Voluntary
payment doctrine
Doctrine
bars suit for overpayment
By
David Ziemer
david.ziemer@wislawjournal.com
Jan.
1, 2007
The
voluntary payment doctrine bars a class-action suit by ratepayers
who were charged sales tax on other taxes, as opposed to “telecommunication
services,” the Wisconsin Court of Appeals held on Dec. 21.
Section
77.51(21m) requires that sales taxes be paid on “telecommunications
services,” defined as follows:
“[S]ending
messages and information transmitted through the use of local,
toll and wide-area telephone service; channel services; telegraph
services; teletypewriter; computer exchange services; cellular
mobile telecommunications service; specialized mobile radio; stationary
two-way radio; paging service; or any other form of mobile and
portable one-way or two-way communications; or any other transmission
of messages or information by electronic or similar means between
or among points by wire, cable, fiber optics, laser, microwave,
radio, satellite or similar facilities.”
Since
the institution of the Federal Universal Service Fee (USF) —
a federal tax that raises revenue to provide Internet access to
schools — Wisconsin telephone customers have been paying
sales tax on the federal tax.
|
What
the court held
Case:
Butcher v. Ameritech Corp., No. 2005AP2355
Issue:
Does the voluntary payment doctrine bar suit against a telephone
company for having assessed unlawful sales taxes?
Holding:
Yes. None of the exceptions to the doctrine allow a rate
payer to file suit to recoup the amounts unless he objected
at the time of payment.
Attorneys:
For Appellant: Gegios, Robert L.; Purnell, Jeffrey W., Milwaukee;
For Respondent: Hemiadan, Jordan J., Madison
|
Stephen
Butcher and two others filed a class action on behalf of all similarly
situated rate payers against Ameritech, Inc., and Wisconsin Bell,
Inc., arguing that the USF is not a “telecommunications service”
within the meaning of the statute, and thus, the sales tax on
it is unlawful. The complaint sought monetary and injunctive relief.
The complaint also named the Wisconsin Department of Revenue as
a defendant.
The
defendants unsuccessfully moved to dismiss the claims, but moved
for reconsideration after the Wisconsin Supreme Court decided
Putnam v. Time Warner Cable of Se. Wis., 2002 WI 108, 255 Wis.2d
447, 649 N.W.2d 626.
In
Putnam, the court adopted the voluntary payment doctrine, which
places, upon a party wishing to challenge the legality of a bill,
the obligation to make a challenge either before voluntarily making
the payment, or at the time of making the payment.
Citing
Putnam, Dane County Circuit Court Judge Michael N. Nowakowski
dismissed the complaint, holding that the doctrine barred the
monetary claims, and holding that the injunctive claims must first
go through an administrative challenge.
The
plaintiffs appealed, but the court of appeals affirmed, in a decision
by Judge Margaret J. Vergeront.
Putnam
The
court began with a review of the Supreme Court's decision in Putnam.
In Putnam, the plaintiffs filed a class action against a cable
TV company, Time Warner, alleging that the five-dollar late fee
that it imposed constituted unlawful liquidated damages, because
the actual cost to the defendant of late payments was only 38
to 48 cents.
The
Supreme Court held that the voluntary payment doctrine barred
the claim to the extent it sought recovery of late fees already
paid.
The
court recognized three exceptions to the doctrine — fraud,
duress, and mistake of fact — but found none of them applicable.
The
plaintiffs contended that mistake of fact did apply, because they
paid the $5 fee, without knowing that the actual costs were much
less. However, the Supreme Court concluded that this was a mistake
of law, rather than a mistake of fact.
Sales
Tax
Applying
Putnam to the case at bar, the court of appeals held that none
of the exceptions apply.
The
plaintiffs contended that duress was present, because basic telephone
service is a necessity, citing three Illinois cases: Getto v.
City of Chicago, 426 N.E.2d 844 (Ill. 1981); Russell v. Hertz
Corp., 487 N.E.2d 630 (Ill. App. 1985); and Dreyfus v. Ameritech
Mobile Comm., Inc., 700 N.E.2d 162 (Ill. App. 1998).
The
court found that duress was not present, however, because there
was no implicit or real threat that service would be shut off
for nonpayment of the charge.
The
court added that, if duress is to be inferred from the necessity
of phone service, the Supreme Court is the proper court to create
the exception: “The supreme court, not this court, is the
proper court to decide if the services involved in this case,
in themselves, warrant an exception to the voluntary payment doctrine.”
The
court also found that the mistake of fact exception was not met.
The
plaintiffs contended that, because the bills do not indicate which
services are being taxed, they were not on notice of the facts
and thus, should not be blamed for paying the assessed amounts.
However,
the court concluded that the Supreme Court in Putnam had rejected
what was “substantially the same argument,” when it
wrote that the, “failure to know the precise factors underlying
Time Warner's decision to charge a $5.00 late fee cannot be held
to be a mistake of fact as a basis for the payment made.”
The
court concluded, “the bills show the charges for the services
and the state tax computed at five percent on those services.
If a customer knew what services were subject to a state tax,
the customer could figure out whether the amount of tax being
collected by Ameritech was more than that amount. As the Putnam
court explained, every person is presumed to know the law and
that is why a mistake of law is not an exception to the voluntary
payment doctrine (emphasis in original).”
The
court acknowledged that even knowledge of the law on what services
are taxable might still not enable the customer to determine which
items are being taxed.
However,
it would still provide notice that he is being taxed more than
the law permits. Under Putnam, however, the court concluded that
the obligation is on the customer to make inquiry before paying.
Accordingly,
the court held the mistake of fact exception did not apply.
The
court also held that public policy does not warrant an exception
to the doctrine.
The
court acknowledged that it may be unrealistic to require taxpayers
to know the sales tax laws and analyze transactions to determine
if the sales tax was correctly computed. Again however, the court
concluded that such a policy judgment would have to be made by
the Supreme Court.
Primary
Jurisdiction
Finally,
the court held that the plaintiffs' remaining claims would have
to be first considered by the Department of Revenue and the Tax
Appeals Commission, under the primary jurisdiction doctrine.
The
court reasoned, “the proper construction and application
of Wis. Stat. sec. 77.51(21m) may require fact finding to determine
what the disputed services entail; in addition, the question of
how broadly or narrowly to construe the definition may involve
policy judgments as well.”
Accordingly,
the court affirmed the dismissal of the complaint.
Click here for
Case Analysis.
David
Ziemer can be reached by email.
