Sparked by ongoing litigation in a class action lawsuit by Sheetz, Inc. (Sheetz), the Pennsylvania Commonwealth Court (Court) is reviewing whether Perrier water is classified as “water” or a “soft drink” for sales tax purposes. The dispute arose after a class action lawsuit was filed against Sheetz, in which the plaintiff alleged that Sheetz incorrectly charged and collected sales tax on nonflavored mineral water such as Perrier. Now, the Court must decide if the characteristics of Perrier water, including the bottling process and the carbonation, are more aligned with the definition of “water” or a “soft drink” for Pennsylvania sales tax purposes.
“What’s in a name? That which we call a rose by any other name ...”
A Class actioN
In 2019, a Pennsylvania resident purchased Perrier bottled water from Sheetz stores on two separate occasions. After noticing that she was charged $0.11 sales tax on each purchase, the plaintiff filed a class action lawsuit seeking an injunction to prevent Sheetz from charging sales tax on any nonflavored mineral water claiming the sales tax charged and collected was essentially a commission for Sheetz. As set forth in Pennsylvania law, “water,” including nonflavored mineral water, is exempt from sales tax.
Although the case was assigned to a judge in the Commerce and Complex Litigation Center, the proceedings were stayed so that the Pennsylvania Board of Appeals (BOA) could issue a separate ruling to determine whether nonflavored mineral water was included the definition of “water” and thereby exempt from sales tax.
water v. soft drink
The BOA concluded that because the mineral water went through certain processing stages prior to being bottled and because it was carbonated, the mineral water was classified as a “soft drink” and thus subject to Pennsylvania sales tax. Further, on appeal from the BOA, the Pennsylvania Board of Finance & Review affirmed this decision, resulting in a subsequent appeal to the Pennsylvania Commonwealth Court.
In arguing the definition of “soft drink” in Pennsylvania’s tax code is too broad, the plaintiff’s attorney stated the definition was broad enough to include non-alcoholic beverages and still water, essentially arguing for a plain language reading of the statute which clearly exempts “water” from sales tax, while the definition of “soft drink” is more ambiguous.
During oral arguments, the judges questioned the characteristics of Perrier water that were similar to a soft drink. For example, the water and carbonation in Perrier water are both extracted from the same source, separated for processing, and then combined during the bottling process, and then packaged for sale.
An attorney for the Department maintained that although mineral water is not defined under Pennsylvania law, carbonated water is defined as a taxable “soft drink.” He further argued that it was not a stretch to determine carbonated mineral water should be considered a “soft drink.”
tax Classifications & Determnations
Although litigation is continuing with this class action, the significance of tax classifications and taxability determinations is a well-settled matter. As evidenced by the differing opinions about what is water for sales tax purposes, a seemingly clear and straightforward tax classification may be nothing more than an illusion.
Properly classifying your goods and services for tax purposes directly impacts your amount of tax compliance, collection and remittance, as well as any applicable exemptions. Need tax guidance on the definition of water? Trust the Torch.