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Illinois Supreme Court Agrees to Hear Hartney Fuel Oil Co. v. Illinois Dept. of Revenue

03/07/2013

In a victory for client Regional Transportation Authority ("RTA"), the Illinois Supreme Court recently granted Heyl Royster's Petition for Leave to Appeal in the case of Hartney Fuel Oil Co. v. Illinois Dept. of Revenue. The Hartney case is one of several high-profile sales tax sourcing cases in which Heyl Royster has represented the RTA.

The Hartney case arose out of a disagreement that Hartney Fuel Oil Company had with an audit by the Illinois Department of Revenue. The Department of Revenue had issued a multi-million dollar tax assessment against Hartney based on sales taxes imposed on Hartney's headquarters located in Cook County, instead of where Hartney claimed it incurred the tax liability – in its sales office in Mark, IL. The dispute was discussed in a 2008 press release issued by the Illinois Governor's Office as follows:

In reviewing tax records, auditors determined that companies in the Chicagoland area were using companies in Mark as the location for sales, taking advantage of the local sales tax rate that is today as much as 4.25% lower than in parts of Cook County (6.25 percent vs 10.5 percent).

Besides the lower tax rates, in at least one case Mark entered into an agreement to rebate to the business half the village's share of taxes paid by the business's customers. The business ended up paying a lower tax rate than it should have, and then got back a portion of the taxes it did collect from its customers (CL 3, C 615).

In 2010, a Putnam County circuit court ruled that the Hartney's sales, and hence its taxes, should properly sourced to Mark, IL. In 2012, the circuit court's ruling was affirmed by the Illinois Appellate Court. It is anticipated that the Illinois Supreme Court will hear the case in the fall of 2013.

The RTA includes the Chicago Transit Authority (CTA), Pace and Metra lines, and serves Cook, DuPage, McHenry, Lake, Will and Kane counties. Over the past few years, a number of businesses operating in Illinois, and particularly Cook County, have sought to avoid local sales tax liability by establishing "sales acceptance offices" in lower tax jurisdictions.

In August of 2011, the firm filed suit on behalf of RTA against the municipalities of Kankakee and Channahon claiming more than $100 million in lost tax revenue. The lawsuit arose from the use of tax-sharing agreements in which companies operating within the six-county RTA region and across the state claim that their sales are sourced through offices set up in Kankakee and Channahon. Under these agreements, the two municipalities rebate almost the entire amount of their local share of the statewide sales tax to participating companies. The lawsuit against Kankakee and Channahon is pending. The official RTA press release is available at http://www.rtachicago.com/press-releases-2011/rta-files-suit-against-kankakee-and-channahon-to-recoup-more-than-100-million-in-lost-tax-revenue.html.

The attorneys in the firm who have represented RTA on these sales tax sourcing matters include Tim Bertschy, John Redlingshafer and Maura Yusof. In addition, Brad Elward was involved in the appeals to the Illinois Appellate Court and the Illinois Supreme Court.