McClain v. Sav-On Drugs
Under California law, sales tax is imposed on retailers, rather than on consumers. Retailers, in turn, are permitted to obtain reimbursement for the tax from consumers at the time of sale. If a retailer erroneously pays too much in sales tax, the retailer can seek a refund from the state agency that collects the tax. If the retailer has collected sales tax reimbursement from its customers for the refunded amount, it must pass the refund on to its customers.
Because they are not the taxpayers, customers who have erroneously been charged excess sales tax reimbursement cannot bring a direct cause of action against the stage agency to seek repayment of the excess amount. At the same time, because retailers who have collected excess sales tax reimbursement must pass sales tax refunds back to their customers, those retailers lack an incentive to seek a refund from the state. Recognizing that the stage agency should not be permitted to unjustly profit by retaining sales tax reimbursement that was erroneously collected, in Javor v. State Board of Equalization (1974) 12 Cal.3d 790, the California Supreme Court permitted customers who had paid excess sales tax reimbursement to retailers to bring an action to require the retailers to seek a refund and to join the state agency as a party to the case.
This case was brought by people with diabetes who allege that they were charged “sales tax” on glucose test strips and skin puncture lancets that are tax exempt. As in Javor, the plaintiffs seek to compel the defendant retailers to apply for a tax refund from the state agency and for the agency to award such a refund. The Court of Appeal held, however, that the remedy recognized in Javor is unavailable to the plaintiffs in this case.
The plaintiffs sought review from the California Supreme Court, and Public Citizen submitted an amicus letter in support of the petition for review. Our letter explained that, if the Court of Appeal’s decision is allowed to stand, consumers will never be able to demonstrate their entitlement to the Javor remedy and consumers will be left without a remedy when retailers erroneously charge them “sales tax” on tax exempt items. The California Supreme Court granted the petition for review, and Public Citizen submitted an amicus brief in support of the plaintiffs explaining that the Court of Appeals erred in holding that the Javor remedy is unavailable in this case.