Courtney Jorstad  |  July 28, 2015

Category: Consumer News

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Target class action lawsuitA settlement was reached with Target Corp. to resolve allegations in a class action lawsuit that the retailer regularly miscalculated taxes on transactions that included coupons, resulting in a tax overcharge.

No details of the terms of the settlement were disclosed in the notice of his agreement to dismiss the class action lawsuit filed by Plaintiff Chang Wong on July 24. The class action settlement was reached on July 2. Neither attorneys representing Wong or Target responded to requests for comment from Law360.

Wong, an Illinois resident, filed his class action lawsuit against Target in March alleging 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 said in his 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 said that he made a purchase at the a Target in Chicago in January, 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 the Starbucks Corporation on his January purchase when he was buying Starbucks instant coffee. 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 explained in the Target class action lawsuit.

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

According to the class action lawsuit, this violated Illinois state law, which says that sales tax can only be calculated on the pre-coupon price if the retailer will be reimbursed for some or all of the amount of the coupon. If that’s the case, then the company that issued the coupon pays the sales tax.

Most coupon issuers say that the customer has to pay the tax. However, the Starbucks coupon used by Wong did not, the class action lawsuit said.

The sales tax class action lawsuit charged 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.

Target is represented by Mark J. Altschul, Christopher M. Murphy, and Kaitlin P. Sheehan ofMcDermott Will & Emery LLP.

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

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7 thoughts onTarget Reaches Settlement in Coupon Tax Overcharge Class Action Lawsuit

  1. Laurie says:

    I understand to a point! I know depending on the store that you go to depends on how they calculate the total and tax. Example here in Boise, Idaho. Store A will calculate the tax after all coupons have been applied. Store B will calculate the tax before coupons have been applied! It would be nice if all stores were the same but this is just the way it is!

  2. Mary says:

    Each state has their own sales tax laws that apply to the end sale of consumer goods. S***s has charged sales tax on freight charges for years on items shipped to their store in my state. Freight charges here are exempt from sales tax. So, you see, it is a system ripe for abuse by the seller. Whatever they collect over what they should have collected goes to their profit margin or keeps their loss smaller than it would have been otherwise. My understanding, in my state, is that taxes are to be charged on the actual sale amount, which would be after the coupon values have been deducted. Our big box store routinely charges sales tax on the full amount of the pre-coupon value. Where I live, this amounts to almost 10% tax on the coupon value. The seller is subject to an audit for the over collection of sales taxes. The grocery store where I shop deducts part of the state sales tax after the coupon value is deducted from the final sales amount. The truth is, as laws change, it is difficult to know the answers unless you call your state Sales Tax Commission and inquire as to what the situation is where you live and shop.

  3. concerned says:

    tax paid on the product value? so if i buy a computers with a value of $500 and i get it on sale for $300 you think i should pay taxes on $500?

  4. Jeff says:

    tax is required on coupons discounts. tax is on the product value of purchase not cash value paid.

    1. Rachel says:

      I recon its what the coupon states then. Hmm this is a toughy!

  5. Jeff says:

    tax should be charged on coupons.

    1. Rachel says:

      Not sure about this one but I believe you are wrong, I couponed for 35 years, they always charged tax, however the coupon should have come off the price of the item before tax. Does that make sense?

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