IL appeals panel says state within its rights to make convenience stores pay more cigarette tax

By Scott Holland | Mar 11, 2016

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Once again, a court has taken the state’s side in a dispute with a convenience store operator over tobacco taxes.

The Illinois First District Appellate Court, which convenes in Chicago, issued an opinion March 1 upholding a Cook County Circuit Court ruling that an increase in the state’s cigarette tax does not violate the state constitution. Casey’s Marketing Company, which operates hundreds of Casey’s General Store convenience stores and gas stations in Illinois, filed the initial complaint in the wake of state legislation in 2012 to increase the tax from 49-tenths of a cent per cigarette to 99-tenths of a cent, allowing the state to collect about 10 cents more per pack of cigarettes.

Justice John B. Simon wrote the majority opinion; Justices Daniel J. Pierce and P. Scott Neville concurred in the judgment and opinion, which upheld the ruling of Cook County Judge James M. McGing.

Casey’s named as defendants the Illinois Department of Revenue and its then director, Brian Hamer, as well as Dan Rutherford, who was then the state treasurer. The current officeholders are Constance Beard and Michael Frerichs, respectively, and they are considered part of the appeal.

In enacting the tax, the legislature delayed implementation 10 days and issued retailers a memo regarding sitting inventory being subject to a floor tax. For Casey’s, that worked out to $279,816 — an amount it paid under protest, court documents said. On July 17, 2012, Casey’s filed its complaint to have the tax declared invalid as a violation of the state constitution’s uniformity clause.

“The gist of Casey's argument on appeal,” Simon wrote, “is that the formula used by the state for determining who owed the tax and in what amount resulted in a disparate tax burden among almost every distributor without any lawful justification.”

Simon detailed the history of cigarette tax mechanics in Illinois, noting that, in 1989, the state began “taxing cigarettes in a distributor’s possession based on whether the cigarettes had tax stamps affixed at the time the tax became effective; a type of floor tax. It was in the 1989 amendment that the General Assembly first began to refer to the distributor as the payer of the tax.”

The state assessed a floor tax for the first time in 1993. Although in the 1997 and 2002 tax hikes, “distributors were expressly not required to pay a tax on their stamped inventory,” such a tax was imposed in 2012.

The trial court entered summary judgment in favor of the state, finding the distributor to be the “intended taxpayer” of the floor tax and that it was “not the court’s duty to redraw the lines for a ‘better’ tax.”

As Simon notes, “Casey’s proffered interpretation is based upon a pre-1989 construction of” the cigarette tax law, and that while the law’s language “is inartful,” it clearly does not prohibit “a floor tax on wholesale inventory.”

Further, he writes, “Casey's argument is hard to follow at times, but it is clear that it is suing as a distributor, so its repeated objections from the point of view of the retailer are unavailing. It lacks standing to challenge the tax's impact on retailers.”

Ultimately, Casey’s failed to show the 2012 tax hike affected particular distributors disproportionately, which led the appellate justices to reason the uniformity concerns are not properly at issue.

“To the extent that they arise as a result of how the tax is assessed in practice, there are various justifications for the means chosen by the General Assembly to effectuate its policy positions,” the justices wrote.

Casey’s was represented in the action by attorneys with the firm of Reed Smith LLP, of Chicago.

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