A recently proposed class action accuses Costco and California’s sales tax authority alleging “the warehouse club collected too much sales tax for the authority from products that were listed as subject to manufacturer rebates.” The question focuses on whether or not a “manufacturers instant rebate” is simply a pricing ploy, or if the manufacturer in question actually reimbursed Costco for the difference in the advertised price and the pre-discount price.
Costco charged it’s customers and paid the California sales tax authority based upon the pre-sale price. The suit alleges that manufacturers never reimbursed Costco for the actual difference, and that the sale was a pricing strategy. Under California law, the customers should have been charged California sales tax at the discounted price if the manufacturer did not reimburse the difference.
What can we learn? If you’re a Costco customer you may be contacted to take part in the lawsuit, and you shouldn’t ignore this notice. You’re probably due a refund, and the process is usually quite simple.
If you are a California business, you need to be cautious about how you structure pricing strategies and market them to other businesses and consumers. It is clear that California law requires sales tax to be calculated and collected on the actual purchase price (after the “instant rebate” or manufacturer’s rebate), unless you are receiving reimbursement from the manufacturer or a third party for the difference.
Avoid litigation and controversies with California taxation agencies. Contact the experienced business, tax, accounting and legal professionals at Allen Barron for a free consultation at 866-631-3470 if you are involved in an audit or tax controversy associated with a California tax authority or the IRS.
