Illinois Appeals Court Upholds Ruling Against Cook County Use Tax

Illinois Appeals Court Upholds Ruling Against Cook County Use Tax
August 12, 2014

If an Illinois appellate court had ruled in favor of Cook County Board President Toni Preckwinkle, residents would have had to pay the Cook County sales tax on purchases they make in other counties, if the purchases totaled $3,500 or more in a year (excluding titled property such as real estate or automobiles).

Instead, a state appellate court affirmed a previous ruling striking down the tax, leaving Cook County residents free to continue to buy items outside the county without having to pay a special tax. But Preckwinkle and county commissioners could try a third time by taking the case to the Illinois Supreme Court.

When first proposing the out-of-county tax in 2012, Preckwinkle touted it as a “Buy Local Tax” that would help local businesses by keeping shoppers in the county. “County government is making it easier for local business to thrive in our communities, expand their operations, and hire new workers,” she said then.

‘Afoul of State Laws’

The Taxpayers’ Federation of Illinois disagreed, issuing a statement from President J. Thomas Johnson arguing the tax “runs afoul of state laws that prohibit counties from imposing such taxes on personal property.”

Other objections came from the Illinois Retail Merchant Association (IRMA) and the Chicagoland Chamber of Commerce. 

Illinois’ state government imposes a 6.25 percent sales tax, and many cities and villages add sales taxes on top of that. Cook County also collects a sales tax, as does the Regional Transportation Authority (the financial body of the Chicago Transit Authority, Metra commuter train service, and Pace suburban bus service), which covers Cook and other counties in northeastern Illinois.

Cook County’s sales tax rate is 0.75 percent. Preckwinkle’s initial plan was to charge 1.25 percent to Cook County residents if they make purchases in other counties totaling $3,500 or more in a year. The County Board then lowered the rate on purchases outside the county to 0.75 percent, to match Cook County’s tax on purchases inside the county.

However, some towns straddle county lines, which could have created serious tax collection and recordkeeping problems in those localities. Bartlett village limits, for instance, include Cook, DuPage, and Kane counties. If a business in the Cook County section of Bartlett bought supplies in the DuPage County part of the village, the business would have paid 0.75 percent less in sales tax, then would have had to pay Cook County the 0.75 percent it had saved. The appeals court ruling prevented this from happening.

‘Distinction Without a Difference’

Attorney Christopher Lutz of the Horwood Marcus & Berk law firm, who represented the Chicagoland Chamber of Commerce in the case, said the Appellate Court “based its ruling on the prohibition in the Illinois Counties Code that a home rule county may not impose a use tax on non-titled property that is measured by purchase price. The County attempted to circumvent that prohibition by instead basing the tax on ‘value.’ The court concluded that this was a distinction without a difference, and the tax was prohibited by the statute.”

Lutz further explained, “Taxpayers were required to separately register with Cook County, and to file monthly reports,” a recordkeeping nightmare. Because the county also argued it was basing the tax on value instead of price, taxpayers would have had to “find someone to appraise their property or conduct a depreciation assessment for which there was no guidance.”

Smaller Deficit Without Tax

The County Board’s aim in imposing the use tax seems to be bringing in more revenue to continue to lower the county’s budget deficit, which has decreased substantially since Preckwinkle took office in 2010 as the nation was emerging from the Great Recession. The budget deficit was $487 million in Fiscal Year 2011, compared to $168.9 million in the Fiscal Year 2015 projected budget. 

This decline has happened without revenues from the use tax, which brought in an estimated $10 million before a state court injunction forced the county to stop the collections. 

Alexander Anton (alexanderanton.heartland@gmail.com) is a government relations intern at The Heartland Institute in Chicago.