Illinois Local Sales Tax Sourcing Update: Tax Administration by Lawsuit

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Previously, we advised of actions filed by the Regional Transportation Authority (RTA), the city of Chicago and Cook County against multiple companies as “respondents in discovery.” These actions all involved the proper sourcing in Illinois of purchases made through third-party order processing and acceptance contractors for local sales tax purposes. A new lawsuit filed by the RTA in the Circuit Court of Cook County against American Airlines Group, Inc. (“American”), and the city of Sycamore, Illinois, gives an indication of the type of relief that might be sought against the respondents in discovery if they are eventually named as defendants. (The respondents in discovery must be named as defendants within six months of the date they were named as respondents in discovery.)

In Regional Transportation Authority v. American Airlines Group, Inc., 2014 CH 04240, the RTA seeks a declaratory judgment that American’s fuel purchases from its subsidiary, American Supply – which is located in the city of Sycamore, 50 miles from O’Hare airport and outside the RTA taxing jurisdiction – are, in actuality, sales occurring within the RTA taxing jurisdiction, and should be sourced accordingly on a go-forward basis. In addition, the RTA asks that American pay the RTA all of the sales tax revenues that were remitted to Sycamore, rather than to the RTA, plus statutory interest. In the alternative, the RTA asks that a constructive trust be imposed for all sales tax revenues Sycamore received from American, as well as for all sales tax revenues that Sycamore rebated to American pursuant to American’s agreement with Sycamore to source sales to Sycamore in exchange for American locating its order processing operations within Sycamore. In an alternative count, the RTA asks that the court declare that American was not subject to the sales tax at all, but was instead subject to Illinois Use Tax on its purchases of fuel, and asks for the amount of Use Tax revenues the RTA would have received. The 6.25 percent Illinois Use Tax includes a 1.25 percent local tax component, the proceeds of which are distributed to counties and municipalities on the basis of population, rather than on the situs of a purchase or sale. Thus, the RTA asks that American be made to pay Illinois Use Tax, rather than the Illinois sales tax, on the sales sourced to Sycamore.

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Topics:  Constructive Trusts, Discovery, Sales & Use Tax, Trusts

Published In: Energy & Utilities Updates, Tax Updates, Transportation Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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