Farmers need not add sales tax to every totaled-car payout in Ohio, a state appeals court ruled - a fine-print clause decided it.
The decision, released July 2 by Ohio's Eighth District Court of Appeals, comes in a class action brought by a driver whose car was wrecked. Farmers Insurance of Columbus, Inc. (Farmers) declared the vehicle a total loss and paid a cash settlement with no sales tax attached. The policyholder sued for breach of contract in January 2022, arguing the missing tax broke the policy.
The dispute had reached the appeals court once before, when it upheld the decision to let the case proceed as a class action, with a slight tweak to the class definition. This time the fight was over the money itself: did the policy owe drivers sales tax on totaled cars?
Everything hinged on one clause. The policy says that if Farmers pays "for loss in money, our payment will include, where required by law, the applicable sales tax and fees for the damaged or stolen property." The policyholder read "applicable sales tax" as the tax he paid when he first bought the car - so any total-loss payout in a sales-tax state like Ohio should include it.
Farmers disagreed and pointed to Ohio Adm.Code 3901-1-54(H)(7)(f). That rule requires an insurer to reimburse sales tax only when the policyholder buys a replacement vehicle within 30 days and documents it within 33 days. He never claimed he did.
A trial judge first called the language "arguably ambiguous," then granted summary judgment to Farmers in August 2025. The policyholder appealed. The appeals court affirmed.
The phrase "where required by law" decided it. The court found the policy adds sales tax only when a law actually forces an insurer to - and the only Ohio law doing so is the provision Farmers cited. It borrowed reasoning from a Missouri federal case, which read almost identical wording and held that "the payment will only include applicable sales tax when a law requires insurers to include sales tax."
Because the driver never documented a replacement purchase, the court concluded "the amount of sales tax Farmers is obligated to pay is zero," and that the policy "unambiguously does not obligate" the company to include sales tax in the total-loss payment.
The court read "where required by law" as tying the sales-tax obligation to a specific legal trigger, rather than making it an automatic part of every total-loss settlement.
