Sales tax reimbursement on destroyed vehicles for Florida drivers
Sales tax reimbursement
When you get into a car accident, the last thing you probably ask yourself is, “Will my insurer pay the sales tax on my replacement vehicle?” But a federal court in Florida recently answered that question. The judge’s landmark decision may lead to the certification of a class action against several auto insurance companies.
Bastian v. United States Automobile Association
The lead plaintiff in this case held an automobile insurance policy on her 2005 Acura. During the term of the policy, a tree fell on the car, resulting in its total loss. The insurance company determined the “actual cash value” of the vehicle was $10,459. This r
eflected the cost of replacing the original vehicle. The insurer also calculated the cost of obtaining title and license plates for the replacement vehicle, which came to $85.25.
The insurer further notified the plaintiff it would reimburse her for any sales tax paid on a replacement vehicle. Florida charges a statewide sales tax of 6%, which may be higher in some localities. The insurer did not include sales tax in its upfront settlement however, noting it reserved the right to do so until after the plaintiff purchased a new vehicle.
The plaintiff ultimately purchased a replacement vehicle for $2,000, for which she paid $120 in sales tax. The insurer reimbursed her accordingly. The plaintiff argued this was insufficient. She sued the insurer, arguing it should have included an upfront sales tax reimbursement based on the actual cash value of her destroyed vehicle, which came to $627.54. Several additional plaintiffs who claimed to have similar experiences joined the case and sought class action certification.
After an extended discovery period, U.S. District Judge Timothy J. Corrigan of Jacksonville issued an order on September 29. Corrigan held the plaintiffs were correct in asserting they were entitled to an upfront reimbursement of sales tax based on the actual cash value of their original vehicles. Corrigan based his decision primarily on the language of the actual insurance policies. While the insurer argued there was no language obligating it to pay sales tax at all, Corrigan said the policy covered a “total loss,” which logically includes all costs associated with replacing a vehicle. That would include sales tax.
Indeed, Corrigan noted the insurer here volunteered to pay license and title fees, which was “inconsistent” with its objection to paying sales taxes. Nor did it make sense the insurer would pay the lead plaintiff the actual cash value of her vehicle – the full $10,349 – yet withhold a few hundred dollars in sales tax. After all, Corrigan said, the insurer “did not demand that [the plaintiff] return $8,459 when she incurred only $2,000.00 in cost for her replacement vehicle.”
Nor did Corrigan accept the insurer’s claim Florida insurance law only permitted it to reimburse the plaintiff for the sales tax “actually incurred.” The statute in question affords insurers the option to “defer payment of the sales tax unless and until the obligation has actually been incurred.” As Corrigan interpreted this, the insurer must elect to use this option within the language of the actual insurance contract. The insurer did not do so here, and the judge declined to read such an election into the policy.
Corrigan’s decision is not the end of this case. He must still decide whether to certify the proposed class action, which would conceivably bring hundreds of additional claims into play. The insurers can also appeal Corrigan’s legal findings to the 11th U.S. Circuit Court of Appeals. The Florida Supreme Court may also be asked to weigh in at some point on Corrigan’s interpretation of state law.
S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog PrivyCouncil.info
Lucinda Rowlands has been the general manager at Zip2Tax since 2010. She has extensively researched sales and use tax regulations in order to help small businesses navigate complicated tax rules.