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3-year Lawsuit Over $3.76 in Interest Finally Settled

In 2017, multi-level marketing company LuLaRoe faced allegations of improperly assessing sales tax against certain customers. LuLaRoe sells clothing through “independent representatives.” According to a February 2017 report from CBS News, sales tax was collected based on where the sales representative lived, as opposed to the customer’s residence. This led to improper charges against customers who lived in states that do not assess sales tax on clothing purchases.

 

Faced with a potential class action, LuLaRoe admitted to the overcharges and provided refunds to customers. But that was not the end of the matter. A new class action complaint emerged in Alaska federal court–this time arguing LuLaRoe should have to pay interest on the sales tax funds it wrongfully collected in the first place.

Alaska Judge Rejects Customer’s Claims as “Inadequate” to Justify Legal Standing

The lead plaintiff in the Alaska lawsuit is an Anchorage woman, Katie Van. Van said she was charged $531.25 in sales tax on items that she purchased from LuLaRoe independent representatives in other states, even though Alaska itself has no statewide sales tax. And while Van later received a full refund of the sales tax she paid, she alleged the Alaska Unfair Trade Practices and Consumer Protection Act (UTCPA) entitled her to collect “interest” on her damages.

 

In March 2019, U.S. District Judge H. Russel Holland granted LuLaRoe’s motion to dismiss Van’s lawsuit. Holland concluded that the actual amount of interest Van seeks to collect, $3.76, was “inadequate” to sustain a federal lawsuit. Article III of the U.S. Constitution requires federal courts to establish a plaintiff’s “standing” to bring a lawsuit. Among other elements, standing requires “an injury in fact.”

 

In this case, Van could not allege the improper sales tax itself was her injury-in-fact, as she’d already received a full refund prior to filing her lawsuit. So her claim to Article III standing rested on the fact “she did not receive interest” on that refund. But Holland believed that this was not good enough–i.e., $3.76 in interest was “too little to support Article III standing.”

9th district sealNinth Circuit Joins Sister Courts in Adopting “Lost Time Value of Money” Rule

Van appealed Holland’s ruling. And on June 24, 2020, a three-judge panel of the U.S. Ninth Circuit Court of Appeals in San Francisco reversed Holland’s order dismissing the case. Without ruling on the merits of Van’s lawsuit, the Ninth Circuit said she had sufficiently pleaded an injury that met the requirements for Article III standing.

 

The unsigned opinion noted that Ninth Circuit law has previously established that even the loss of a “dollar or two” was enough to show an injury-in-fact. In other words, there was no basis for Holland’s reasoning that $3.76 fell below some minimum-injury threshold. Indeed, even LuLaRoe did not bother to defend Holland’s reasoning on that point.

 

Nevertheless, LuLaRoe maintained that since it gave Van a full refund, she could not maintain standing based solely on interest–or her “lost time value of money,” as it were. The Ninth Circuit disagreed, noting that several of its sister courts have already found that “the temporary loss of use of one’s money constitutes an injury in fact for purposes of Article III.” The Ninth Circuit said it found the reasoning of the other appeals courts persuasive and adopted the same standard here.

 

The Ninth Circuit further rejected LuLaRoe’s claim that Van had to “make specific allegations regarding how [she] would have earned interest on the money but for [LuLaRoe’s] wrongful conduct.” But as a matter of law, the issue was not whether or not Van would have received interest had she, say, put the improperly collected sales tax into a CD. Rather, the alleged injury was that she “lost the use of her money” during the period from when LuLaRoe improperly collected sales tax until the time it gave Van a refund. And while other appeals courts may have implied that a plaintiff must allege “specific plans to invest [their] money into an interest-bearing asset” to establish Article III standing, the Ninth Circuit expressly declined to adopt that rule here.

 

date of august

Sales and Use Tax Changes Effective August 1, 2020

There were many rate changes effective July 1, 2020 but none effective August 1, 2020.  It is highly  unusual that in over 14,000 jurisdiction in the U.S. something hasn’t changed.  But we do have some other August 2020 sales tax related information for you.

