Lawsuits in FL and NY highlight differences sales tax refund

by Skip Oliva October 27, 2014

New York State court case highlights differences between states when it comes to sales tax refund procedures

Class actions seeking sales tax refunds are becoming more prevalent. As noted in “Papa John’s in lawsuit over sales tax on delivery fees,” back in July a federal judge in Miami denied a motion to dismiss a class action against pizza-delivery giant Papa John’s over allegations of improperly charged sales tax on its $3 delivery fees. More recently, on Sept. 30 a federal judge in New York dismissed a similar lawsuit against Home Depot. The New York decision illustrates the difference in state approaches to addressing claims for sales tax refunds.

The lead plaintiff in the New York case is a man who rented three pieces of equipment from a Home Depot. He was charged 63 cents under a “tool rental agreement” with Home Depot. The plaintiff contends this was an unlawful sales tax collection, and he filed suit on behalf of any New York customer who signed a similar tool rental agreement.

In his Sept. 30 decision, U.S. District Judge William R. Skretny of Buffalo granted Home Depot’s motion to dismiss the class action complaint outright. Sketny said even if Home Depot incorrectly or illegally charged sales tax on its tool rental agreement, the plaintiff had to first seek a sales tax refund from the State of New York. State law allows any taxpayer to file a refund claim with the Department of Taxation and Finance within three years of the alleged improper payment. If the department rejects the sales tax refund, the taxpayer must then pursue an administrative appeal through the Department of Taxation, and if necessary, the New York State courts. Ultimately, Skretny said “the question of whether a vendor is collecting and remitting sales taxes in accordance with state law is a question that has been entrusted to the Department of Taxation in the first instance.”

In contrast, the federal judge who allowed the Papa John’s class action to proceed said it was unnecessary for the plaintiffs to pursue an administrative remedy before filing a lawsuit. Under Florida law, a person who makes an improper sales tax payment to a vendor must seek a sales tax refund from that vendor rather than the state. The judge explained Floridalaw allowed taxpayers to seek an administrative refund only when they directly paid the sales tax to the state. In contrast, Judge Skretny found New York law imposed an exclusive requirement to seek an administrative sales tax refund regardless of whether the tax was paid to the vendor or directly to the state.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.

Skip Oliva
Skip Oliva

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