wong, Target stores handle sales tax when coupons are used in a uniform way, and it is therefore likely done this way at all of the over 50 Target stores in the state of Illinois, not just the Target that he shops at in Chicago.

The Illinois resident says that he made a purchase at the Chicago Target on South Clark Street on Jan. 22, in which he says he was charged $.22 on an $8.95 purchase according to a 2.25 percent sales tax.

Wong had used a $1.00 coupon issued by Starbucks Corporation on his Jan. 22 purchase. Before the cashier calculated the coupon, the pre-tax total was $9.95. The $.22 charged for sales tax is 2.25 percent of $9.95, not $8.95, he explains in the Target class action lawsuit.

He claims that he was overcharged sales tax for his purchase.

According to Illinois law, as cited in the class action lawsuit, if a coupon is used in which the retailer will receive either full or partial reimbursement for, “the retailer incurs Retailers’ Occupation Tax liability on the receipts received from the purchaser and the amount of any coupon reimbursement.”

In such a case, the company that issues the coupon, in this case Starbucks, “owes the corresponding Use Tax on the value of the coupon. However, in many cases, the coupon issuer incorporates language into the coupon that requires the bearer (the purchaser in this example) to assume this Use Tax liability.”

However, Wong says that “the coupons issued by Starbucks Corporation do not say anything about tax liability.”

Wong is looking to represent a class of Illinois residents, who redeemed coupons at Target stores in Illinois either on or after a date three years or five years before this class action lawsuit was filed, in which they “were charged sales tax based on the price prior to the discount resulting from the use of the coupon, where the coupon did not require the consumer to bear Target’s tax liability.”

The sales tax class action lawsuit is charging Target with violating the Illinois Consumer Fraud Act, common law fraud, and money had and received.

Wong is represented by Daniel A. Edelman and Emiliya G. Farbstein of Edelman Combs Latturner & Goodwin LLC.

Counsel for Target was not immediately available.

The Target Sales Tax Class Action Lawsuit is Chang Wong v. Target Corporation, Case No. 1:15-cv-01985, in the U.S. District Court for the Northern District of Illinois.

UPDATE: On July 2, 2015, Target reportedly reached an agreement to settle the sales tax class action lawsuit.