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Figuring out how much tax you owe when buying something at a discount is a tricky business. Store coupons and other retailer-funded discounts are deducted from your total before calculating sales tax. But in most states, you owe tax on your total before manufacturer’s coupons and manufacturer-funded discounts are deducted. That is, unless a retailer doesn’t inform you that a discount is manufacturer-funded – then the retailer itself owes the tax.

See? It’s complicated.

A number of consumers have filed lawsuits over the years, accusing retailers of improperly charging them too much sales tax. But now, New York state is suing a retailer for not charging sales tax when it should have – and passing along the savings to its customers, and itself.

The New York Attorney General’s office has filed a tax-evasion lawsuit against the owner of the B&H Photo Video Electronics store, an iconic independently-owned Manhattan retailer that is the largest non-chain photo and video equipment seller in the country. Since 2006, the lawsuit alleges, B&H has failed to charge sales tax, or pay the tax itself, for manufacturer-funded discounts.

Those discounts came in the form of instant rebates. If B&H was offering the rebates out of its own pocket, they wouldn’t be taxable. But in this case, manufacturers were funding the rebates. And according to state law, “although the coupon or rebate reduces the actual cost of the item to the customer… sales tax is not limited to the discounted price, but is due on the amount ultimately paid by the customer plus the amount ultimately paid by the manufacturer.”

Typically, retailers would charge customers the sales tax, though they can only do so if customers are informed beforehand that the discount is funded by the manufacturer. If that fact is not disclosed, the retailer must pay the tax.

But B&H allegedly did neither – to the tune of about $7.3 million.

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“B&H deliberately chose not to pay the sales tax it knew was due to New York State in order to gain a competitive edge over companies that chose to follow the rules,” Attorney General Letitia James said in a statement.

In fact, the lawsuit quotes one competitor as saying that “invariably, one of our customers will ask why we’re taxing pre-discount when Competitor X is taxing after discount for the exact same item.”

The state says B&H knew it owed tax but failed to pay it, and actively avoided doing so by adopting “an accounting methodology that effectively hid the instant savings reimbursements from state sales tax auditors.”

B&H is vowing to fight the case. “B&H has done nothing wrong,” a spokesperson said in a statement. “The attorney general wants to charge New Yorkers a tax on money they never spent. It’s wrong and we won’t be bullied.”

It’s an unusual case, in that retailers are usually more than happy to pass along the responsibility of paying taxes onto their customers, whether or not the state even requires them to. In fact, some retailers are more earnest about it than others – which has prompted some customers to file lawsuits of their own when tax is applied incorrectly. A Pennsylvania shopper recently sued Pier 1 for improperly charging sales tax on items purchased with store coupons, while Walmart last year settled a class-action lawsuit for charging sales tax on the full price of items purchased with manufacturer’s coupons, in a state where manufacturer’s coupons are supposed to lower your taxable total. And a New York shopper waged a years-long legal battle with Costco, for failing to disclose that its coupons were taxable manufacturer-funded discounts.

Since the tax laws are so complicated, most shoppers likely don’t even notice when retailers charge them more sales tax than they actually owe. In the case of B&H, though, the state of New York has now definitely taken notice.

“B&H proclaims itself to be ‘a proud, family owned business’ that is ‘built on the pillars of honesty and treating people right’ and which puts ‘principles over profits,’” the state’s lawsuit reads. “But when it comes to collecting and paying New York state and local sales taxes, B&H has been anything but honest and principled.”

The state is seeking 13 years’ worth of tax payments it says B&H owes, plus damages, penalties and interest. So B&H shoppers may have saved millions by not paying taxes the state says they should have been charged – but in the end, it’s B&H who may end up paying the price.

Image source: B&H Photo Video

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