Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION: Papa John’s alleged to have improperly charged sales tax on delivery fees, (May 14, 2014)

By Linda O’Brien, J.D., LL.M.

A pizza restaurant franchisor and its franchisees allegedly have improperly charged sales tax on the entire bill for delivered items, including the delivery fee, according to a complaint filed in the Illinois Circuit Court in Edwardsville, Illinois (Tucker v. Papa John’s International, Inc., May 5, 2014).

Papa John’s is a take-out and delivery pizza restaurant chain. Customers may order pizza and other food items from Papa John’s in person at the store location, over the telephone, or through an Internet website. When placing an order with Papa John’s, a customer may go to the store to pick up the food or may receive delivery the food. If the customer elects to have the food delivered, the customer is charged a delivery fee, which is listed separately on the customer’s receipt. Zachary Tucker placed a food order with a Papa John’s location and chose to have the order delivered. Tucker was charged a delivery fee and sales tax on the delivery fee.

The complaint alleges that Papa John’s and all of its franchise locations throughout Illinois charge customers sales tax on the entire bill for delivered food. In Illinois, sales tax may only be imposed on the total sales price of taxable tangible property. The sales price is the amount paid for tangible goods, including services that are part of the sale. When a customer has the option of picking up the goods or having them delivered by the seller, the seller may not charge sales tax on a separate charge for delivery, when the cost of delivering the goods is equal to or exceeds the delivery fee. To the extent the actual cost of delivery is less than the delivery fee, sales tax can be charged only on the excess amount.

Papa John’s proprietary point-of-sale technology provides a digital ordering for customers and provides locations with a method for order-taking and pricing. The system dictates the method used by franchise owners to calculate pricing and create bills for its customers. Papa John’s stores are instructed and required to collect sales tax on delivery fees. For all food ordered from Papa John’s, a customer has the option to pick up the order or have it delivered. Papa John’s and its franchise owners are not legally permitted to charge sales tax on a delivery fee charged to customers who elect to have their food delivered, according to the complaint.

Papa John’s provides each delivery driver with a per delivery reimbursement in addition to a minimum wage. The amount Papa John’s pays to delivery drivers to deliver a food order is equal to or exceeds the delivery fee. Because the delivery fee does not exceed the actual cost of delivering a food order, the delivery fee is not subject to state sales tax. In violation of state law, Papa John’s and its franchise stores have charged and continue to charge sales tax on the entire delivery fee. As a result, every customer who has ordered food for delivery from any Papa John’s location has paid excess sales tax that they are not entitled to collect.

Tucker asserts claims for negligence, negligent misrepresentation, breach of contract, and violations of the Illinois Consumer Fraud & Deceptive Practices Act and Uniform Deceptive Trade Practices Act. The action seeks declaratory and injunctive relief, restitution, damages, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 14L668.

Attorneys: Francis J. Flynn, Jr. (Carey, Danis & Lowe) and Jason Whittemore (Wagner, Vaughan & McLaughlin, P.A.) for Zachary Tucker.

Companies: Papa John’s International, Inc.; Papa John’s USA, Inc.

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