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A Long Beach city telephone tax dispute pending before the state Supreme Court is shaping up as a test of taxpayers' rights that's drawing national attention.

There's no question that Long Beach's 10 percent tax on long-distance telephone service (called a TUT) was illegal under federal law, and also illegal when the city attempted to reimpose it without voter approval, as required by the state constitution.

The state Court of Appeal declared flatly that, "The city has nevertheless unlawfully collected and continues to collect to the TUT from (plaintiff John) McWilliams and other class members on telephone service exempt from the Federal Excise Tax."

The only issue at stake in the Supreme Court case is whether the city must make blanket refunds of the improperly collected taxes under class-action provisions, or may compel those who paid the tax to make individual claims for refunds.

The city won its point in Los Angeles Superior Court, but the state Court of Appeal reversed the trial court and declared that plaintiff McWilliams is entitled to seek refunds for all Long Beach taxpayers, not merely himself. It's now on appeal to the state Supreme Court.

This week, an amicus brief was submitted to the Supreme Court by the National Association of Shareholder and Consumer Attorneys (NASCAT), and the Tax Foundation's Center for Legal Reform, declaring that governments that impose illegal taxes should be compelled to make mass refunds, rather than force taxpayers to go through elaborate processes to get their money. Failure to compel mass refunds would result in the city's keeping most of the illegal tax money, the groups said.

It could be a significant amount of money since McWilliams first demanded a refund in 2006 and the case has been making its way through the courts ever since.


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