Volbers-Klarich v. Middletown Mgt., Inc., 2010 Ohio 2057 (Ohio 5/18/2010)
| Decision Date | 18 May 2010 |
| Docket Number | No. 2009-933.,2009-933. |
| Parties | Volbers-Klarich, Appellant, v. Middletown Management, Inc. et al., Appellees. |
| Court | Ohio Supreme Court |
SYLLABUS OF THE COURT
When a vendor charges its customer a nonexistent tax, the funds collected are not a tax collected for the benefit of the taxing authority. Consequently, under these limited circumstances, the customer need not seek a refund from the government entity that purportedly imposed the tax, but may file suit directly against the vendor to recover those funds.
Appeal from the Court of Appeals for Butler County, No. CA2008-07-160, 2009-Ohio-1651.
Dyer, Garofalo, Mann & Schultz and Kenneth J. Ignozzi, for appellant.
James M. McDaniel, for appellee.
{¶ 1} The primary question before the court is when a vendor fraudulently charges its customer a nonexistent tax, must the customer attempt to recover those funds through a "refund" from the taxing authority, or may the customer attempt to recover those funds directly from the vendor? We must also determine whether the appellant herein pleaded fraud with sufficient particularity and whether appellant's claim seeking certification of a class action alleging a violation of the Ohio Consumer Sales Practices Act ("OCSPA") stated a claim upon which relief could be granted.
{¶ 2} We hold that a customer may proceed directly against the vendor under these circumstances. We also hold that appellant's complaint pleaded fraud with sufficient particularity under Civ.R. 9(B), but that her claim seeking certification of a class action alleging a violation of the OCSPA does not state a claim upon which relief can be granted. Accordingly, we affirm in part and reverse in part the judgment of the court of appeals.
{¶ 3} Appellant, Julie Volbers-Klarich, filed an amended complaint against Middletown Management, an Indiana corporation that operates a Hampton Inn located at 430 Kolbe Drive in Butler County Ohio, and the corporate owner of the hotel. The complaint alleged that that since 1999, the Hampton Inn has charged its customers a 12 percent tax on lodging, which included 5.5 percent for state sales tax with the remaining 6.5 percent being charged for a county tax and a municipal tax. However, the complaint also alleged that no county or municipal tax existed from 1999 through September 30, 2003. The complaint alleged that Hampton Inn converted the funds it collected under the auspices of the supposed county and municipal taxes. The complaint admitted that beginning on October 1, 2003, Butler County began charging a 3 percent tax on lodging. The complaint also alleged that the Hampton Inn charged appellant the 12 percent lodging tax when she was a guest in August 2002. Consequently, she alleged that by collecting these nonexistent taxes, Hampton Inn engaged in fraud, breach of statutory duty to collect taxes, negligence, breach of contract, conversion, a violation of the Ohio Corrupt Practices Act, and a violation of OCSPA. She also sought certification of a class action and prayed for compensatory and punitive damages in excess of $25,000, including treble damages and various costs and expenses.
{¶ 4} The trial court held that the funds collected by the Hampton Inn, including those collected for the alleged nonexistent municipal and county taxes, were taxes that belong to the taxing entities. The court also stated that it found no indication that the General Assembly intended to create a private cause of action by a consumer against a vendor for the improper collection of taxes. Thus, the trial court reasoned that appellant should have sought a refund from Butler County and the municipality of Fairfield, as opposed to filing suit against the Hampton Inn.
{¶ 5} The trial court also held that appellant did not plead her fraud claim with sufficient particularity. Consequently, the trial court dismissed appellant's complaint for failure to state a claim upon which relief could be granted.