August 2020 sales tax holidays

Litigation Delays Alameda County CA Sales Tax Hike

The campaign for Measure C on the March 3 ballot in Alameda County California won a majority of votes and was slated to take affect on July 1, 2020.  But litigation, claiming the measure did not win a two-thirds approval, stopped the increase at the last minute.

Measure C would raise Alameda County’s sales tax by 0.5%, making it the highest countywide level in the state. The funds would be used for childcare, early education and a pediatric trauma center, which explains why UCSF Benioff Children’s Hospital has underwritten most of the campaign costs.

Until the litigation is settled, the rate for Alameda County will remain as follows:

ALAMEDA COUNTY 9.25%

  • City of Alameda 9.75%
  • City of Albany 9.75%
  • City of Emeryville 9.50%
  • City of Hayward 9.75%
  • City of Newark 9.75%
  • City of San Leandro 9.75%
  • City of Union City 9.75%

COMING SOON!

Watch for our exciting new Subscriber Web Portal coming soon.  A place for our customers to log in quickly and easily find their products and services, billing information, and subscription details.  Easy to use, uncluttered, informative!  Also mobile-friendly.


 

Sales and Use Tax Changes Effective July 1, 2020

As usual, July 1st of each year brings many sales and use tax rate changes.

CANADA

PROVINCE RATE CHANGE TOTAL RATE
Manitoba Province 6.0000 11.0000

 

ARKANSAS

STATE ZIP LOCAL  COUNTY RATE CHANGE TOTAL RATE
AR 72732 Garfield Benton 1.500 9.000
AR 72714 Bella Vista Benton 2.000 9.500
AR 71639 Dumas Desha 3.000 11.000
AR 72760 St. Paul Madison 2.000 10.500
AR 72837 Dover Pope 2.000 9.500
AR 72735 Goshen Washington 2.000 10.000
AR 72959 Winslow Washington 2.000 10.000
AR 71675 county-wide Drew 2.250 8.750
AR 72436 county-wide Greene 1.375 7.875
AR 71831 county-wide Hempstead 3.000 9.500
AR 71751 county-wide Ouachita 2.500 9.000
AR 72663 county-wide Stone 1.500 8.000
AR 72769 county-wide Washington 1.500 8.000

 

CALIFORNIA

STATE ZIP LOCAL  COUNTY RATE CHANGE TOTAL RATE
CA 94708 county-wide Alameda 2.500 9.750 Postponed due to litigation
CA 94608 Emeryville Alameda 0.250 9.50
CA 91804 Alhambra Los Angeles 0.750 10.250
CA 91702 Azusa Los Angeles 0.750 10.250
CA 93921 Carmel By The Sea Monterey 1.500 9.250
CA 91008 Duarte Los Angeles 0.750 10.250
CA 90247 Gardena Los Angeles 0.750 10.250
CA 90711 Lakewood Los Angeles 0.750 10.250
CA 91750 La Verne Los Angeles 0.750 10.250
CA 93436 Lompoc Santa Barbara 1.000 8.750
CA 90640 Montebello Los Angeles 0.750 10.250
CA 93940 Monterey Monterey 1.500 9.250
CA 90650 Norwalk Los Angeles 0.750 10.250
CA 90723 Paramount Los Angeles 0.750 10.250
CA 93654 Reedley Fresno 1.250 9.225
CA 91775 San Gabriel Los Angeles 0.750 10.250
CA 95060 Scotts Valley Santa Cruz 1.250 9.750
CA 90601 Whittier Los Angeles 0.750 10.250

 

GEORGIA

STATE ZIP LOCAL  COUNTY RATE CHANGE TOTAL RATE
GA 31501 county-wide Ware 4.00 8.000

 

ILLINOIS

STATE ZIP LOCAL  COUNTY RATE CHANGE TOTAL RATE
IL 60915 Bradley Kankakee 1.000 7.250
IL 60525 Hodgkins Cook 1.000 10.000
IL not in .csv Huntley Kane 1.000 8.000
IL 60142 Huntley McHenry 1.000 8.000
IL 60010 Lake Barrington Lake 0.500 7.500
IL 60048 Libertyville Lake 1.000 8.000
IL 62864 Mount Vernon Jefferson 2.750 9.500
IL 61072 Rockton Winnebago 1.000 8.750
IL 61924 county-wide Edgar 2.000 8.250
IL 62817 county-wide Hamilton 2.000 8.250
IL 61723 county-wide Logan 2.000 8.250
IL 62801 county-wide Marion 1.250 7.500
IL 61072 county-wide Winnebago 1.500 7.750

