CHICAGO – Lawful taxation — and the avoidance of such — is at the heart of an action taken Monday by Cook County Circuit Judge James Snyder, who dismissed more than 200 third-party lawsuits filed to collect sales tax on liquor sold to residents of Illinois from retailers elsewhere.
At the request of the state of Illinois, the judge dismissed the cases, brought by the law firm of Stephen B. Diamond, P.C., of Chicago. The suits claimed that liquor retailers who had no physical presence in Illinois had failed to pay tax on sales to Illinois residents. Snyder ruled that Diamond had not proven that the state had acted in bad faith, the legal threshold for dismissing such cases.
The qui tam cases were brought under the False Claims Act, which targets those who try to defraud the government. “Qui tam” refers to cases brought by a private individual involving an instance in which the government could benefit. In such cases, the individual could monetarily benefit from successful litigation. The phrase is part of a larger Latin phrase meaning, “(he) who sues in this matter for the king as well as for himself.”
Adam Beckerink, counsel for Reed Smith LLP of Chicago, said the judge dismissed the cases because state officials intervened.
“In these matters, once the Illinois attorney general files a motion to dismiss, the only decision the judge has to make is whether the Illinois attorney general is acting in bad faith by filing the motion,” he told the Cook County Record. “Thus, the court determined in these matters that the Illinois attorney general did not act in bad faith.”
Those filing qui tam cases see a potential revenue stream.
“Generally, under state false claims acts, plaintiffs or relators can receive a third of the monies that are received by the state if the plaintiff or relator is successful,” Beckerink said. “Additionally, plaintiffs’ or relators’ attorneys fees and expenses can be paid by the defendant if the plaintiff or relator is successful in his or her claim."
Beckerink, an attorney involved in a number of similar actions and a regular speaker on such matters, said this ruling could limit the future number of such cases; however, there are other similar cases pending in Illinois and elsewhere.
“The decision should give the Illinois Attorney General additional confidence and comfort to intervene in other qui tam actions that are still ongoing or will be filed in the future,” he said. “I think we will see fewer with regard to the specific issue that was dealt with in these lawsuits, but until these matters are stopped by the Illinois Attorney General under seal, or until the court begins to award attorneys’ fees to defense counsel, I believe qui tam plaintiffs will continue to file these suits.”
Beckerink noted that such cases involve tax payments that consumers often do not voluntarily submit. Those payments could amount to more tax revenue for the state, should consumers adhere to tax payment guidelines, he said.
Qui tam lawsuits could apply to other types of online sales, Beckerink added, but he speculated that states have revenue departments tasked with collecting taxes.
“I believe these matters erode the jurisdiction of state departments of revenue," he said. "States’ departments of revenue have the expertise to interpret tax laws; tax laws were not meant to be interpreted or enforced by individuals with a private stake in the outcome."
Diamond may appeal the ruling within 30 days.