Cities could not join class action local tax lawsuits under bill heard in committee this week

Last night, the House Committee on Civil and Criminal Procedure heard testimony on two bills that would prevent cities from participating in class action lawsuits on tax matters.

Associated Industries of Missouri supported the bill, noting that political subdivisions, sometimes encouraged by contingency fee auditing companies, are engaging in class action lawsuits against companies in Missouri. Tax dollars paid by these companies are being used to partially fund these legal actions against employers.

AIM president Ray McCarty told the committee there are several problems with the current practice allowing cities to join together in class action lawsuits.

First,some recent cases involving gross receipts taxes have pointed out the diversity in the actual language used to implement similar taxes.  While the ordinances may share a general common goal, the language used is often vague.

Second, trial attorneys and consultants prey on this vagueness and allege additional taxes due on transactions that have never been taxed before. Similar to a contingency fee audit, these attorneys allege taxes are due on everything and hope they may prove some additional liability in court.

Third, even if local governments agree that their ordinance may not apply to certain transactions, there is pressure to remain in the class and not settle on a reasonable interpretation of the ordinance on a prospective basis.  The reason? The more the attorneys can stretch the definitions of a particular tax and collect taxes for prior periods, the more money they make. It’s that simple.

Costs of these lawsuits are reflected in the prices charged to customers. In some cases, the victims are utilities and the costs are built into rates.

“Associated Industries of Missouri supports these bills that would prevent cities from joining these class action lawsuits on tax matters in state and federal court,”said Ray McCarty in his testimony. “This is turning into a cottage industry for consultants and attorneys and the real losers are the taxpayers and their customers.”