Class Action Suit Against Contract Auditing Firm Survives Motion To Dismiss

State and Local Tax Bulletin - Alabama Edition



The class action suit filed on behalf of many Alabama taxpayers against the largest contract auditing firm in the state and its 250 or so municipal and county government clients has survived its first major challenge, after almost two years of legal wrangling. On Wednesday, October 19, Jefferson County (Birmingham) Circuit Judge Robert Vance denied in large part the motion to dismiss filed by defendants PRA Government Services, LLC d/b/a Revenue Discovery Systems, RDS, and formerly, AlaTax. The taxpayer-plaintiffs allege in their amended complaint that RDS or its contract auditors committed multiple violations of the Alabama Taxpayers’ Bill of Rights and Uniform Revenue Procedures Act (“TBOR”) as amended by the 1998 Local Tax Simplification Act, including: failing to notify taxpayers who had overpaid sales or use taxes of the procedures for filing a refund claim; failing to notify taxpayers of the right to an administrative appeal, in lieu of being forced to file an appeal in circuit court; failing to comply with auditor surety bonding requirements; entering into contingency fee auditing contracts with local governments; and compensating its employees and independent contractors through incentive bonuses based on tax collections or assessments.

In their amended complaint, the plaintiffs request several forms of relief: a declaratory judgment that RDS’s contracts with its local government clients are void and unenforceable under TBOR; that RDS’s practices are improper and violate various provisions of TBOR; and that any and all tax assessments, liens, levies, and collection performed in relation to RDS’s “Tax Revenue Enhancement Agreements” are invalid and constitute unlawful takings. The plaintiffs also request an injunction against RDS from engaging in any conduct that the court finds to violate TBOR as well as a refund of all fees collected by RDS in violation of TBOR.

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