Iowa Supreme Court Upholds SSUTA “Safe Harbor” Protection for Retailers Remitting Sales Tax

In an important decision affecting retailers operating in Iowa, the Iowa Supreme Court recently held that the Streamlined Sales and Use Tax Act (SSUTA): (1) does not create a private cause of action for a customer against a retailer, and (2) protects a retailer from a customer’s claim of tax overcharge when the retailer has remitted the taxes to the Iowa Department of Revenue. Bass v. J.C. Penney Company, Inc., No. 15—0334 (Iowa June 10, 2016). 

The case involved a class action lawsuit filed by Emily Bass against J.C. Penney alleging that the retailer illegally collected sales tax on its shipping and handling charges associated with Ms. Bass’s internet purchase.

The Court held that Iowa Code Section 423.45(2) which provides, “No cause of action shall accrue against a retailer for excess tax paid” until “proper notice has been given the retailer by the consumer or user” does not create a cause of action. The Court held the language is limiting and, viewed in light of the explicit intent of the SSUTA to simplify and replace the burdens of tax compliance, does not create a cause of action. Instead, SSUTA gives retailers a clear choice, either refund the taxes to the customer or remit the taxes to the Iowa Department of Revenue, and allow the customer to pursue administrative remedies with the Department.

The Court also held that when a retailer has remitted taxes to the Iowa Department of Revenue, the customer’s exclusive remedy rests with the Department. The Court based its decision primarily on the inconsistency of the remedy sought by the plaintiff with the structure of the tax code provisions designed to allow retailers to “pass the problems, if any,” to the Department for resolution.

Finally, the Court rejected the plaintiff’s claim that J.C. Penney made any material misrepresentation related to its shipping and handling charges which would allow plaintiff to recover under various theories, including negligent misrepresentation, fraud, violation of the Iowa Consumer Fraud Act, and conversion. The Court held that the undisputed facts revealed no materially false or deceptive misrepresentation and that J.C. Penney’s clear disclosures of its charges were not complicated or confusing
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Michael W. Thrall, Bruce W. Baker, and Keith P. Duffy of Nyemaster Goode, P.C. represented J.C. Penney at all stages of this proceeding.