Bamboozled February 11: ‘Big corporations are ripping us off

Questions about Dunkin’ Donuts sales tax practices are nothing new.

The allegation that some stores are charging sales tax for items that are not taxable was featured in the Bamboozled column back in 2013.

Seems not much has changed at some of Dunkin’s 825 New Jersey stores.

Earlier this week, a lawsuit was filed against Dunkin’ and its Fort Lee franchisee. Customers Ron and Carol Frate said they was charged sales tax on bottled water at the store, but bottled water isn’t a taxable item in New Jersey.

“I’m sick and tired of paying all these taxes,” Ron Frate said.

Frate, 74, said he didn’t object to the sales tax when it was charged, but he said he returned to the store to complain.

“The person there said they didn’t think they were doing anything wrong,” Frate said. “It looked like an automatic thing in the register.”

What Bamboozled learned in 2013 was that wrongful sales tax charges at some Dunkin’ franchises are not unusual.

We spoke to two customers who had similar experiences.

Andy Rehorn of Metuchen said he was charged sales tax for a Box O’ Joe, a 10-cup prepared box of hot coffee, at the Edison Dunkin’. But the week before at a Clark store, he wasn’t charged any sales tax. He wanted to know which was correct.

That same week, William Masi of Elizabeth reported he was charged sales tax on a bag of coffee beans at the Maplewood store, which he said shouldn’t be taxable.

More on what’s taxable and what’s not in a moment.

THE LAWSUIT

The lawsuit, which mentions Bamboozled’s column on the sales tax issue, claims New Jersey Dunkin’ stores took in about $4 million in sales tax on non-taxable items in the past three years.

The lawsuit alleges about 70 percent of customers buying bottled water and pre-packaged coffee were overcharged.

“Despite being aware of the illegality of their actions, Dunkin’ Donuts continues to dunk their customers, leaving them with a sour taste in their mouth when they buy their sweets,” the suit says.

Read the lawsuit here.

A second suit was filed against Dunkin’ Donuts in New York, alleging the chain charged some $10 million in sales tax on non-taxable items.

We contacted Dunkin’ Donuts and reminded it that it told us in 2013 it would tell franchises they were expected to comply with state law.

Dunkin’ wouldn’t answer our questions about how many complaints the company has received on the sales tax issue, or if it has taken any other steps to ensure that sales tax is charged on the correct items.

We also asked if it knows whether the stores that wrongly collected sales tax did indeed pay that tax to the state.

Dunkin’ didn’t answer those questions, but only repeated the statement it has made since news of the lawsuit came out.

DUNKIN RETAIL SALES Bloomberg-Getty 3.JPG
Dunkin’ Donuts stands accused of wrongly charging sales tax in New Jersey.
Bloomberg/Getty Images

“Dunkin’ Donuts has over 2,000 restaurants in New Jersey and New York that are owned and operated by individual franchisees, who are expected to comply with all applicable state and federal laws including those relating to taxation,” spokesman Justin Drake said. “We are in the process of reaching out to the franchisees identified in the complaint in order to determine whether these taxes were charged to customers.”

Sounds very much like the statement it made to Bamboozed in 2013.

Frate’s attorney said he hasn’t heard directly from Dunkin, but he called its statement “rich.”

“Dunkin’ Donuts corporate tells their franchisees in these elaborate agreements what do about everything except tell them when to go to the bathroom, and now they’re saying the franchisees are responsible for this? We beg to differ,” said Carl Mayer of the Mayer Law Group in Princeton.

Mayer, who said the problem extends to chains beyond Dunkin’, said he doesn’t know if Dunkin’ has been keeping the extra sales tax or if it was paid to the state’s coffers, but either way, he said it’s not allowed by law.

“We are calling on the acting attorney general and the governor to step up for New Jersey taxpayers to end this practice of illegally nicking consumers with sales tax on water or coffee, which is clearly a violation of New Jersey law,” Mayer said. “If this governor is a tax advocate he should make this right, not just for Dunkin’ but for every larger franchise in the state.”

Them’s fighting words.

The office of the attorney general had no comment on our request for comment, and the governor’s office didn’t respond.

To critics who say the lawsuit is just about pennies, Mayer said it all adds up.

“People are fed up with being nicked. They’re fed up with the overcharges. They’re fed up with being Bamboozled,” he said. “They know the CEO of Dunkin’ makes $10 million a year and they’re chintzing customers out of 7 percent, which adds up to a lot of money for the company and if you’re a regular customer, it adds up to a lot for the customer.”

WHAT’S TAXABLE AND WHAT’S NOT

In 2014, the state collected $8.8 billion in sales tax, according to the Division of Taxation.

The state’s web site said sales tax revenues for 2015 were exceeding projections.

State law is very clear on what items are taxable.

Bottled water is not taxable.

Packages of coffee beans aren’t taxable, either.

But a Box O’ Joe — prepared coffee — is treated as a prepared food item and should be taxed.

You can read a full list of what is and isn’t subject to sales tax on Taxation’s web site.

When we last talked to Taxation about this issue, it said it doesn’t usually take a hard line if a business is making errors with sales tax rules. Instead, Taxation will talk to the business and encourage it to correct the problem.

“Typically, in these cases, businesses are cooperative because they have made a good faith error and are not seeking to enrich themselves by collecting and pocketing sales tax revenues they are not entitled to receive,” a spokesman said in 2013.

If you’re wrongly charged, first contact a business directly. If that doesn’t work, you can file Form A-3730 with Taxation, asking for a refund.

And if you suspect a business is not properly paying its taxes or is otherwise violating the law, you can notify Taxation on the Citizens against Tax Cheats, or CATCH, web page or by calling (609) 292-6400.

“Big corporations are ripping us off. Big corporations are reaching in our pockets,” said Frate, the customer behind the lawsuit. “I’d like to see big corporations start trying to treat the people right.”

Have you been Bamboozled? Reach Karin Price Mueller at Bamboozled@NJAdvanceMedia.com. Follow her on Twitter @KPMueller. Find Bamboozled on Facebook. Mueller is also the founder of NJMoneyHelp.com. Stay informed and sign up for NJMoneyHelp.com’s weekly e-newsletter.