By Jonathan Maddison and Prentiss Willson
The California Supreme Court held that the state’s tax code provides the exclusive remedy for a dispute over the applicability of the state sales tax to retail transactions, and thus a class of plaintiffs was precluded from seeking a refund from Target, Inc. for erroneously collected sales taxes on takeout coffee sales. The plaintiffs alleged that by representing to its customers that sales tax was collected on coffee sales, Target violated California’s Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA). The plaintiffs asked the court to hold that “a retailer can’t lie to a customer.” The Supreme Court refused to do so, noting that “the clear basis of plaintiffs’ action—that Target represented that it properly was charging and in fact charged sales tax reimbursement on a sale that plaintiffs believe the tax code exempted from taxation—requires resolution of a sales tax law question[.]” The court held that the issue of taxability is first committed to the State Board of Equalization: the tax code contemplates a method by which the taxability of a sale may be challenged and determined through an audit or deficiency made by the Board, or through a taxpayer’s refund claim before the Board, followed by judicial review of the Board’s decision. Thus, the court concluded a cause of action under the UCL or CLRA cannot be reconciled with the mechanisms of the state’s tax code. Further, the consumer protection statutes under which plaintiffs brought their action could not be employed to avoid the limitations and procedures set out by the tax code because if permitted to do so, the primary decision-making role vested in the Board by the tax code would be usurped. Keep in mind that retailers in California bear the incidence of the sales tax. Retailers remit tax to the Board based on gross sales, but they do not collect sales tax from purchasers. Instead, retailers have the option of seeking sales tax reimbursement from their customers. Thus, retailers—not consumers—are the taxpayers under California sales tax law, and only taxpayers may seek refunds or otherwise challenge the taxability of a particular sale. Loeffler v. Target Corporation, Docket No. S173972 (Cal., May 1, 2014).