No one can accurately claim that state taxes are simple—especially sales taxes. That is particularly highlighted with respect to sales tax refunds. For retail sales, the party to the sale transaction that can claim the refund varies by State—whether it’s the customer or the retailer, or both. The recent decision from the Florida Court of Appeal highlights this issue. Oracle America, Inc. v. Florida Dep’t of Revenue, Nos. 1D2023-0987, 1D2023-1075, 1D2023-1077 (Fla. Ct. App. Dec. 4, 2024).

Oracle America, Inc. (“Oracle”) sold software and services to its customers. Oracle made sales to customers in Florida and collected and remitted sales tax on those items. For certain of those sales, Oracle determined that tax was not due and filed for refund claims. Although now conceding that the transactions were tax exempt, the Department of Revenue (the “Department”) denied the refund claims on the basis that Oracle must refund the tax to its customers before filing for a refund. Oracle appealed.

On review, the Court of Appeal noted that there was tension between the controlling statutes and the administrative code. Nevertheless, the court held that the refund can only be paid to the party that paid the tax. Here, Oracle did not pay the tax—it merely collected and remitted the tax as an agent of the State. Instead, the customer paid the tax. Thus, by not refunding the tax to the customers first, Oracle lacked the ability to obtain a refund or challenge a refund denial.

Oracle presented a novel argument that retailers should be allowed to file conditional refund claims, which the Department could approve, before refunding the tax to the customers. In such a scenario, the retailer would not have to be at risk for the tax should the Department deny the claim. While that would be a commonsense approach to sales tax refunds, the court noted that it was bound by the law—even if there “may be a better way to skin the proverbial cat.”[1]

This case serves as an important reminder to ensure that the procedural requirements are met prior to filing a refund claim—including which party to the transaction can request a refund. Otherwise, the Department is able to retain the taxes for transactions that it concedes are tax exempt.

[1] No cats were skinned in the opinion or in the writing of this article.