Download Tax Foundation Amicus Curiae Brief–Ardon v. City of Los Angeles
Summary
When an illegal 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. is being collected, taxpayers generally must first pay it, demand a refund, exhaust administrative appeals, and only then may file a lawsuit. 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, did so. (The question of the tax’s constitutionality has not yet been considered by the court in this case.) His lawsuit was filed “on behalf of himself and all others similarly situated.”
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.
The California Court of Appeal should follow the precedent set by the California Supreme Court by holding that a class action for a 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. is permissible under state law. In so doing, the Court will not only be promoting judicial efficiency but also saving time and money cost for claimants. 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.
For a more detailed summary of this brief, read “Permitting Class Refund Actions Is Key to Effective Challenges of Illegal Taxes: Ardon v. City of Los Angeles.”
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