On a Passe Defense: Unjust Enrichment and the Recovery of Overpaid Taxes

38 Pages Posted: 19 Dec 2006

See all articles by Jacob Nussim

Jacob Nussim

Bar-Ilan University - Faculty of Law

Date Written: November 2006


AA producer pays commodity taxes on sold goods, realizing only later that the tax was unlawful. Yet, his claim for refund is denied. Tax authorities in the U.S. and elsewhere use the "passing on defense" to deny refunds of unlawfully levied taxes. The defense states that some or all of the unlawful tax the producer paid was passed on to consumers through the price of goods, and thus the producer would be enriched if refunded fully. The passing on defense is largely perceived in legal scholarship as a choice between unjustly enriching the producer by a full refund and unjustly enriching government by denying it. A balance is thus called for, e.g. by applying equity considerations. Accordingly, the application of the defense is vague and inconsistent. This paper shows that a full refund of overpaid taxes never enriches the producer-taxpayer. Since the defense does not serve to prevent producers' enrichment, it should be rejected. Further, the paper demonstrates that, in fact, the passing on defense generates an additional implicit tax in the market.

Keywords: unjust enrichment, tax, restitution, passing on, tax incidence

JEL Classification: H1, H2, K12, K34

Suggested Citation

Nussim, Jacob, On a Passe Defense: Unjust Enrichment and the Recovery of Overpaid Taxes (November 2006). Bar Ilan University Public Law Working Paper No. 06-2, Available at SSRN: https://ssrn.com/abstract=887126 or http://dx.doi.org/10.2139/ssrn.887126

Jacob Nussim (Contact Author)

Bar-Ilan University - Faculty of Law ( email )

Faculty of Law
Ramat Gan, 52900
972-3-531-7088 (Phone)
972-3-535-1856 (Fax)

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