November 24, 2008
Tax Foundation Urges California Court of Appeal to Allow Class Action Refunds for Illegal Taxes
Brief Argues that Permitting Class Refund Claims Furthers Due Process, Taxpayer Protection Goals of the State Constitution
Washington, DC, November 24, 2008 - In a friend-of-the-court brief filed with the California Court of Appeal, the Tax Foundation argues that class actions for tax refunds are authorized under state law.
In Tax Foundation Fiscal Fact No. 156, "Permitting Class Refund Actions Is Key to Effective Challenges of Illegal Taxes," Tax Foundation Tax Counsel Joseph Henchman and Law Clerk Travis Greaves argue that unless class actions are permitted in refund cases, the hurdles of legal process may deter taxpayers from pursuing refund claims, permitting governments to keep the proceeds of illegally collected taxes and providing an incentive to levy them.
Estuardo Ardon, who argues that the Telephone User's Tax (TUT) imposed by the City of Los Angeles is unconstitutional for failing to be approved by two-thirds of voters as required by California's Proposition 218, paid the tax, demanded a refund, exhausted administrative appeals, and filed a lawsuit "on behalf of himself and all others similarly situated." Los Angeles argues that such a class claim is not permissible.
Such a class action lawsuit is useful in that it combines all who paid this tax into one comprehensive legal case, and if Ardon prevails, it ensures that the city must refund illegally collected taxes to all who paid them. While class actions are permitted for state tax claims in California, Los Angeles argues they are not allowed for local taxes. Instead, they contend, each individual taxpayer must submit his or her own refund claim for processing, administrative hearings, and litigation.
"A state law authorizing class action refunds supersedes a local ordinance barring them," Henchman and Greaves say. "Thus even when a city has outlined taxpayer refund procedures, the state Government Claims Act may still overrule them where no statute specifies narrower rules."
Fiscal Fact No. 156 can be found at http://www.taxfoundation.org/publications/show/23970.html.
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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