{¶ 6} The court of appeals held that "when a customer seeks a refund of taxes, even when they are nonexistent taxes, the customer must apply to the taxing authority for a refund." 2009-Ohio-1651, ¶ 17, citing Parker v. Giant Eagle Inc., Mahoning App. No. 01 C.A. 174, 2002-Ohio-5212, at ¶ 29-30, and Bergmoser v. Smart Document Solutions, LLC (Feb. 22, 2007), N.D.Ohio, No 1:05 CV2882, 2007 WL 634674. The court of appeals went on to state, "Even though Butler County and Fairfield were not collecting excise taxes for lodging at the time of appellant's stay, * * * they are entitled to those funds since they were collected by the Hampton Inn as trustee for Butler County and Fairfield." Id. at ¶ 18. Thus, the court concluded that appellant was required to seek a refund from Butler County and Fairfield, the taxing authorities, as opposed to filing suit against Middletown Management, the vendor. Id.
{¶ 7} The court of appeals also affirmed the dismissal of appellant's claim for fraud and her class action alleging a violation of the OCSPA. Id. at ¶ 22-28. Accordingly, the court of appeals affirmed the judgment of the trial court.
{¶ 8} We accepted appellant's discretionary appeal.
{¶ 9} Appellant urges us to reverse the court of appeals, arguing that when a vendor collects money from a customer under the guise of a tax, the customer may file suit against the vendor to recover those funds rather than seeking a refund from the entity that purportedly imposed the tax. She also claims that the trial court erred in dismissing her claims for fraud and her claim for a class action alleging a violation of the OCSPA.
{¶ 10} In urging us to affirm, Middletown Management contends that any money collected as a tax in the name of the government entity belongs to that government entity, and therefore because only governments can collect taxes, only governments can be subject to the legal process to refund the taxes that were wrongly paid by the taxpayer.
{¶ 11} A motion to dismiss for failure to state a claim upon which relief can be granted tests the sufficiency of the complaint. Assn. for the Defense of the Washington Local School Dist. v. Kiger (1989), 42 Ohio St.3d 116, 117, 537 N.E.2d 1292. Thus, the movant may not rely on allegations or evidence outside the complaint; such matters must be excluded, or the motion must be treated as a motion for summary judgment. Civ.R. 12(B); State ex rel. Natalina Food Co. v. Ohio Civ. Rights Comm. (1990), 55 Ohio St.3d 98, 99, 562 N.E.2d 1383.
{¶ 12} Vail v. Plain Dealer Publishing Co. (1995), 72 Ohio St.3d 279, 280, 649 N.E.2d 182.
{¶ 13} We can find no legal authority that squarely addresses the question of whether a customer may file suit against a vendor to recover the vendor's collection of a nonexistent tax or whether the customer must instead seek a refund from the taxing authority. However, we find that the law that addresses a vendor's responsibilities in collecting taxes for the state, in particular R.C. 5739.02(E), is instructive on this issue. And although R.C. 5739.02(E) addresses the collection of taxes for the benefit of the state, the policy stated in this provision is also applicable to local taxes. See Findley v. Hotels.Com L.P. (N.D.Ohio 2006), 441 F.Supp.2d 855, 861 (applying former R.C. 5739.01(H)). Accordingly, we begin our analysis by examining this body of law.
{¶ 14} A vendor is required to collect tax from customers on all taxable transactions as a trustee for the state of Ohio pursuant to R.C. 5739.03(A). R.C. 5739.02(E).
{¶ 15} In Decor Carpet Mills, Inc. v. Lindley (1980), 64 Ohio St.2d 152, 18 O.O.3d 376, 413 N.E.2d 833, a vendor charged its customers sales tax on the installation of carpeting pursuant to a construction contract, even though property installed pursuant to a construction contract was not subject to a sales tax. The vendor had remitted to the state the use tax it owed on its own purchase of the carpeting, but it retained the proceeds from the wrongly collected sales tax. Id. at 153. The tax commissioner levied an assessment on the vendor for the amount of the sales tax that it kept. The vendor sought a refund of the use tax that it had paid in the form of a credit against its tax liability for the sales tax. Id. at 153.
{¶ 16} In affirming the tax commissioner's denial...
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