 

KANSAS

STATE ZIP LOCAL  COUNTY RATE CHANGE TOTAL RATE
KS 66413 Burlingame Osage 1.500 9.000
KS 66078 Princeton Franklin 1.500 9.500
KS 67039 Douglass Butler 1.000 7.500

 

MINNESOTA

STATE ZIP LOCAL  COUNTY RATE CHANGE TOTAL RATE
MN 56115 county-wide Lyon 0 special 6.8750

 

MISSOURI

STATE ZIP LOCAL  COUNTY RATE CHANGE TOTAL RATE
MO 65085 county-wide SALES and USE Osage 2.250 6.475
MO 65244 county-wide SALES and USE Randolph 2.25/1.75 6.475/5.975
MO 65613 Bolivar Polk 2.500 8.100

 

NEBRASKA

STATE ZIP LOCAL  COUNTY RATE CHANGE TOTAL RATE
NE 69022 Cambridge Furnas 2.000 7.500
NE 68370 Hebron Thayer 1.500 7.000

 

NEW MEXICO

STATE ZIP LOCAL  COUNTY RATE CHANGE TOTAL RATE
NM 87021 Milan Cibola 1.688 8.000
NM 88435 Santa Rosa Guadalupe 2.313 8.500
NM 88310 Alamogordo Otero 1.813 8.125
NM 87011 county-wide Socorro 1.375 6.500
NM 87529 county-wide Taos 2.375 7.500
NM 87002 Rio Communities Valencia 1.188 7.688

NORTH CAROLINA

STATE ZIP LOCAL COUNTY RATE CHANGE TOTAL RATE
NC county-wide Bertie 0.250 7.000
NC county-wide Forsyth 0.250 7.000

 

OKLAHOMA

STATE ZIP LOCAL  COUNTY RATE CHANGE TOTAL RATE
OK not in .csv Hydro (0827) Blaine 4.500 9.875
OK 73048 Hydro (0627) Caddo 4.500 10.500
OK 74738 county-wide Choctaw 1.000 5.500

 

SOUTH DAKOTA

STATE ZIP LOCAL  COUNTY RATE CHANGE TOTAL RATE
SD 57233 Erwin Kingsbury 2.000 6.500

 

VIRGINIA

STATE ZIP LOCAL COUNTY RATE CHANGE TOTAL RATE
VA 24520 county-wide Halifax 1.0000 6.3000

 

WASHINGTON STATE

STATE ZIP LOCAL  COUNTY RATE CHANGE TOTAL RATE
WA 98221 Anacortes Skagit 0.700 8.800
WA 98222 county-wide San Juan 1.800 8.300

 

WEST VIRGINIA

STATE ZIP LOCAL  COUNTY RATE CHANGE TOTAL RATE
WV 25504 Barboursville Cabell 1.000 7.000
WV 26711 Capon Bridge Hampshire 1.000 7.000
WV 26346 Ellenboro Ritchie 1.000 7.000
WV 25526 Hurricane Putnam 1.000 7.000
WV 25601 Logan Logan 1.000 7.000
WV 25136 Montgomery Fayette 1.000 7.000
WV 26836 Moorefield Hardy 1.000 7.000
WV 26501 Morgantown Monongalia 1.000 7.000
WV 26155 New Martinsville Wetzel 1.000 7.000
WV 26164 Ravenswood Jackson 1.000 7.000
WV 25271 Ripley Jackson 1.000 7.000
WV 26431 Shinnston Harrison 1.000 7.000
WV 26851 Wardensville Hardy 1.000 7.000

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Are Discount Membership Cards Subject to Sales Tax?

SC Dept. of Revenue vs. Books-A-Million

Sales tax normally applies to the purchase of “tangible personal property.” On its face, the definition of “tangible” is fairly straightforward. For example, South Carolina law classifies tangible personal property as “personal property which may be seen, weighed, measured, felt, touched, or which is in any other manner perceptible to the senses.”

