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.


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.


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.


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).

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