Forever 21 Customer Requests Evidence in Sales Tax Class Action

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A New York shopper is seeking evidence that could show Forever 21 has been overcollecting sales tax and keeping the proceeds.

Defendant Forever 21 moved to dismiss this sales tax overcollection lawsuit last month. The company argues that plaintiff Laura Togut has no business suing the company in federal court when New York state law provides a different remedy for overcollection of sales tax.

According to Forever 21, Togut’s exclusive remedy lies in New York Tax Law section 1139, which provides a procedure by which a taxpayer may seek a refund of “any erroneously, illegally or unconstitutionally collected sales tax.”

Togut counters that section 1139 only provides a remedy in cases where the erroneously-collected tax was remitted to state or municipal authorities – a situation different from the one she alleges here.

According to Togut, Forever 21 has been booking the overcharged sales taxes as revenue – not remitting it to the taxing authority in good faith. She says the court opinion cited by Forever 21 acknowledges that this procedure may not apply to such a situation, where a fee fraudulently collected as a “tax” was never remitted.

To support that argument, Togut is asking 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.

She argues that if this discovery reveals that Forever 21 has not been remitting these funds, the company’s motion for dismissal should be denied in its entirety.

Togut filed this Forever 21 class action lawsuit in July 2017. She claims Forever 21 has been ignoring a state law that exempts certain lower-priced items of clothing from sales tax.

In New York, articles of clothing and footwear that cost less than $110 are exempt from the state’s four percent retail sales tax. New York City also exempts such items from its 4.5 percent retail sales tax and its 0.375 percent Metropolitan Commuter Transportation District tax within exempt localities.

Back in May, Togut says, she ordered at least 20 articles of clothing via Forever 21’s retail website and requested delivery to an address in New York City. Each item of clothing cost less than $110 and was therefore exempt from retail sales tax, she argues.

Despite the alleged exemption, Forever 21 allegedly charged her $22.90 in retail sales tax for the whole order.

Togut notes that Forever 21 is aware of the New York sales tax exemption, as evidenced by the fact that its brick-and-mortar stores do not collect sales tax on exempt items in exempt jurisdictions within New York.

Togut seeks to represent all persons who were assessed retail sales tax on clothing or footwear purchased from Forever 21 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 represented by attorneys Lee L. Shalov and Bradley J. Bartolomeo 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.