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.

Background

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...