advertisement
advertisement

Walmart Sales Tax Snafu: How Did They Get This So Wrong?

Written by Frank Hayes
July 29th, 2013

In a sterling example of what big retailers’ POS software is not supposed to get wrong, Walmart (NYSE:WMT) has apparently been charging too much sales tax on two-for-one coupon deals in Pennsylvania in violation of the state’s law. Walmart insists the way it handles coupons in Pennsylvania has gotten an OK from the state—despite the fact that Pennsylvania law appears to spell out exactly the situation in which Walmart is accused of collecting too much tax.

According to a class-action lawsuit that was moved from state to federal court last week, when a Pennsylvania customer uses a two-for-one coupon, Walmart charges sales tax on both items, but it’s only supposed to charge for one. Because Walmart gets to keep 1 percent of the sales tax it collects as a collection fee, the chain is being accused of unjust enrichment from every coupon sale it has made since June 2007.

And the sales-tax overcharge the lawsuit is based on? That was for 21 cents.

The complaint, which was originally filed in state court in Pittsburgh on June 18, says college student Brian Farneth bought two cans of shaving gel on June 8 at a Pittsburgh Walmart with a two-for-one manufacturer’s coupon. The POS deducted the price of one of the cans, but charged 7 percent sales tax for both $2.97 cans—a total of 42 cents.

But the complaint cites Pennsylvania Code Section 33.2(b)(2), which spells out discounts that are exempt from sales tax:

Amounts representing on-the-spot cash discounts, employee discounts, volume discounts, store discounts such as “buy one, get one free,” wholesaler’s or trade discounts, rebates and store or manufacturer’s coupons shall establish a new purchase price if both the item and the coupon are described on the invoice or cash register tape.

Then the Code gives several examples. The first one:

“A” purchases two hamburgers from “R” restaurant with a “buy one, get one free” coupon. The price of one hamburger is $1. “R” rings up $2 on the cash register. “R” enters a credit in the cash register for the amount of $1 resulting in an adjusted price of $1. The acceptance of the coupon by “R” establishes a new purchase price of $1 which is subject to 6¢ tax.

(Pittsburgh has its own 1 percent local sales tax, which explains the state’s example is a penny short.)

In case that’s not clear enough, the complaint also cites a 2005 Pennsylvania Department of Revenue update that spells it out further.


advertisement

One Comment | Read Walmart Sales Tax Snafu: How Did They Get This So Wrong?

  1. Paula Says:

    Kudos to you Evan. I’ve been in the industry for a thousand years and didn’t know about these “collection fees”. Actually checked with my former boss, a COO of a major multichannel retailer, and neither he nor his CFO knew about it either, even though his company is taking advantage of it in a couple of states.

    Amazing story, and well done.

Leave a Reply

Readers, specifically those who want to comment on a story:
Our Comment SPAM system is getting very aggressive these days and has been blocking legitimate comments. If you post a comment and don't see it appear within 2 hours or so, can you please send a heads-up to customer-service@storefrontbacktalk.com? Ideally, please include the time you posted the comment. That will allow us to try and hunt for it. Thanks! P.S. We're working on fixing the system, but we don't want to lose any valuable comments in the meantime.

Newsletters

StorefrontBacktalk delivers the latest retail technology news & analysis. Join more than 17,000 retail IT leaders who subscribe to our free weekly email. Sign up today!
advertisement

Most Recent Comments

Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

StorefrontBacktalk
Our apologies. Due to legal and security copyright issues, we can't facilitate the printing of Premium Content. If you absolutely need a hard copy, please contact customer service.