California High Court: Tax Code, Not UCL, Proper Avenue For Excess Tax Case


SACRAMENTO, Calif. — (Mealey’s) California’s tax code provides the sole remedy for consumers who believe that a retailer improperly charged tax reimbursements, the California Supreme Court held May 1 in a 4-3 opinion rejecting state unfair competition law (UCL) claims (Kimberly Loeffler, et al. v. Target Corp., No. S173972, Calif. Sup.). 

(Opinion available.  Document #58-140527-001Z.)

“As a practical matter, if we did not view the tax code as providing the exclusive procedure under which a claim such as plaintiffs may be resolved, independent consumer claims against retailers for restitution of reimbursement charges on nontaxable sales could form a huge volume of litigation over all the fine points of tax law as applied to millions of daily commercial transactions in this state,” the majority said.

‘To-Go’ Coffee 

In October 2006, Kimberly Loeffler and Azucena Lemus filed a class action lawsuit in the Los Angeles County Superior Court, claiming that Target Corp. collected sales tax reimbursement on purchases of “to-go” coffee.  Under California law, retailers pay sales tax, which they then can seek to recoup from consumers.  Loeffler alleged that under California law, Target did not pay sales tax on “to-go” coffee purchases.  Loeffler alleged violation of the UCL, Business and Professions Code Section 17200, et seq., and California’s Consumer Legal Remedies Act (CLRA), California Civil Code Section 1750, et seq.

 Judge Michael L. Stern sustained Target’s demurrers without leave to amend.  Judge Stern found that Article XIII, Section 32, of the California Constitution barred the action.  The plaintiffs appealed, and a unanimous panel of the Second District Court of Appeal affirmed.  In September 2009, the California Supreme Court granted the plaintiffs’ petition for review.  The court twice received supplemental briefing. 

Exclusive Remedy 

In affirming, the majority said the tax code provides the exclusive means through which consumers may dispute the taxability of a retail sale. 

Contrary to the plaintiffs’ contention, the Board of Equalization has not endorsed UCL or CLRA actions seeking the return of taxes paid on allegedly nontaxable sales, the majority said.  Instead, the board has said that where other remedies are available, its regulations do not interfere with those remedies, the court said. 

The majority said the record shows that the board “comprehensively regulates taxation” and “is the entity responsible for determining in the first instance whether transactions, in their nearly infinite variety, are taxable and how much tax is due.” 

Prior to any finding of liability under the UCL or CLRA, a court would necessarily have to first conclude whether the tax was properly collected under this regulatory framework, the court said.  However, the question of what is properly taxed is a question that “lies at the center of the Board’s function,” the majority said. 

Therefore, the regulations provide a safe harbor from UCL and CLRA actions to retailers who remit collected taxes to the board, the majority said. 

Justice Tani Gorre Cantil-Sakauye wrote for the majority, which also comprised Justices Marvin R. Baxter, Carol A. Corrigan and Ming Chin.


In dissent, Justice Goodwin Liu said the majority’s opinion weakens the reach of consumer protection statutes at the heart of the case by “blessing an arrangement that mutually benefits retailers and the state treasury at the expense of everyday consumers.” 

While Target need not seek tax reimbursement from consumers at all, what it is absolutely forbidden from doing is charging a tax reimbursement on a product not actually subject to a tax, Justice Liu said.  This is the allegation at issue here, Justice Liu said. 

Had Target simply advertised its product at a higher price with a sign explaining that the price reflected applicable sales taxes, it could have adequately represented the price of its coffee and the amount of tax charged and avoided the suit, Justice Liu said.  Instead, Target choose to advertise its coffee at a lower price and seek sales tax reimbursement that the consumers claim is unlawful, Justice Liu said. 

Justice Liu noted that the board has no legal duty to respond to consumers’ request for a clarification, Target has every reason to avoid administrative costs and keep advertised prices low and the board has no incentive to investigate whether it collected excess taxes. 

Justice Kathryn W. Werdegar and Justice Eileen C. Moore of the Fourth District California Court of Appeal, sitting by designation, joined in the dissent. 

Miriam A. Vogel, David F. McDowell and Samantha P. Goodman of Morrison & Foerster in Los Angeles represent Target.  Leslie A. Bailey of Public Justice in Oakland, Calif., represents the plaintiffs.

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