July 1, 2010
Legal Brief: Class Refund Actions Protect Californians Against Illegal Taxes
Tax Foundation Amicus Curiae Brief Argues That Local Government Revenue Needs Don't Preclude Taxpayers from Challenging Improperly Collected Taxes
Washington, DC, July 1, 2010 - The California Supreme Court should reverse a lower court decision denying taxpayers the right to seek relief against illegal taxes through collectively filed refund claims, according to a Tax Foundation friend-of-the-court brief.
The case, Ardon v. City of Los Angeles, involves a telephone excise tax refund claim filed by Estuardo Ardon in the City of Los Angeles "on behalf of himself and all others similarly situated." Both the city and the California Court of Appeal rejected Ardon's "class action" lawsuit, arguing instead that each taxpayer must file a separate refund claim.
"The Court of Appeal's decision contradicts a previous state Supreme Court ruling in City of San Jose v. Superior Court allowing class filings under Section 910 of the state Government Code," said Tax Foundation Law Clerk Arushi Sharma, who co-authored a report summarizing the amicus curiae brief. "Despite the fact that Californians have repeatedly voted to limit local government taxing power in favor of taxpayer control, the Court of Appeal has incorrectly prioritized revenue maintenance over taxpayers' right to meaningful relief from illegal taxes."
Tax Foundation Fiscal Fact, No. 234, "Permitting Class Refund Actions Protects California Taxpayers Against Illegal Taxes: Ardon v. City of Los Angeles," summarizes the brief filed in the case and is available online at http://www.taxfoundation.org/publications/show/26473.html. A PDF of the full amicus curiae brief is available online at http://www.taxfoundation.org/publications/show/26476.html.
The Court of Appeal looked to a different case, Woosley v. State of California, to incorrectly determine that a policy "underlying" Section 32 of the California constitution precludes Ardon's claim because a potentially large collective refund would hamper local government revenue. The Tax Foundation's brief argues that while Section 32 prohibits injunctions against tax collection and requires taxpayers to pay contested taxes before taking legal action to stop tax collection (which Ardon did), it doesn't justify immunization of a tax from any taxpayer challenge whatsoever.
The brief also argues that the California constitution protects taxpayers against improper taxation by local government, especially since state law has denied taxpayers the ability to pursue refunds through other means, such as directly appealing to telephone service providers.
Class claims facilitate efficiency in claim processing and uniformity in claim resolution, especially when there are many claimants seeking small amounts, as is the case in Ardon. This process helps taxpayers if the court does require the government to pay back illegally collected taxes, and it helps the government if no refund is owed through singular resolution of multiple claims.
"The Supreme Court's decision in Ardon will have special significance for California taxpayers' ongoing efforts to deter illegal tax collection and over-taxation by local government," said Tax Foundation Tax Counsel and Director of State Projects Joseph Henchman, who co-authored the report. "The Court of Appeal decision should be overturned."
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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