Rolling Meadows should pay its neighbor, Arlington Heights, more than $1 million in tax money, after Rolling Meadows allegedly chose to keep the money that was owed to Arlington Heights, but was paid by the Illinois Department of Revenue to Rolling Meadows under a clerical error, a divided state appeals panel has ruled.
Rolling Meadows, however, says it may appeal the case to the Illinois Supreme Court
Cooper’s Hawk Restaurant sits at 798 W. Algonquin Road, in the village of Arlington Heights. In March 2020, the village notified the IDOR the state had disbursed the restaurant’s sales tax payments to Rolling Meadows from November 2011 through December 2019.
According to court documents, IDOR reimbursed Arlington Heights $108,934 for a six-month “look-back period” spanning from July through December 2019. Seeking the rest, Arlington Heights sued Rolling Meadows in February 2022.
Cook County Judge Thaddeus Wilson dismissed the complaint in October 2022, finding the IDOR had exclusive jurisdiction over the dispute. He alternatively dismissed under the nonliability doctrine, an impediment to seeking a judicial edict for past conduct.
Arlington Heights challenged the dismissal before the Illinois First District Appellate Court.
Rolling Meadows argued the jurisdictional issue falls under the precedent of a 2019 Illinois Supreme Court opinion in which Chicago sued several municipalities over alleged rebate agreements under which retailers would list the defendant communities as the site of a sale, rather than Chicago, enabling those governments to collect sales tax revenue instead of use tax.
However, Hyman wrote, it was wrong to rely on language from that opinion expressly allowing civil litigation over alleged denial of use tax revenue based on improper rebate agreements to determine Rolling Meadows was correct because of the absence of a provision authorizing lawsuits due to misreported data.
“That interpretation seriously misreads both the court’s decision and the statute,” Hyman wrote. “The statute says nothing about a municipality suing another municipality in circuit court absent a rebate program. And contrary to the dissent’s contention, merely because the legislature provided circuit courts with jurisdiction over disputes involving tax rebate agreements does not preclude the circuit court from exercising jurisdiction over other dispute involving misallocated sales tax. As the dissent notes, the absence of explicit language divesting jurisdiction is not dispositive, but it also does not strip the court of jurisdiction.”
Hyman noted the same appeals court had already reversed a ruling in favor of Itasca when it sued “Lisle to recover sales tax revenue generated by a company that falsely claimed it had moved from Itasca to Lisle.”
He further said the Supreme Court’s ruling on the Chicago dispute agreed with the appellate opinion on the Itasca lawsuit and said the Arlington Heights-Rolling Meadows dispute involves “potential repayment of an easily ascertainable amount to the correct municipality and not complicated redistribution of use taxes among multiple government entities, including nonparties, which, as noted, is within IDOR’s exclusive jurisdiction.”
The majority further explained the Retailers’ Occupation Tax Act dictates Rolling Meadows should’ve informed the state within six months of the clerical error, so limiting recovery “gifts a windfall” to the village. Hyman said Oden Johnson’s reliance in dissent on the law’s reference to a six-month recovery window would encourage governments “to conceal errors for years.”
Hyman also rejected the nonliability argument, noting Arlington Heights is seeking declaratory relief not for one past wrong but the ongoing retention of revenue to which it was never entitled.
In her dissent, Oden Johnson wrote the majority’s was wrong to cite the Supreme Court’s references to the Itasca litigation as found in the Chicago opinion, since that court noted it had no bearing on its ultimate opinion. Under her reading, Oden Johnson said the Supreme Court “found that the comprehensive statutory framework vested exclusive jurisdiction in IDOR” for disputes like the one pitting Arlington Heights against Rolling Meadows.
She also said the majority wrongly framed the dispute as different from the Chicago litigation because that lawsuit also concerned use taxes. She said Arlington Heights is essentially “seeking to use the circuit court to conduct a full-scale audit and redistribution of state taxes,” a function assigned to the revenue department.
“While I have nothing but respect for my colleagues and sympathy for concerns about a windfall, our legislature anticipated this type of error and anticipated that correcting it would pose a big problem if brought to IDOR’s attention years later,” she wrote. “Hence, the legislature set a limit, for both us and IDOR to abide by.”
Arlington Heights is represented by attorney Elrod Friedman, of Chicago.
“The Village of Arlington Heights is pleased with the decision,” Village Manager Randall Reckalus wrote in an email in response to questions from The Cook County Record. “We always felt that this was a pretty straightforward situation of one community accidentally getting the sales tax of another community, and having to give it back once it was discovered.”
Rolling Meadows has been represented by the law firm of Storino Ramello and Durkin, of Rosemont.
“The City respectfully disagrees with the Appellate Court's opinion in the Arlington Heights sales tax case,” City Manager Rob Sabo said. “The City continues to evaluate further management of this case and its option to seek leave to appeal to the Illinois Supreme Court.”