Cook County 'use tax' revenue soars; county partners with collector, local lawyers to track down unpaid taxes

By Jonathan Bilyk | Apr 9, 2018

Cook County residents who have bought a car in recent years may need to begin watching their mail for an envelope from Cook County, demanding perhaps hundreds of dollars under a county tax, thanks to an ongoing, little-heralded arrangement with a debt collector and local law firm deputized to act as county attorneys.

The county, since 2012, has assessed so-called use tax  at a rate of 1 percent on the sale price of all cars purchased by county residents, whether at car dealers in or outside the county, as well as from private individual sellers, if the vehicles are registered to an address in Cook County. For purchases made at dealerships in the county, such taxes are the responsibility of the dealerships to collect and pay to the county.

But for vehicles purchased outside the county, county ordinances require taxpayers to pay the use tax by the 20th day of the month following the car’s purchase. For example, if a Cook County resident buys a car in Lake County or Will County or Northwest Indiana in April, and the tax is not paid by the dealer, the ordinance would require the county resident to pay the 1 percent use tax by May 20.

Prior to 2012, the use tax was assessed only against cars sold at dealerships, and was levied at a rate of 0.75 percent.

Cook County Board President Toni Preckwinkle  

And in recent years, the county’s use tax collections have soared.

According to official reports published by the county comptroller, the county’s use tax collections have more than doubled since 2011.

A year before making the tax rate and assessment changes, the county collected just $39 million in use tax. In 2012, those collections quickly jumped to $59 million.

However, in 2015, use tax collections crossed the $80 million threshold, and then bumped up to more than $82 million in 2016, an increase of nearly 111 percent from 2011.

According to the latest Cook County budget estimates, use tax revenue has edged down a bit from its highs, but it is still expected to bring in $78.6 million in 2018 – a total that would still dwarf, by 58 percent, the total use tax the county collected in 2006, before the onset of the Great Recession, a period during which auto sales tanked, along with much of the rest of the national economy.

A spokesperson for Cook County Board President Toni Preckwinkle attributed the increases to a number of factors, including an increase in auto sales following the end of the Great Recession and county efforts to buckle down on nearly 300 car dealers in the county who had not registered to pay the tax, as required by county ordinance. County officials said auto sales in the county increased 38 percent from 2011-2016, and the county noted the typical purchase price of a car also increased over that time.

According to auto sales data site, total auto sales in the US did increase nearly 38 percent from 2011 to 2016. However, total sales figures were only up about 6 percent in 2016, when compared to 2006. GoodCarBadCar reported auto sales bottomed out in 2010, down 37 percent from 2006.

According to auto sales and pricing information site Edmunds, the average sale price for a new car in the U.S. climbed 12.6 percent from 2011-2016.

However, the sharp increase in use tax also came around the same time the county inked a contract with debt collector Penn Credit Corporation, which locally is working with a Chicago law firm, identified as Tristan & Cervantes, to track down those who the county believes owe unpaid taxes or fees.

In recent years, Cook County officials have made no secret of their desire to find new sources of revenue to shore up the county’s financial situation.

In 2017, for instance, the Cook County Board, at Preckwinkle’s urging, imposed a controversy-plagued and ill-fated tax of soda pop and other sweetened beverages, in the hopes of bringing in hundreds of millions of dollars in new revenue.

Amid public outcry over the tax’s impact on the price of pop, sweet tea, energy drinks and other sweetened drinks, followed by a string of embarrassing lawsuits over retailers’ collection of the penny per ounce tax, the County Board opted to rescind the tax. In a document explaining the proposed county budget for Fiscal Year 2018, county officials noted the county needed to find a way to plug a $72 million hole left after the tax was repealed.

An increase in use tax collections likely wouldn’t patch a budget hole that size. Indeed, use tax accounts for about 4-5 percent of the county’s tax revenues, according to the comptroller reports.

