In a decision involving potentially tens of millions of dollars a year, the Florida Court of Appeal has ruled that finance companies, banks and credit unions are not entitled to a sales tax refund on vehicles they repossess.
Only dealerships that retain a security interest in the vehicles they sell can obtain a refund on the amount of tax they fail to recoup from defaulting buyers, the three-judge panel held.
Florida's sales tax on motor vehicles is 6 percent to 7.5 percent, depending on county.
Peter Larsen, a Jacksonville lawyer who represents Bank of America and its subsidiaries in the case, said his clients will ask the appellate panel to reconsider its ruling.
If that is unsuccessful, he will seek Florida Supreme Court review.
HOW IT HAPPENS
This is how the problem arises:
A dealership remits the full sales tax when a vehicle is sold, whether or not it is an installment sale.
If the transaction is financed, whoever holds the paper - the dealer, a bank, an independent finance company or a captive financing unit - collects the tax as well as the principal and interest through monthly payments.
The legal issue is whether a lender that is not the selling dealer can receive a sales tax refund after repossessing a vehicle.
'Our argument is that we step into the shoes of the dealer because we take a full assignment of rights,' Larsen said
A trial court judge in Duval County agreed with the bank, but the Court of Appeal answered no, saying the Florida Legislature wrote the refund law to apply only to 'selling dealers.'
In an opinion by Judge James Joanos, the appellate court said: 'Since the sales tax is a tax on the privilege of doing business, the taxes at issue here were fully due and payable at the moment of the sale on the full amount of the sales price. Without a specific statute providing for refunds on repossessed vehicles, there is no right to a refund.'
LAW IS SPECIFIC
As written, the law specifies that dealers - and only dealers - who paid the tax and retained a security interest can take a tax credit or obtain a refund of the unpaid balance after repossessing the vehicle, the court said.
For example, assume the vehicle sold for $20,000 and the dealer remitted $1,200, or 6 percent, in sales tax. The decision means that if the borrower defaults after repaying $10,000 in principal, the dealer - but not a bank - could apply for a $600 refund, reflecting the tax remitted on the unpaid balance.
'The Legislature presumably is aware that dealers routinely finance sales through banks and assign a security interest in such sales to the lending institution,' the court said. 'Despite the common knowledge concerning such transactions, the Legislature has not enacted a provision authorizing a refund of the uncollected portion to the dealer's assignee.'
Larsen, the bank lawyer, also said the issue has arisen across the country.
Courts in Utah and Washington have ruled that assignees are entitled to a refund, while a trial-level judge in Georgia reached a contrary conclusion.
There are lawsuits or administrative proceedings pending in another 10 to 15 states, including Indiana, Michigan and Ohio.
'This is a national issue,' he said, 'although it depends on each state's law.'