Dunkin’ Donuts Tax Fraud Case Tossed by Illinois Judge

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By Michael J. Bologna

Dec. 9 — A federal judge in Chicago has dismissed a consumer fraud action against Dunkin’ Donuts that alleged the company cheated Illinois customers by improperly applying the state’s sales tax on prepackaged bags of coffee ( Bartolotta v. Dunkin’ Brands Grp., Inc. , N.D. Ill., No. 16-cv-04137, order 12/6/16 ).

U.S. District Court Judge Thomas M. Durkin on Dec. 6 dismissed a class action brought under the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA) against Dunkin’ Brands Group Inc. and Orland Park Donuts Inc., a suburban Chicago franchisee.

Plaintiff Michael Bartolotta alleged Dunkin’ Donuts fraudulently misapplied the Retailers’ Occupation Tax Act (ROTA) and Use Tax Act (UTA) on his purchase of a one-pound bag of coffee beans. Bartolotta alleged the food chain applied the 6.25 percent rate generally required under ROTA and UTA on his purchase, rather than the 1 percent rate reserved for sales of food “that is to be consumed off the premises where it is sold.”

Conservative Interpretation

But Durkin disagreed, finding no basis by which the defendants’ conduct could constitute fraud. He characterized Dunkin’ Donuts’ application of the 6.25 percent rate as “an altogether reasonable interpretation” of Illinois’ tax code.

“Essentially, what the store did here was follow a conservative interpretation of the statute and regulations, and charge the higher tax amount,” Durkin wrote. “It is altogether logical that they would do this. If the Store charged the 1% rate, and the IDOR then audited it and determined that the higher rate should have been used, the Store would be liable for paying those taxes. As a practical matter, the Store would have no recourse against its customers who already paid for the bulk coffee and long since left the premises.”

The judge added that Dunkin’ Donuts’ conduct couldn’t be considered actionable, even if the plaintiffs could demonstrate the food chain’s interpretation of the tax code was incorrect.

“It simply is not fraud or an unfair business practice for the Store to follow this conservative practice, even if the Store’s interpretation of the regulation is incorrect and the lower 1% tax could have been imposed,” Durkin wrote.

Justin Drake, a Dunkin’ Donuts corporate spokesman, told Bloomberg BNA the company couldn’t comment on a matter of pending litigation.

Batch of Lawsuits

Dunkin’ Donuts has been forced to defend itself on similar questions in at least two other jurisdictions this year.

In October, Dunkin’ Donuts won dismissal of a lawsuit alleging chain stores in New York had improperly collected $10 million in sales tax on prepackaged coffee in defiance of state guidance requiring that the products be sold tax-free. That case is currently being appealed ( Estler v. Dunkin’ Brands, Inc., S.D.N.Y., No. 16-cv-00932, notice of appeal filed 11/4/16 ).

Similarly, in June, a New Jersey Superior Court dismissed a class action that alleged Dunkin’ Donuts stores charged $4 million in sales tax on bottled water and prepackaged coffee in violation of the state’s Sales and Use Tax Act. The suit alleged that the items were exempt under the act ( Frate v. Dunkin’ Brands, Inc. , N.J. Super. Ct. Law Div., No. BER-L-1271-16, 6/28/16 ).

To contact the reporter on this story: Michael J. Bologna in Chicago at mbologna@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

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