Bass ex rel. Situated v. J.C. Penney Co.

• Decision Date: 10 June 2016
• Docket Number: No. 15–0334.,15–0334.
• Citation: 880 N.W.2d 751
• Parties: Emily M. BASS, on Behalf of Herself and All Others Similarly Situated, Appellant, v. J.C. PENNEY COMPANY, INC., Appellee.
• Court: Iowa Supreme Court

880 N.W.2d 751

Emily M. BASS, on Behalf of Herself and All Others Similarly Situated, Appellant,

v.J.C. PENNEY COMPANY, INC., Appellee.

No. 15–0334.

Supreme Court of Iowa.

June 10, 2016.

Colby M. Lessmann, Timothy S. Bottaro, and Amanda Van Wyhe of Vriezelaar, Tigges, Edgington, Bottaro, Boden & Ross, LLP, Sioux City, for appellant.

Michael W. Thrall, Bruce W. Baker, and Keith P. Duffy of Nyemaster Goode, P.C., Des Moines, for appellee.

Thomas J. Miller, Attorney General, and Donald D. Stanley, Jr., Special Assistant Attorney General, for amici curiae State of Iowa and Iowa Department of Revenue.

APPEL, Justice.

In this case, we consider whether a plaintiff may bring a claim against an internet retailer for unlawfully charging Iowa sales tax on shipping and handling charges when the retailer forwarded the tax to the Iowa Department of Revenue (IDOR) pursuant to the Iowa version of the Streamlined Sales and Use Tax Act (SSUTA). The plaintiff claims the SSUTA establishes a statutory cause of action against the retailer. In the alternative, the plaintiff asserts that the retailer forwarding the collected tax to the IDOR did not extinguish common law claims against the retailer. The district court granted the retailer's motion for summary judgment. Plaintiff appealed.

For the reasons expressed below, we affirm the district court's judgment.

I. Background Facts and Proceedings.

The question of proper assessment and collection of state sales tax on internet sales has been challenging for state governments. To address internet retailers' concerns, a number of states banded together and created an agreement related to these issues, the SSUTA. States joining the agreement subsequently enacted the SSUTA.

Aware that the tax law had been amended, Carol Danforth, a tax specialist for J.C. Penney Company, Inc., contacted the IDOR. Danforth asked IDOR staffer Lola Stegall whether J.C. Penney's “transportation and handling” charges on Iowa internet sales transactions were subject to Iowa sales tax “under the new law.” Stegall replied,

Freight charges are exempt if separately invoiced or separately stated on the bill. If stated as a single item, and mandatory to obtain the merchandise, “shipping and handling” charges (or as you state: “transportation and handling”) are considered part of the purchase price of the merchandise and are subject to sales tax.

The IDOR published a summary of the changes in law related to delivery charges in the September 2005 Iowa Tax e-Newsletter. The newsletter stated:

Delivery charges are exempt from sales tax, so long as they are separately stated, reasonable in amount and related to the cost of transportation.

On June 2, 2011, Kathleen Bottaro mailed a letter to J.C. Penney in which she stated that she had been improperly charged sales tax on shipping, handling, and delivery charges on an order and demanded reimbursement. The matter came to Danforth's attention. She researched her records and located records related to her June 2005 communication with the IDOR and the September 2005 Iowa Tax e-Newsletter. Danforth concluded that because J.C. Penney's delivery charges were “a flat fee, based on the cost of the merchandise,” it did not qualify for exemption under the newsletter which seemed to require that the tax be “related to the cost of transportation.”

Nonetheless, Danforth contacted IDOR once again. She seemed to get uncertain, if not contradictory advice. One IDOR employee stated that “interstate separately stated transportation handling was not taxable,” but another employee indicated that because J.C. Penney's charges were related to the cost of the item, they were taxable.

After the internal review and the external communication with IDOR, Danforth replied to Bottaro. In a letter dated July 15, she stated that J.C. Penney had been advised that transportation and handling charges are subject to tax, but that she was reevaluating the issue with the state. In any event, however, Danforth refunded the tax on Bottaro's shipping and additionally gave her a $25 gift card to thank her for bringing the matter to the company's attention.

Almost two years later on April 24, 2013, Emily Bass placed an order with J.C. Penney on its website. J.C. Penney charged her sales tax on the shipping and handling charge. On May 14, Bass wrote to J.C. Penney requesting a refund and demanding that J.C. Penney cease collecting taxes on shipping and handling for Iowa transactions. J.C. Penney refunded the tax.

