Unclaimed customer rebates prompt Costco to sue state

April 5, 2011

By Warren Kagarise

Costco filed a lawsuit against the state Department of Revenue in early March, after the agency ordered the Issaquah-based warehouse club to pay $3.2 million in unclaimed customer rebates.

The complaint in King County Superior Court came about a month after the state directed Costco to pay into a state fund for unclaimed property.

Costco paid the money, but is seeking to recoup the dollars in the lawsuit. The amount represents unclaimed rebates from the years 2004 to 2010, plus interest.

“The department’s action not only harms Washington consumers, but also sets a toxic precedent for any individual or business the department decides to subject to future demands for ‘unclaimed property,’” the lawsuit states.

Under state law, uncashed rebate checks constitute unclaimed property.

The order for Costco to pay the $3.2 million came after the Department of Revenue audited Costco’s customer-rebate program.

In the complaint, Costco attorneys said the company relies on third-party companies to handle rebate programs.

The attorneys said the agency used third-party records to calculate the $3.2 million figure.

“Costco disagrees that it is obligated to pay any of the amount that the state asserts is due, let alone the entire amount assessed, and it disagrees with the demand letter and accompanying agency actions on the grounds that they are arbitrary and capricious,” John Sullivan, Costco vice president and associate general counsel, wrote in a March 2 letter to the state.

The letter accompanied a $3.2 million check delivered to a Department of Revenue field office in Kent.

Costco attorneys also objected to how the state notified the company about the payment.

“In a terse statement coupled with nearly 4,000 pages of records that Costco had never seen before, the letter demanded that Costco ‘report and remit’ over $3 million in less than 30 days’ time,” the lawsuit states.

Costco employs 2,700 people in Issaquah, more than any other business.

Warren Kagarise: 392-6434, ext. 234, or wkagarise@isspress.com. Comment at www.issaquahpress.com.

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