Tax Foundation Files Brief Supporting Class Tax Refunds

November 26, 2008

In a friend-of-the-court brief filed last week with the California Court of Appeal, the Tax Foundation argues that class actions for tax refunds should be allowed.

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 permitted, citing a municipal ordinance.

In the brief, the Tax Foundation argues that state law supersedes the municipal ordinance and therefore class actions are permitted. The brief adds that unless such class claims are allowed, 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. A class action also 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.

Tax Foundation Fiscal Fact No. 156, "Permitting Class Refund Actions Is Key to Effective Challenges of Illegal Taxes," examines the legal issues in the case. Read it here.

Read the full brief here.

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