Judge Enjoins Cook County from Enforcing Use Tax

We write frequently about the difficult task retailers face in complying with the myriad state and local tax regimes in this country. State and local tax rules are ever changing, both through legislative and regulatory efforts and also through actions of administrative bodies and even the courts. For your average retailer, keeping abreast of every change can be near impossible.

For instance, last November, Cook County, Illinois approved a use tax ordinance that went into effect April 1, 2013, and imposed tax on non-titled personal property purchased outside the county for use within the county. The Cook County use tax rate was set at 1.25%, while the County’s sales tax rate on similar purchases made inside the county was only 0.75%. The language used in adopting the use tax plainly stated the County’s purpose in adopting the new tax: “WHEREAS, it is in the interest of Cook County to take steps that will level the playing field among business interests, close tax loopholes, and incentivize the purchase of non-titled personal property within the County for use within Cook County.”

A lawsuit in Cook County Circuit Court seeking to enjoin enforcement of the ordinance quickly followed. The suit was based both on the ordinance’s obvious unconstitutionality (imposing a different, higher tax rate on items purchased outside the county than the tax rate imposed on purchases made within the county plainly violates the Commerce Clause) and also on the State Constitution’s prohibition on ad valorem personal property taxes. The lawsuit also asserted that the tax base for the use tax improperly differed from that of the sales tax: the use tax was imposed on the value of goods purchased, while the sales tax was imposed on the purchase price.

While the suit was pending in court, the County revised the ordinance in June 2013, lowering the use tax rate to 0.75% and providing credit for tax paid in another jurisdiction. Then, earlier this week, on July 24, Judge Robert Lopez Cepero of the Cook County Circuit Court preliminarily enjoined the County from enforcing the use tax, finding that it likely violates both the Illinois and federal Constitutions. (Note that Judge Lopez Cepero previously presided over the lawsuit brought by the Performance Marketing Association challenging the constitutionality of the Illinois “click through” affiliate nexus law. Judge Lopez Cepero issued an order in May 2012 invalidating that statute. The “click through” affiliate nexus ruling is now on appeal before the Illinois Supreme Court. Brann & Isaacson represents the plaintiff PMA in that case.

Vendors selling into Cook County are, therefore, no longer subject to a higher tax rate than their competitors within the county. Cook County has indicated its intent to ask Judge Lopez Cepero to reconsider his decision, so we will continue to monitor developments in the case.