confusion over variable sales tax rates
Sales tax rates are generally not consistent throughout a given state. Most states allow county or other municipalities to add their own sales tax on top of the statewide rate. This often leads to confusion variable sales tax rates on returns among retailers and consumers, which can result in litigation.
Here is a recent example from Ohio. Two consumers filed a federal class action against Walmart. Their complaint arose from Walmart’s practice of basing customer refunds on the sales tax rate applicable to the store where the merchandise was returned. So if a customer bought an item from a Walmart in Sandusky County (where the sales tax is 7.25%) but later returned it to another store in Erie County (where the tax is only 6.75%), the customer’s refund was at the lower 6.75% rate. While this might only amount to a few cents for a single transaction, the class action argues it constitutes breach of contract, as the Wal-Mart guarantees “full refunds” for items returned within 90 days.
Walmart moved to dismiss the class action, arguing that under Ohio law, customers must seek any sales tax refunds directly from the Ohio Tax Commissioner. But in an opinion issued on January 16th, federal Judge James S. Gwin denied Walmart’s motion, allowing the class action to proceed for now. Consumers must only seek a refund from the Tax Commissioner when the tax in question has already been paid from the vendor to the state. “At this stage,” Gwin said, “it is not clear whether Walmart paid Ohio the sales tax that it did not refund to plaintiffs when they returned the merchandise.”
If Walmart simply kept the overpaid sales taxes, then Gwin said consumers do not have to go through the Tax Commissioner. The Ohio Supreme Court addressed such a situation in a 2010 decision. In that case, a hotel allegedly charged customers a non-existent local sales tax. The Supreme Court said customers could sue the hotel rather than the Tax Commissioner. The justices distinguished between “erroneously collected tax for which legislative authority does exist” and a “nonexistent tax” where “the vendor has no authority to collect or remit those funds to the taxing authority.” The basic idea is that the state is not responsible for refunding money it never had. As the plaintiffs in the Walmart class action allege, “Here, the money belongs to the consumers and is being held by Walmart solely for Walmart’s own benefit.”
S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.
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