Forever 21 Class Action Challenges N.Y. Sales Tax on Online Orders

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Forever 21 has been unlawfully charging sales tax for online purchases that should be exempt under New York law, according to a recent class action lawsuit.

Plaintiff Laura Togut, a New York City resident, says she was improperly charged sales taxes when she purchased clothing through a retail website operated by defendants Forever 21 Inc. and Forever 21 Retail Inc.

Togut argues that Forever 21 should apply state and local sales tax exemptions for online clothing purchases that are shipped to addresses in New York.

Application of sales tax depends on where the seller delivers the purchased goods to the buyer, Togut claims. She says that when the seller and buyer reside in different states and the seller delivers the goods to the buyer in the buyer’s own state, the sales tax law of the buyer’s state should apply to that transaction.

Nevertheless, she claims, Forever 21 still charges up to 8.75 percent sales tax on purchases delivered to New York City, ignoring many state and local sales tax exemptions that apply to purchases of clothing.

Not only is Forever 21 overcollecting sales taxes, Togut claims, but the company is also failing to remit those supposed tax revenues to the appropriate local and state taxing authorities.

Togut says she was improperly charged sales tax when she made an online Forever 21 purchase in May 2017. She says she purchased at least 20 separate items of clothing that should have been exempt from sales tax, and she had them delivered to her address in New York City.

In New York, sales taxes on clothing are limited, according to this Forever 21 class action lawsuit. Items of clothing and footwear for which the consumer pays less than $110 per item are supposed to be exempt from the four percent state retail sales tax, Togut says.

The same items are also exempt from New York City’s 4.5 percent retail sales tax and from the 0.375 percent Metropolitan Commuter Transportation District tax within exempt localities. Other counties outside the transportation district also provide for full sales tax exemption for qualifying items of clothing, Togut claims.

Since Forever 21 failed to apply these exemptions to her purchase in May, Togut says, she ended up paying $306.30 for an order that should have cost her $283.40 creating an alleged overcharge of $22.90.

Togut proposes to represent a Class of New York shoppers who had similar experiences with Forever 21. If certified by the court, her plaintiff Class will cover all persons who were assessed retail sales tax on clothing or footwear purchased for less than $110 per item and that were to be shipped to jurisdictions within New York State where such purchases are exempt from retail sales tax.

She is asking the court to award damages, disgorgement of all money collected as a result of Forever 21’s allegedly improper actions, and court costs and attorneys’ fees.

Togut’s attorneys are Bradley J. Bartolomeo and Lee S. Shalov of McLaughlin & Stern LLP.

The Forever 21 New York Sales Tax Overcollection Class Action Lawsuit is Laura Togut v. Forever 21 Inc. and Forever 21 Retail Inc., Case No. 1:17-cv-05616, in the U.S. District Court for the Southern District of New York.

UPDATE: On Oct. 16, 2017, Togut asked the court to allow limited discovery that would reveal Forever 21’s relevant financial records. She believes this evidence will prove that Forever 21 has failed to remit all its revenue collected as sales tax to the proper governmental authorities.