On August 31, Bass placed another order on the J.C. Penney website and was again charged tax on shipping and handling. On September 6, Bass filed a class action petition against J.C. Penney. In Count I, Bass sought an injunction to restrain J.C. Penney from collecting the tax. In Count II, she asserted a claim against J.C. Penney under the SSUTA. Finally, in Count III, Bass brought a negligence claim against the company. Bass served notice of the petition on J.C. Penney on September 17. After receipt of service, the company remitted all its taxes collected in the month of August 2013 to the IDOR.

J.C. Penney filed its first motion for summary judgment on November 1. Bass amended her class action petition on January 2, 2014. In the amended petition, Bass changed her negligence claim into one of negligent misrepresentation. She also added Counts IV through VIII bringing claims of fraud and fraudulent misrepresentation, violation of the Iowa Consumer Fraud Act, unjust enrichment, and conversion.

The district court first granted partial summary judgment dismissing Counts I and II of the petition. The district court dismissed the injunction claim on the ground that the collection of the tax was not illegal or void but merely irregular, and such irregularity could be adequately compensated by Bass's administrative remedy with the IDOR. The district court also held that the SSUTA did not create a private right because it would be inconsistent with the purpose of the statute and would intrude on the IDOR's exclusive jurisdiction over the interpretation of tax law.

On June 12, 2014, J.C. Penney filed its second motion for summary judgment. The district court granted the motion on all remaining counts. The district court held that because J.C. Penney remitted the sales tax to the state Bass's only remedy for allegedly improperly collected tax was with the IDOR. In addition, the district court found no false statement or false representation from J.C. Penney regarding its method of calculating shipping and handling and, as a result, no recovery could be had on the plaintiff's remaining claims.

Bass appealed.

II. Standard of Review.

On review of summary judgment rulings, we review for errors of law. Crippen v. City of Cedar Rapids, 618 N.W.2d 562, 565 (Iowa 2000). We view the entire record in the light most favorable to the nonmoving party, making every legitimate inference that the evidence in the record will support in favor of the nonmoving party. Goodpaster v. Schwan's Home Serv., Inc., 849 N.W.2d 1, 6 (Iowa 2014).

III. Overview of Dispute.

A. Introduction. There are two distinct issues in this case. The first question is whether the SSUTA creates a private right of action either expressly or by implication. The second question is whether the SSUTA extinguishes the plaintiff's remaining causes of action against the retailer when the internet retailer exercises its option to remit collected taxes to the IDOR.

B. Relevant Statutory Provisions.

1. Background. In 1999, the Streamlined Sales Tax Project began to explore ways to assist states in the collection and administration of state sales tax. Streamlined Sales Tax Governing Board, Why Was the Streamlined Sales Tax Created?, http://www.streamlinedsalestax.org/index.php?page=gen_2 (last visited June 1, 2016). Three years later, the SSUTA was developed. John A. Swain & Walter Hellerstein, The Political Economy of the Streamlined Sales and Use Tax Agreement, 58 Nat'l Tax J. 605, 610 (2005). The Iowa SSUTA is Iowa's enactment of this multistate effort to standardize and streamline the administration of sales tax to reduce the burden of compliance and to provide equal treatment to local brick-and-mortar businesses and out-of-state, online businesses. Streamlined Sales Tax Governing Board, What is the Streamlined Sales and Use Tax Agreement?, http://www.streamlinedsalestax.org/index.php?page=gen_1 (last visited June 1, 2016). Once states fully enact the SSUTA, they become “member states” of the Streamlined Sales Tax Governing Board. As member states, they gain access to a host of resources to enable the state to tax online purchases effectively. Twenty-four states have fully enacted the SSUTA. Streamlined Sales Tax Governing Board, How Many States Have Passed Legislation Conforming to the Agreement?, http://www.streamlinedsalestax.org/index.php?page=gen_3 (last visited June 1, 2016).

2. Relevant statutory provisions. Iowa's SSUTA is codified in Iowa Code chapter 423 (2013). In our analysis, we begin with Iowa Code section 423.8, which outlines the intent behind the legislation:

The general assembly finds that Iowa should enter into an agreement with one or more states to simplify and modernize sales and use tax administration in order to substantially reduce the burden of tax compliance for all sellers and for all types of commerce. It is the intent of the general assembly that entering into this agreement will lead to simplification and modernization of the sales and use tax law and not to the imposition of new taxes or an increase or decrease in the existing number of exemptions....

Iowa Code § 423.8 (emphasis added). Notably, the statement of legislative intent speaks to simplifying and modernizing the collection of taxes and reducing the burden of tax compliance for all sellers and for all types of commerce.

Iowa Code section 423.45 relates to refunds of excess taxes collected by a retailer. Subsections (2) and (3) are at the center of this controversy. Subsection (2) generally provides for...