Are Shoplifters Charged Sales Tax?

Written By Guest Blogger S.M. Oliva

When someone shoplifts or otherwise commits theft from a retailer, the severity of the thief’s punishment will often depend on the value of the stolen goods. In some cases, even a difference of one penny can turn a misdemeanor into a felony. Which begs the question: Does the value of the stolen property include the sales tax?

New Jersey Xbox Thief Escapes Harsher Punishment

A New Jersey state appeals court recently addressed this question. This particular case, State v. Burnham, involved a man arrested in 2020 for shoplifting an Xbox One game console from a Kohl’s department store. At the time, the retail price of the Xbox was $499.99.

Now this was important because of how New Jersey defines its shoplifting offenses. If someone shoplifts property with a “full retail value” of at least $200 but less than $500, it is a fourth-degree crime. But between $500 and $75,000, shoplifting is a third-degree crime.

The fourth-degree crime carries a maximum penalty of 18 months in prison plus a $10,000 fine. But the third-degree crime more than doubles the amount of prison time to 3 to 5 years plus a fine of up to $15,000. So crossing the $500 threshold is not a minor detail.

As noted, Kohl’s sold the Xbox One for $499.99, one cent below the third-degree shoplifting requirement. But prosecutors argued that was before you counted the sales tax. With the tax included, the Xbox obviously cost more than $500.

The defendant entered a guilty plea to the third-degree charge. Yet he still appealed, arguing that he should have been charged with fourth-degree shoplifting instead. His appeal focused on the question of whether or not the sales tax should count.

Judge Joseph L. Marczyk of the New Jersey Superior Court’s Appellate Division answered that the sales tax should not be applied in this situation. Writing for a unanimous three-judge panel, Marczyk said that no prior court in New Jersey had looked at this specific issue. He noted that New Jersey had a separate criminal theft statute that expressly included sales tax in the “fair market value” of a stolen item. But the shoplifting statute included no such language. Marczyk said the Court was therefore unwilling to “assume” the state legislature meant to include sales tax in shoplifting crimes as well.

More to the point, Marczyk said the purpose of the shoplifting law was to prevent the “loss of merchandise without full payment” to the retailer. Shoplifting was a crime against the retailer’s inventory. The sales tax on those items, however, was not a part of that inventory. So again, it stood to reason that the sales tax should not be used to determine a shoplifting defendant’s criminal liability.

State, Federal Courts Divided on Including Sales Tax

Not all courts throughout the country have reached the same conclusion as Judge Marczyk when confronted with similar cases. For example, in a 2017 decision, People v. Seals, a California appeals court held that “sales tax reimbursement may be included in determining the fair market value of stolen retail property.” The Seals case involved a cell phone stolen from a retailer during a robbery. The phone had a retail value of $899. But with the sales tax applied, the final price exceeded $950.

In California, $950 was the dividing line between misdemeanor shoplifting and felony burglary. So the defendant received a sentence of 25 years to life based on the higher valuation. The California Second District Court of Appeal explained that technically, state law imposed sales tax on the retailer rather than the customer. The retailer could seek “reimbursement” of its tax obligation from the customer. And that was what most retailers did, effectively passing it on as a cost of business. As such, it was appropriate to include the sales tax the consumer would have paid as part of the market valuation under the theft statute.

On the other hand, several other states have found their sales tax laws do not actually increase the cost to the customer, and therefore should be excluded from any valuations of stolen property. In a 2003 case, State v. Kluge, the Iowa Court of Appeals said the sales tax was “not truly a component of the value of a good or service, but rather a separate amount collected by a retailer for the benefit of a governmental taxing authority.”

Similarly, a New York City trial judge ruled in a 1997 case, People v. Medjdoubi, held that there was “no rationale for holding that stealing property from a retail store by an illegitimate purchase where tax is paid is criminal conduct on a greater scale than stealing that same property by shoplifting or burglary.” In other words, the “market value” of stolen property didn’t change based on whether or not sales tax was assessed or collected.

As for federal courts, they have tended to side with California, finding that sales tax should be included when assessing the value of property involved in a crime. The Chicago-based U.S. Seventh Circuit Court of Appeals held in a 1997 case, United States v. Draves, that it was appropriate to include the sales tax when assessing the value of illegal purchases made using a stolen credit card. The Court noted that since the underlying offense was credit card fraud, it was appropriate to look at the “total amount charged to the card,” which included sales tax.