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California Court Hands Down Class Action Decision

2 min readBy: Joseph Bishop-Henchman

In November, the TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation filed an amicus curiae (“friend of the court”) brief in the California Court of Appeal, in the case of Ardon v. City of Los Angeles. The case involves a challenged telephone excise tax, and the question of whether a class action lawsuit can be permitted. Class action lawsuits are useful in that they combine all who paid the tax into one comprehensive legal case, ensuring 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. The Tax Foundation brief noted that prior cases permitted class actions for tax refundA tax refund is a reimbursement to taxpayers who have overpaid their taxes, often due to having employers withhold too much from paychecks. The U.S. Treasury estimates that nearly three-fourths of taxpayers are over-withheld, resulting in a tax refund for millions. Overpaying taxes can be viewed as an interest-free loan to the government. On the other hand, approximately one-fifth of taxpayers underwithhold; this can occur if a person works multiple jobs and does not appropriately adjust their W-4 to account for additional income, or if spousal income is not appropriately accounted for on W-4s. s, although the California Supreme Court has limited them for state taxes.

In an opinion filed yesterday, the California Court of Appeal ruled 2-1 that Ardon cannot bring a class action lawsuit. 2009 WL 1479168. The court relied on a case (Woosley) that disallowed class actions for state tax refunds if the statute did not specifically authorize them. The court reasoned that the rule should apply to local tax refunds, even if they are silent on the issue of class actions. The court emphasized that interrupting revenue collections is dangerous. A prior case that conflicts with this new ruling was overruled.

Judge H. Walter Croskey dissented, arguing that Woosley was a result of state taxes where the legislature outlined a different refund process other than class actions. Because the tax in question was locally enacted and had no refund procedure other than individual claims, he would apply existing precedent and permit the class action. Croskey’s arguments mirror those included in the Tax Foundation’s brief.

Judge Joan Klein wrote a brief concurrence explaining why she changed her vote from previous cases, and urging the California Supreme Court to review the case.