United States: Illinois Appellate Court Reverses Circuit Court Summary Judgment In Sales Tax Overcharge Case

In a case highlighting the generation of a state tax controversy by a private party, an Illinois Appellate Court held that the Circuit Court of Cook County erred in granting summary judgment to Sears Roebuck and Company (Sears)1 and remanded the case for further proceedings under the Illinois Consumer Protection and Deceptive Business Practices Act.2 The plaintiff claimed that Sears violated the Act by erroneously assessing sales tax on the entire amount of the sales price of a digital television converter box. A portion of the selling price of each converter box was subsidized by a coupon issued by the federal government, and the Illinois Department of Revenue had provided written guidance3 that no tax was to be charged on the value of the coupon.

Background

Pursuant to federal law, television broadcasting was mandated to be converted from analog to digital signals in 2009. When the conversion occurred, existing analog television receivers would have been unable to process the new digital television signals without the use of a converter box. As a part of the conversion process, the federal government issued coupons to individuals to subsidize the cost of the converter boxes.

The issuance of the coupons raised the question of whether the reduction in the consumer's purchase price by the amount of the voucher would be subject to state sales tax. The Department concluded that the amount of the coupon was not subject to the Illinois sales tax, finding that this portion of the purchase price was, in essence, a sale to an exempt organization, the federal government.4 Under Illinois law, sales to the federal government are exempt from sales and use tax.5

Evidence in the record of the Circuit Court case made clear that Sears attempted to modify its point of sale system to account for the non-taxability of the coupon.6 Apparently, this was a complicated task given that the sales tax treatment of this particular coupon was unique. Because of the difficulties associated with reprogramming its systems to automatically exclude the face amount of the coupon when computing sales tax due, Sears instructed its stores to have associates manually assess sales tax only on the net, subsidized price of the converter boxes, rather than on the entire gross sales price.

The plaintiff, an individual consumer, purchased a converter box from Sears using a coupon and was charged sales tax based on the gross purchase price. Rather than seek a refund of tax directly from Sears, the plaintiff filed suit against Sears under the Consumer Protection and Deceptive Business Practices Act and attempted to have the suit certified as a class action suit. For reasons not discussed in the Appellate Court opinion, the case was not granted class action status, and the plaintiff proceeded in his individual capacity.7

After discovery, both parties filed motions for summary judgment in the Circuit Court. The Circuit Court granted Sears' motion for summary judgment based on its policy of not taxing the subsidized portion of converter box purchases and refunding any taxes mistakenly assessed. The court concluded that the cause of plaintiff's damages was the failure to seek a refund from Sears and, as a result, the plaintiff did not have a cause of action under the Consumer Protection and Deceptive Business Practices Act. The plaintiff appealed to the Appellate Court.

Appellate Court Ruling

In holding that the Circuit Court erred in granting summary judgment for Sears, the Appellate Court based its determination on the element that there were enough factual issues in play that summary judgment was not appropriate with regard to the claim that Sears was guilty of a violation of the Consumer Protection and Deceptive Practices Act.8 The Appellate Court held that the plaintiff raised a genuine issue of material fact as to each of the five required elements of a claim under the Consumer Protection and Deceptive Practices Act.9

In ruling against Sears, the Appellate Court rejected Sears' argument that the plaintiff's claim, based on the premise that it overcharged sales tax, failed because collection of the sales tax was mandated by law.10 Sears argued that the Department's conclusion that the federal government coupons were not subject to sales tax was incorrect. In rejecting this argument, the Court focused on the relevant regulations11 and noted that the value of "store" coupons are not subject to tax, but the value of coupons that are reimbursed by a third party are subject to tax. The Appellate Court explained that "in the typical case where the reimbursing entity is a manufacturer or other taxable entity, this regulation would dictate that [Retailers Occupation Tax Act] tax be imposed on the full gross purchase price. Here, however, the reimbursing entity is the federal government which is exempt from ROTA tax." Thus, in the opinion of the Appellate Court, Sears was not statutorily authorized to collect sales tax on the gross price of the converter boxes as the tax may not be applied to the federal government coupon.

The Appellate Court also rejected the argument by Sears that the plaintiff's claim was precluded by the voluntary payment doctrine, which provides that absent fraud, misrepresentation or mistake of fact, money that is paid voluntarily under a claim of right to the payment and with full knowledge of the facts by the payer cannot be recovered unless the payment was made as a result of compulsion.12 In rejecting this argument, the Court stated that although the voluntary payment doctrine bans suits against retailers for tax refunds, it does not apply where the payment was procured by deception or fraud.13

The Appellate Court remanded the case back to the Circuit Court for further proceedings.

Commentary

The decision in this case illustrates why Illinois taxpayers should be concerned about private party challenges to their sales tax collection policies in addition to the expected challenges brought in the context of Department audits. The Illinois Consumer Protection and Deceptive Business Practices Act provides a ready avenue for litigation-seeking purchasers to seek damages based on tax decisions made by retailers that arguably result in over-collection of sales tax.

In addition, this case introduces an interesting twist to the Department's coupon regulation. As noted above, the Department's regulation on coupons provides that (merchant) store coupons are non-taxable, but coupons that are reimbursed by manufacturers or other parties are taxable. Here, the Appellate Court determined that in the case of a reimbursement by the federal government as a third party, the coupon is not taxable because the portion reimbursable by the government is a sale to the government and sales to the government are non-taxable. Query whether other types of arrangements in which a government reimbursement is evident would be treated in the same manner by the Department.

Given the Appellate Court's determination, it is still too early to tell how receptive the Illinois court system will be with respect to the substantive merit of the plaintiff's lawsuit. A plaintiff victory in this case could have far-reaching implications to retailers that collected and remitted too much sales tax because of the failure to make manual adjustments to their systems to accommodate the special government coupon program. Likewise, companies may face the same issue that Sears is facing in Illinois to the extent that other states have concluded the federal government's coupons were non-taxable, but companies operated under the assumption that such coupons were subject to sales tax.

Footnotes

1 Nava v. Sears, Roebuck and Co., Illinois Appellate Court, First District, No. 1-12-2063, July 29, 2013.

2 815 ILL. COMP. STAT. 505/1.

3 Information Bulletin FY 2009-01, Illinois Department of Revenue, July 2008.

4 Id.

5 ILL. ADMIN. CODE tit. 86 § 130.2080.

6 Nava v. Sears, Roebuck and Co., Circuit Court of Cook County, Illinois, No. 09 CH 11800.

7 Id.

8 Nava v. Sears, Roebuck and Co., Illinois Appellate Court, First District, No. 1-12-2063, July 29, 2013.

9 In order to succeed on a deceptive practices claim under the Act, a plaintiff must prove: (i) a deceptive act or practice by the defendant; (ii) the defendant's intent that the plaintiff rely on the deception; (iii) the occurrence of the deception in a course of conduct involving trade or commerce; and (iv) actual damage to the plaintiff that is (v) the result of the deception. De Bouse v. Bayer, 922 N.E.2d 309 (Ill. 2009).

10 Nava, citing 35 ILL. COMP. STAT. 120/1.

11 ILL. ADMIN. CODE tit. 86 § 130.2125(b)(2)(A).

12 Nava, citing Flournoy v. Ameritech, 814 N.E.2d 585 (Ill. App. Ct. 2004).

13 Nava, citing Jenkins v. Concorde Acceptance Corp., 802 N.E.2d 1270 (Ill. App. Ct. 2003).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions