Tax on Disposition Fee Associated with Car Lease

[ivanl3]

What is the name of your state (only U.S. law)? PA

PA charges 9% tax on car leases. This 9% is comprised of two components: 6% traditional PA Sales Tax and 3% Use tax.

When my car lease concludes, I have to pay a $350 "Disposition Fee" when I return the vehicle. This fee is purported (by Audi Finance) to cover the costs associated with inspecting/receiving the vehicle and doing whatever they do to dispose of the vehicle. This fee has nothing to do with mileage overage.

I expected to be charged 6% sales tax on this fee, not 9%. I was surprised when Audi Finance told me differently (over the phone). I told them I disagreed with the 9% charge b/c disposing of the vehicle should not be covered under the use tax. They disagreed. I contacted the office of the General Counsel at the PA Dept of Revenue. They agreed with my conclusion and said that when I receive an actual invoice from Audi, I should forward it to them with my dispute and they would issue a formal ruling in writing. I could then present this to Audi have my tax liability reduced.

We are only talking about $10.50 for me, so my issue is really about the principle of the matter.

Let's assume (big assumption here) that when I get the bill, it really does show a 9% charge, not 6%.

If so here is my question, is there a class action opportunity here for this improper tax that Audi has been charging (and passing on to the state of PA)? I know I won't get anything out of it, but some smart lawyer might make some money on this? Who would be sued? PA? Audi? Both? Other car companies who are doing the same (assuming there are any)?

 

[OHRoadwarrior]

Sure there is. If the class won, the lawyers would make millions and you would likely get $1 back.

 

[ivanl3]

Sure there is. ....

Thanks for confirming my suspicion.

How about my other question?....Who would be sued, the state, the car company(s) or both?

 

[Zigner]

Thanks for confirming my suspicion.

How about my other question?....Who would be sued, the state, the car company(s) or both?

Why sue? Simply apply for a refund of the overpaid amount.

 

[ivanl3]

Why sue? Simply apply for a refund of the overpaid amount.

I'm not interested in collecting $10.50 for myself. Actually, I won't even have to b/c I will never pay it in the first place. I will just forward the ruling from the Chief Counsel and not pay it.

I am interesting in retribution for all the overcharging that has gone on for who knows how long. Neither the state nor the car companies should have received this income. It should be paid back to all those who paid for it. And if a lawyer(s) ends up collecting a big chunk of it for themselves, good for them.

Still curious to know if the suit would be filed against the car companies or the state? If the car companies charged the customers an invalid tax and then forwarded the money they collected to the state (and the state accepted it), who is is at fault?

 

[davew128]

I would think it fairly obvious the recourse is against the car company. Which would then tell you that you should file an application for refund with the state. Look, the state only knows that the company reported $XXX of taxable sales and remitted tax as required. It doesn't and couldn't reasonably be expected to know that the company overreported taxable sales and collected tax when it should not have.

The only way the state could otherwise find out would be to conduct a sales/use tax audit of the company (which might or might not happen) and you would not otherwise know about either way.

 

[ivanl3]

I would think it fairly obvious the recourse is against the car company. Which would then tell you that you should file an application for refund with the state. Look, the state only knows that the company reported $XXX of taxable sales and remitted tax as required. It doesn't and couldn't reasonably be expected to know that the company overreported taxable sales and collected tax when it should not have.

The only way the state could otherwise find out would be to conduct a sales/use tax audit of the company (which might or might not happen) and you would not otherwise know about either way.

I forgot that I posted this. But here is how this ended up playing out...

I got the bill from Audi -- it did in fact impose 9% instead of 6% tax on the disposition fee. I sent a copy of the bill to the General Counsel in Harrisburg. A few weeks later I got response from the Gerenal Counsel's office confirming it was in error. I provided that to Audi who issued an apology, They stood by their claim that they were simply charging what PA told them they should charge and they did not understand why the tax people (probably software) was telling them one thing and the General Counsel was telling them another. They adjusted my bill and I paid it.

I passed all this documentation along to the PA General Counsel, as well as to a few lawyers who may wish to pursue a class action suit. It is clear that a lot of people have been overcharged (a few bucks) over the years. I have not followed up to see if any suits were actually filed.

 

[davew128]

I passed all this documentation along to the PA General Counsel, as well as to a few lawyers who may wish to pursue a class action suit. It is clear that a lot of people have been overcharged (a few bucks) over the years. I have not followed up to see if any suits were actually filed.

I would be curious to see how it plays out.

 

[OHRoadwarrior]

As long as Audi was giving the money to the state, I would imagine the lawsuit would not result in any judgment against Audi and people would be advised to file for a state tax refund of the money.

 

[davew128]

As long as Audi was giving the money to the state, I would imagine the lawsuit would not result in any judgment against Audi and people would be advised to file for a state tax refund of the money.

The problem arises when the SOL for making a refund claim of the overcharged tax has passed. Bank of America has been using that specific defense in the class action suit against it for improperly reporting mortgage interest paid.