Florida Real Estate Agent Sues Target and Walmart for Collecting Sales Tax on Stars and Stripes

*UPDATE* The plaintiff voluntarily dropped the case against Target and Walmart in an order entered on October 30, 2023.

Sales tax and administrative burdens go together like the Fourth of July and apple pie. A recent lawsuit highlights the burden and the risk to retailers when they improperly charge sales tax. The plaintiff in the case, a Boca Raton real estate agent, Pamela Knopman, filed a class action against Target and Walmart in US District Court on October 16, 2023, charging that the companies unlawfully collected sales tax on the sale of US flags. Ms. Koopman is seeking damages, compensatory damages, statutory damages, and punitive damages, plus litigation costs. While Ms. Koopman originally paid $0.89 and $1.12 in sales tax to Target and Walmart, respectively, on the purchase of two American flags her suit will cost the retailers much more than a refund of $2.01.

The issue in the case stems from Florida’s exemption on the sale of US flags. Florida is one of approximately fifteen states with a sales tax exemption on US Flags. According to the suit, Target and Walmart charged Ms. Koopman sales tax on her purchase of US Flags, one of which was the always stylish car mount. Ms. Koopman also claims the retailers did not remit the tax collected from her to the Florida Department of Revenue because they sought to “maximize profits”, resulting in unjust enrichment.

The case highlights the challenges associated with addressing all aspects of sales tax compliance. While most retailers are focused on the filing and remittance of sales tax, errors in assigning taxability to products and services can be costly. While most errors will not result in litigation, they are the responsibility of the seller and can result in assessments when tax is undercharged or bad publicity when overcharged. The case is evidence that even the largest retailers, with their vast resources, have issues with sales tax compliance.

Businesses that sell taxable goods and services are subject to sales tax collection in more states than ever due to the economic nexus laws that grew out of Wayfair. Taxpayers face many obstacles with multistate sales tax compliance – sales tax rules vary by state and by product or service. It is challenging for any seller, especially one with limited resources, to audit taxability across all states. There are solutions to mitigate risk such as taxability reviews, sales tax software, and self-audits, but perfection is unlikely.

It will be interesting to see how this case proceeds. Many sales tax class action claims are eventually dismissed since other remedies, such as filing a refund claim, exist. The case is Knopman v. Target Corporation et al filed in the United States District Court Southern District of Florida.

If you have questions on sales tax compliance or other SALT matters, please contact HBK’s SALT Advisory Group at hbksalt@hbkcpa.com.