However, that share of the county’s total tax take has increased along with use tax collections in general, rising from just 2.5 percent of the county's total tax revenue as recently as 2010.

To further boost those collections, and squeeze as much as possible of what the county is owed under the tax into county coffers, the county in January 2015 contracted with Harrisburg, Pa.-based Penn Credit, and, by extension, the Tristan & Cervantes firm to chase down those the county believes didn’t pay what they owed when they bought a vehicle, along with a “full range” of other debt, according to an executed and stamped copy of the approved contract obtained under the Freedom of Information Act by The Cook County Record.

In addition to “home rule taxes,” the contract authorizes Penn Credit and Tristan & Cervantes to pursue debt owed to the office of Cook County Circuit Clerk Dorothy Brown and to the Cook County Health and Hospital System, which includes John H. Stroger Hospital. The contract is scheduled to expire in 2020.

Cook County spokeswoman Becky Schlikerman said boosting tax collection efforts has been a priority for Preckwinkle, since she took office in 2011.

“An immediate change to support these goals was modernizing and improving Department of Revenue collection and enforcement efforts to ensure that revenue the county is entitled to collect is actually collected,” Schlikerman said in an emailed statement. “Previous administrations had been inefficient and ineffective in their tax collection efforts. The results of this modernization have been an increase in overall collections for use tax and various other tax types the county is entitled to collect by law.”

According to the 2015 contract, Penn Credit stands to take in contingency fees equal to about 17-25 percent of the amount collected from all debts referred to it by various county agencies.

Disclosure statements included with the contract indicate Tristan & Cervantes also claim 35 percent of all amounts collected from the cases referred to the firm for prosecution, acting under the contract as “special assistant state’s attorneys.”

According to Schlikerman, the county Department of Revenue’s “standard operating procedure” when pursuing allegedly delinquent use tax payers is to first send out two tax due notices, informing taxpayers the alleged tax debt must be paid, whether or not they still own the car for which the tax was allegedly not paid.

While the contract requires the debt collectors to attempt to contact those the county owes money and attempt to persuade them to pay the alleged debt before initiating more harsh collection methods, if the county cannot locate the alleged debtor, the county can and does send such collections to an administrative hearing, whether the alleged debtor is present or not.

This can and has resulted in the county, through Penn Credit and Tristan & Cervantes, mailing notices of “Findings, Decisions & Order” to potentially unsuspecting county taxpayers years after the purchase was made. The orders can include the “violation amount” – or the original use tax allegedly owed – and then tack on late penalties, “failure to file” penalties and charges for accrued interest, which can nearly double the amount owed.

The notices include instructions for how to contact Penn Credit and Tristan & Cervantes to pay the alleged debt, and instructions for how to appeal the case to the Cook County Circuit Court or to ask the Cook County Department of Administrative Hearings to “vacate” the judgment, and essentially request a new hearing. Those receiving the notices have 35 days from the date the notice was mailed to contest the debt claim in court, and 21 days to request a new administrative hearing.

County officials assert such collections activities account for about 5-7 percent of the total use tax revenue Cook County brings in each year.

However, how many such collections the county has initiated in recent years has been difficult to track down.

In response to repeated requests from The Cook County Record, county officials say they or their debt collectors mailed a total of 322,242 use tax collection notices and 39,905 administrative hearing notices to taxpayers in the past seven years.

Despite repeated FOIA requests, however, Cook County officials have to date said they are unable to provide numbers indicating how many of those notices were sent annually, telling The Cook County Record they need to obtain those figures from their debt collectors. While Penn Credit’s contract purportedly requires the company to provide regular reports on its collections activities to the county, as of publication, county officials said they are still waiting on Penn Credit to produce those numbers.

A founding partner at Tristan & Cervantes did not reply to a request for comment from The Cook County Record.

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Organizations in this Story

Cook County Cook County Department of Administrative Hearings Penn Credit Tristan & Cervantes

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