Coffee Sales Tax Suit Against Dunkin’ Donuts Called Off by the Court

Dunkin' Donuts coffe cup and beans copertinaFirst week of June 2017, Dunkin’ Brands, Inc. was released of the law suit filed against them in the 2nd Circuit which affirmed the District Court’s adjournment reports Forbes.com. The charges were piled up against them by Thomas Estler, Blake Ruehrwein, and Steven Park who claimed “that they had wrongfully been charged sales tax in violation of New York state law”.

The issue basically falls under the category of sales tax matter and hence Second Circuit marked the case off saying it cannot be brought before the federal court. Second Circuit proposed to the plaintiffs, the same as did the District Court originally to take the matter to New York State’s Department of Taxation (N.Y. Tax Law § 1139, a).
In their effort to convince the 2nd court plaintiffs approached the matter with following arguments;

1. This isn’t a sales tax issue but a return of improper “surcharges.”
2. The merchants broke the law by collecting sales tax when it was not proper which means that the merchants should not be exempt from liability under the law.
3. Forcing them to comply with administrative procedures would violate their constitutional rights.

But the 2nd court maintained what District Court had to say in the first place. The court believed “the argument “merits little discussion.” The merchants called it sales tax, the merchants charged sales tax, and the merchants collected sales tax. Whether they did so in error doesn’t transform the sales tax to a surcharge.
The court also said that since the company no longer holds the disputed money (because the charged dollars were transferred to the state) the settlement can only be found with the state and not the merchant.

As for the constitutional rights violations the court dismissed the claim saying “it needs to be argued in the underlying case. That didn’t happen here which means, found the court, “we need not consider them here.” 
The issue can be better understood by taking a look at how the state of New York charges sales tax on food items. As far as coffee is concerned, if bought in the form of beans or coffee pods is not subjected to sales tax. If it is bought in the form of ready to drink beverage then customer has to pay sales tax. This is because ready-to-be-consumed food and beverage items are subjected to sales tax under New York State’s tax laws.

Jeff Karlin, Director & Legal Counsel, Dunkin’ Brands, also provided a statement from Dunkin’ Brands’ side on this whole situation saying that it is the franchisee that makes the pricing decisions along with setting their own sales tax. Dunkin’ Brands is sure that each franchisee tries at its best to keep the prices in alignment with law and order. But sales tax laws are an elaborate matter and so confusions might happen. Dunkin’ Donuts customers may seek for compensation by applying for a refund through the state’s Department of Taxation.

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