Oct. 14--Chicago has lost a legal battle with other municipalities over the collection of sales taxes.
A Cook County judge on Friday dismissed a 2011 lawsuit that had accused Kankakee and Channahon of diverting hundreds of millions of dollars of sales taxes away from the Chicago area. The ruling said the city did not have standing to bring its claims and that such authority rests with the Illinois Department of Revenue.
John Holden, spokesman for Chicago's law department, on Tuesday said the city respectfully disagrees with the court's decision. The city is evaluating its next steps but intends to continue to pursue its claims, he added.
The suit had to do with a practice of companies setting up satellite sales offices in those outlying towns so that taxes are paid in jurisdictions that impose no local sales tax or lower tax rates than in the Chicago-area locations where some of the same companies have operated for years. Under tax-rebate agreements with companies, Kankakee and Channahon gave back a portion of their local sales tax to the companies.
Judge Peter Flynn found problems with the suit from the beginning. In 2013, he dismissed several of the plaintiffs' claims but gave them an opportunity to amend their complaint. A revised complaint was then put on hold pending an Illinois Supreme Court case challenging a similar sales tax strategy employed by Hartney Fuel Oil.
Illinois is among a handful of states using a system in which sales tax is applied where a purchase offer is accepted, rather than where a product is delivered. The law creates an opportunity for companies to relocate the site of sales transactions to lower-tax venues.
The state Supreme Court tossed out Illinois' tax-collection rules, which eliminated many of the controversial tax-rebate agreements in Kankakee and Channahon. The decision also provided some cover to companies, from airlines and catalog houses to Internet retailers, that relied on the tax regulations from having to pay back taxes and penalties.
Chicago had recently asked Flynn for permission to file a fourth amended complaint, but the judge denied the request and said the plaintiffs can't bring the case back to court. He said in the decision that allowing the case to continue would empower the plaintiffs, which included the village of Skokie, to roam the state as "tax enforcement vigilantes," suing errant taxpayers and others.
"To do so would undercut the legislative allocation of tax collection and distribution to IDOR (Illinois Department of Revenue) and would create an expensive, unworkable free-for-all."
Other defendants in the case included a handful of Internet retailers and business consultants who worked as middlemen in the sales tax deals between Kankakee and Channahon and the retailers.
Attorney Steve Blonder, who represents three consultants, said the ruling "clarifies the scope of taxpayer's liability and it halts the overreaching by a municipality to recover taxes that were never owed."
asachdev@tribpub.com