Books A Million logo

So if a person, say, walks into a bookstore and purchases a book, there is no question that is an item of tangible personal property subject to sales tax. But what if the customer previously purchased a discount card from the store entitling them to 10 percent off each book purchase? Is the discount card itself a form of tangible personal property that is also subject to sales tax? According to a recent decision from a South Carolina court, the answer is “yes.”

Court of Appeals: Discount Program the “Direct Result of the Sale of Tangible Personal Property”

In December 2014, the South Carolina Department of Revenue initiated a sales tax audit of Books-a-Million (BAM), the second-largest bookstore chain in the United States. The audit revealed that BAM did not collect or remit South Carolina sales tax on sales of its “membership fees.” Similar to its larger competitor, Barnes & Noble, BAM offers customers membership in a discount program that it calls the “Millionaire’s Club.” As presently offered, membership entitles customers to 10 percent off in-store purchases, free shipping on online orders, and other special sales and discounts.

The SC Department of Revenue sent BAM a total sales tax bill of $242,076.97!

During the period covered by the South Carolina audit, BAM charged a $25 annual fee for the Millionaire’s Club. This fee renewed automatically each year unless the customer opted out or canceled their membership. According to the Department of Revenue, BAM failed to collect over $200,000 in tax on both the initial sale and renewal of Millionaire’s Club memberships in South Carolina from January 2012 through August 2015. Adding interest and penalties, the Department sent BAM a total sales tax bill of $242,076.97.

 

BAM contested the assessment before South Carolina’s Administrative Law Court (ALC). The company argued its club memberships were not tangible personal property and therefore not subject to sales tax. The ALC disagreed and upheld the Department’s assessment.

 

The South Carolina Court of Appeals subsequently reviewed and affirmed the ALJ’s decision. Writing for a three-judge panel in an April 29 opinion, Judge Paula H. Thomas explained that while membership in the Millionaire’s Club itself may be intangible, the membership fees collected are the “direct result of the sale of tangible personal property because BAM would not be able to sell Club Memberships but for BAM’s sale of tangible personal property.” By this reasoning, Thomas said, the membership fees were subject to state sales tax, as were the automatic annual renewals.

 

Thomas and her colleagues declined to adopt a contrary decision from the Tennessee Court of Appeals, Barnes & Noble Superstores, Inc. v. Huddleston (1996). In that case, the Tennessee court held that Barnes & Noble’s membership program, which is similar in form to that of BAM, was not subject to that state’s tax because “true object of the subject transactions between [Barnes & Noble] and its customers is to bestow upon club members the intangible right to receive a discount on merchandise.” In other words, the Tennessee court saw the purchase of memberships as an intangible right to a discount, and not itself a sale of tangible personal property. But as Thomas noted, South Carolina courts are not required to “follow other states’ interpretations of their tax laws in interpreting our own tax laws.

Why Treat Members-Only Warehouse Clubs Differently?

Judge Thomas, however, may not have the last word in this case. On May 14, BAM filed a petition for rehearing. This is essentially a request for the three-judge panel to reconsider its decision. The full eight-judge Court of Appeals could also decide to rehear the case as a single group. And if the appeals court decides against rehearing, BAM can then ask the South Carolina Supreme Court to review the case.

sams club card

In its petition, BAM argued the panel’s decision gives an unfair “competitive advantage” to retailers like Sam’s Club and Costco, which also sell membership fees but are not subject to South Carolina sales tax. According to the Department of Revenue, “membership fees charged by a membership-only warehouse” are not taxable, provided “all membership types receive the same benefits.” Yet Sam’s Club and Costco “could not sell membership fees but for their sale of tangible personal property,” BAM pointed out. And while BAM’s Millionaire’s Club is optional, membership in a warehouse club is mandatory just to walk in the door. At the very least, BAM argued, the different treatment of memberships creates an “ambiguity” in South Carolina’s sales tax law, which must be resolved in favor of the taxpayer.

 

june date

Sales & Use Tax Rate Changes

Short and sweet for sales and use tax rate changes effective June 1st.

Pine Ridge, AL in De Kalb county.  The new local rate for ZIP 35968 is 4.00% bringing the total rate to 9.00%

 

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