United States District Court, W.D. New York
BRENDAN GILBERT, individually and on behalf of all others similarly situated Plaintiff,
THE HOME DEPOT, INC., THE HOME DEPOT SPECIAL SERVICES, INC., And HOME DEPOT, U.S.A., INC., Defendants.
DECISION AND ORDER
WILLIAM M. SKRETNY, Chief District Judge.
1. In this putative class action, Plaintiff alleges that Defendants (collectively "Home Depot") improperly collect state and local sales taxes on a Damage Protection plan (the "Plan") that is offered to New York customers who enter into a Home Depot Tool Rental Agreement. Plaintiff, who rented three pieces of equipment from Home Depot on June 15, 2013, and chose to purchase the Plan, was charged sales tax on the Plan in the amount of $0.63. He contends the Plan is not subject to sales tax under § 1105 of New York's Tax Law and that Home Depot's unlawful tax collection constitutes: (1) fraud, (2) a violation of New York General Business Law § 349, (3) negligent misrepresentation, (4) violation of 42 U.S.C. § 1983, (5) negligence, (6) breach of contract, and (7) money had and received. He seeks to represent a class of all Home Depot customers that purchased a Plan in New York State and were improperly charged sales tax.
2. Presently before the Court is Home Depot's motion to dismiss this action for failure to exhaust administrative remedies and failure to state a claim for relief. For the reasons stated below, the motion is granted.
3. According to Home Depot, Plaintiff's claims "are nothing more than a disguised request for a sales tax refund, " for which New York's Department of Taxation provides exclusive administrative remedies. Because Plaintiff did not exhaust his administrative remedies, it urges, these civil claims fail as a matter of law.
4. Home Depot maintains that the procedures set forth in Article 28 of New York Tax Law are controlling here:
§ 1139. Refunds
(a) In the manner provided in this section the tax commission shall refund or credit any tax, penalty or interest erroneously, illegally or unconstitutionally collected or paid if application therefor shall be filed with the tax commission (i) in the case of tax paid by the applicant to a person required to collect tax, within three years after the date when the tax was payable by such person to the tax commission...
(b) If an application for refund or credit is filed with the commissioner of taxation and finance as provided in subdivision (a) of this section, the commissioner of taxation and finance shall grant or deny such application in whole or in part within six months of receipt of the application in a form which is able to be processed and shall notify such applicant by mail accordingly. Such determination shall be final and irrevocable unless such applicant shall, within ninety days after the mailing of notice of such determination, petition the division of tax appeals for a hearing. After such hearing, the division of tax appeals shall mail notice of the determination of the administrative law judge to such applicant and to the commissioner of taxation and finance. Such determination may be reviewed by the tax appeals tribunal as provided in article forty of this chapter. The decision of the tax appeals tribunal may be reviewed as provided in section two thousand sixteen of this chapter.
§ 1140. Remedies exclusive
The remedies provided by sections eleven hundred thirty-eight and eleven hundred thirty-nine shall be exclusive remedies available to any person for the review of tax liability imposed by this article; and no determination or proposed determination of tax or determination on any application for refund shall be enjoined or reviewed by an action for declaratory judgment, an action for money had and received, or by any action or proceeding other than a proceeding under article seventy-eight of the civil practice law and rules.
5. It is apparent from the parties' memoranda, and from this Court's own review, that there are few cases discussing the applicability of these provisions. Home Depot primarily relies on Davidson v. Rochester Telephone Corp. to support its assertion that Plaintiff is not entitled to maintain this action against it. 163 A.D.2d 800 (3d Dep't 1990).
6. In Davidson, the plaintiff alleged that Rochester Telephone ("RTC") improperly collected state and local taxes on "end user common line" charges. Id. at 801. Like Plaintiff, Davidson claimed the charges were not subject to sales tax under § 1105 and sought to bring his claims as a class action. Id. at 802. The appellate division reasoned that RTC's role in sales tax collection was ministerial only and that, once it had collected the tax, a disatisfied taxpayer's recourse was against the taxing body. Further, the court concluded, Davidson's allegations that RTC's collection of sales taxes "was improper, unnecessary, unauthorized by [§ 1105], and... an unjust enrichment" were precisely the type of claims that "must be raised in an administrative proceeding" and considered by the taxing authority in the first instance. Id.
7. Prior to Davidson's suit, RTC had obtained an advisory opinion by the Tax Commission which stated that its end user common line charges were subject to sales tax under § 1105. Nevertheless, the appellate court found the existence of that advisory opinion did not obviate the necessity of administrative review. The opinion was nonbinding on the Department and so was not determinative of Davidson's claims that the charges were nontaxable. Id. at 803.
8. Home Depot maintains that the result in Davidson comports with New York's public policy goals as reflected in state and federal court decisions. "Pursuant to New York law, exhaustion of administrative remedies is generally required prior to the initiation of litigation in the interest of preventing premature judicial interference with administrative efforts to develop a coherent enforcement scheme as well as to develop a factual record in the particular case." Legal Aid Soc'y v. City of New York , 114 F.Supp.2d 204, 222 (S.D.N.Y. 2000) (alleged violations of County Law) (citing Watergate II Apartments v. Buffalo Sewer Auth. , 46 N.Y.2d 52, 57 (1978)). See M. Parpis Food Distribs. v. Wetzler , 202 A.D.2d 873, 875 (3d Dep't 1994) (remedies provided under Tax Law §§ 1138, 1139 are exclusive remedies for review of tax liability imposed by Tax Law article 28); 550 Cent. Ave. Deli Corp. v. ...