Costco Secures Appellate Victory in Payroll Tax Litigation

Secured appellate victory on behalf of Costco Wholesale Corporation in payroll tax litigation. The Court of Appeal State of California held that both back pay and front pay paid to a current or former employee, whether as part of a judgment or settlement, is subject to payroll tax withholding. The decision in this case was directly contrary to the only existing published appellate court case on the issue – the 1992 case of Lisec v. United Airlines, Inc. The court noted that if Costco had followed the existing precedent, it would have exposed itself to penalties, interest and personal liability for the unpaid taxes. It further noted that the failure to pay those taxes is punishable as a crime. In declining to follow Lisec, the court stated: “Employers who face penalties for making the wrong decision should not have to guess as to whether withholding is required.”

Jeffrey Dinkin (Santa Barbara) represented Costco.