Cook County Use Tax Update – Reed Smith Wins Appeal – Ordinance Invalid

On August 4, 2014, the First District Illinois Appellate Court affirmed a lower court decision invalidating Cook County's Non-Titled Personal Property Use Tax (the "Use Tax"). The Appellate Court dismissed as moot the County's interlocutory appeal of the lower court's preliminary injunction against enforcement of the Use Tax Ordinance, which was extinguished upon entry of the permanent injunctions in favor of Reed Smith and its client, the Chicagoland Chamber of Commerce, as discussed in our previous alert. Of procedural note, the Appellate Court rejected the County's argument that Reed Smith lacked standing to challenge the Use Tax Ordinance because it failed to register for or pay the Use Tax. The court found that Reed Smith would have suffered a direct injury from enforcement of the Use Tax and therefore had standing to challenge the Use Tax Ordinance.

Reed Smith tailored its appeal to leave before the trial court its claim on behalf of the Chicagoland Chamber of Commerce that the County must accept the invalidity of the Ordinance as a "mistake of law" which, under its refund ordinance, is a prerequisite for the County to approve a refund claim. That remaining claim is now ripe for decision upon return to the trial court.

Standing

The court addressed Cook County's contention that Reed Smith lacked standing to challenge the Use Tax because it failed to register or pay any tax due. The court found that (i) the Use Tax Ordinance provides that the mere failure to register is a violation, (ii) Reed Smith would have been subject to penalties and interest for failing to register and pay the Use Tax, had the tax been valid, and (iii) these assessments would constitute a lien on Reed Smith's real and personal property, all of which would make the injury "hardly theoretical." The court distinguished Reed Smith's case from the case upon which the County based its claim, Wexler v. Wirtz,1 noting that the plaintiff in Wexler lacked standing primarily because it was not legally obligated to collect and remit tax. The court also shot down the County's argument that the voluntary payment doctrine would bar Reed Smith's claim, stating that it was indisputable that Reed Smith didn't pay the Use Tax; making the voluntary payment doctrine inapplicable.

Imposition of A Prohibited Sales Tax

The Appellate Court affirmed the trial court's decision to grant Reed Smith's motions for summary judgment, based on the Use Tax violating Section 5-1009 of the Illinois...