St. Supreme Court Ruling on Class Action Suits against Local Governments for Illegal Taxes

We relayed in June that two law firms were arguing in a lawsuit against Chula Vista that the local government had illegally taxed residents’ cell phone usage. Attorneys filed a class action suit to seek a refund from the City for back taxes unlawfully collected over the years from Chula Vista residents. In an update, this case could be impacted by a recent ruling by the State Supreme Court. The major decision basically says that taxpayers can sue as a class action against local governments for refunds of local taxes. So the court has opened the door for class action litigation seeking a refund of taxes from local governments.

In the past, lower-court rulings have posited that local taxpayers are required to file individual refund claims when trying to win damages from a city or county, but now the state Supreme Court's ruling has changed that. So if a local taxpayer wants to win damages from an alleged illegal local tax, a class action can be filed on behalf of everyone who was overcharged. The case stems from a man who sued the city of Los Angeles in 2006, as he claimed a city telephone tax was illegal because it was linked to a federal excise tax that had been ruled invalid. The resident wanted the city to pay millions in refunds to all customers in the city. The court’s ruling will have an impact on cases around the state. The LA Times reports:

“The ruling, written by Justice Ming W. Chin, upheld the right of citizens to bring class actions against municipal governments for collection of allegedly illegal taxes. The decision will affect similar lawsuits against Los Angeles County, Long Beach and Chula Vista, lawyers in the case said. The suits claim that the governments have illegally taxed telephone users. The tax appears on phone bills. […] As a result of Monday's ruling, ‘It's possible we will consider bringing actions against other jurisdictions,’ said Frank Gregorek, who argued the case for the taxpayer. The class that would recover funds would include all residents who paid the taxes.”

Notably, if a city or county has no laws of its own regulating tax refunds, then class-wide suits will be allowed. The Chronicle points out that “Francis Gregorek, lawyer for the plaintiff in the Los Angeles case, said a future ruling may be needed to determine whether a city can shield itself from class actions.” You can view the complete ruling here.

Comments

[Arne Simonsen]

This is a great decision and puts cities and counties on notice that they can no longer say you have to apply for a refund of an illegal tax/assessment; but they have to return their illegal gain to everyone who paid it.

[Air Jordan Baskets]

So fun article is! I know more from it.