The Illinois Supreme Court has overturned an appellate ruling that allowed Chicago and Skokie to press a suit against two Illinois communities and several consulting companies for allegedly rooking them out of "use tax" revenue, saying the Illinois Department of Revenue alone has jurisdiction over the taxes, not the courts or any municipality.
The March 21 opinion was delivered by Justice Mary Jane Theis, with concurrence from Chief Justice Lloyd Karmeier and Justices Anne Burke, Robert Thomas, Rita Garman and Thomas Kilbride. Justice P. Scott Neville Jr. did not take part.
The ruling favored the city of Kankakee and MTS Consulting, Minority Development Co., Corporate Funding Solutions and Capital Funding Solutions in an action lodged against them in 2013 by Chicago and Skokie in Cook County Circuit Court.
The village of Channahon, which is 10 miles southwest of Joliet, and another consulting firm, Inspired Development, were also defendants, but settled with plaintiffs while the state Supreme Court was considering its decision.
Plaintiffs alleged Kankakee and Channahon, with help from the firms, arranged for 11 internet retailers with offices in the towns to report to the state their online sales occurred in either Kankakee or Channahon when the sales took place outside Illinois. As part of the alleged scheme, which operated from 2000 to 2014, the towns allegedly kicked back a portion of the sales tax revenue, through rebates, to the retailers, plaintiffs said.
Little or no sales activity took place in the offices in Kankakee and Channahon, which the retailers maintained strictly to obtain the rebates, according to the suit.
Plaintiffs alleged the online sales should have been subject to the Chicago and Skokie use tax, not sales tax. As a consequence, the resulting use tax revenue should have been apportioned, per statute, to agencies and municipalities throughout the state, instead of remaining in Kankakee and Channahon's hands as sales tax revenue. Based on population, Chicago collects 20 percent of use tax revenue and Skokie less than 1 percent.
Cook County Circuit Judge Peter Flynn dismissed the case, finding the Illinois Department of Revenue has power over state tax distribution, not a circuit court judge, as plaintiffs would have it. Plaintiffs appealed, with the Illinois First District Appellate Court ruling IDOR does not enjoy complete jurisdiction.
The Supreme Court reversed the appellate ruling, concluding the revenue department has sole authority.
"We find that IDOR has been vested, for purposes of plaintiffs’ claims, with the exclusive authority to audit the reported transactions that plaintiffs dispute and to distribute or redistribute the tax revenue due to any error," Theis wrote. "The legislature has empowered IDOR with broad investigatory authority, including the right to examine, correct, and adjust errors in tax reporting."
In Theis' view, plaintiffs wanted a judge to usurp IDOR's prerogatives, although IDOR has not only statutory authority, but the expertise and resources to oversee taxes.
Theis further said plaintiffs had no case against the consulting firms, because plaintiffs did not deal with the firms, much less lose anything to them that needs to be recovered.
Chicago and Skokie have been represented by their respective corporate counsel.
Defendants have been represented by Eimer Stahl LLP and Much Shelist PC, both of Chicago; Mahoney, Silverman & Cross, of Joliet; and Browdy PC, of Deerfield.