Model Transaction Tax Overpayment Act Gains Traction at MTC

by Eversheds Sutherland (US) LLP
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On July 21, the Multistate Tax Commission’s (MTC) Uniformity Committee voted unanimously to send to the MTC’s Executive Committee a draft resolution recommending that the MTC endorse a model transaction tax act which, if enacted by the states, would limit frivolous lawsuits seeking to extract sales taxes from retailers and others.

The Model Act and Draft Resolution

The American Bar Association has drafted a Model Transaction Tax Overpayment Act (the Model Act). The draft resolution from the Uniformity Committee notes the recent “proliferation of class actions filed by purchasers against sellers that seek to recover tax that has allegedly been overpaid” and recognizes that the Model Act would limit such lawsuits. A copy of the draft resolution is available here.

The Model Act, a copy of which is available here, establishes uniform procedures that purchasers can use to seek refunds of overcharged state and local sales taxes. Purchasers have the option of filing refund claims with the seller or the taxing jurisdiction. Importantly, a purchaser is not permitted to sue a seller for claims arising from, or relating to, an overpayment of tax, and any recovery is generally limited to the amount of the overpayment.

No False Claims Component

The draft resolution is the result of the efforts of a joint state and industry workgroup organized in December 2012 by the Sales and Use Tax Subcommittee of the MTC’s Uniformity Committee. The workgroup’s original goal was to study the effects of class action lawsuits relating to tax overpayments and issues surrounding the use of state False Claims Acts in instances where state and local taxes are alleged to have been undercollected.

The Model Act does not address state False Claims Act lawsuits, and, at least as far as the MTC is concerned, the False Claims Act topic appears to have dropped out of the conversation altogether. The Uniformity Committee’s recent approval of the draft resolution undoubtedly is a disappointment to many who were hoping to see the MTC support limiting or prohibiting the use of state-level False Claims Acts in the area of taxation.

Next Steps

The Uniformity Committee meets again today, in Albuquerque, New Mexico. The draft resolution is on the Committee’s meeting agenda and may be brought up for reconsideration. If the July 21 vote is not reconsidered, the draft resolution could advance for consideration by the Executive Committee and the full Commission in Albuquerque.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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