In Illinois Association of Realtors v. Stermer, et al. (Feb. 7, 2014), a trade association representing 40,000 Illinois real estate professionals challenged the state’s transfer of monies from the Real Estate License Administrative Fund into the state’s general revenue fund.  The statute authorizing the Administrative Fund allows Illinois to collect application and licensing fees sufficient to cover the reasonable costs the Department of Financial and Professional Regulation incurs through its regulation of the Illinois real estate business.  The plaintiff trade association alleged that Illinois deliberately collected fees in excess of these reasonable costs and transferred the surplus to the state’s general fund in an effort to decrease the state’s annual budget deficit.  Because the application and licensing fees—or, more accurately, some portion of those fees—were converted into a source of revenue for the state’s general fund, the trade association argued that the fees amounted to a tax.

Among other issues, Illinois’s Fourth District Appellate Court considered whether the trade association had standing to challenge the transfers under the taxpayer standing doctrine.  Taxpayer standing in Illinois turns on the plaintiff’s liability to replenish the public revenues depleted by an allegedly unlawful government action.  And where the challenged expenditure comes from a special fund—like the Real Estate Licensing Administrative Fund—the plaintiff must show a special injury not common to the general taxpaying public.

The trade association claimed that it met this standard, as real estate licensees were liable for replenishing revenues transferred from the Administrative Fund to the state’s general fund through their ongoing obligation to pay licensing fees.  The court was unconvinced, noting that the trade association identified no statutory provision requiring payment of licensing fees to maintain the Administrative Fund.  Rather, payment of licensing fees is a condition of being a licensed real estate professional in Illinois.  Absent some liability to replenish the Administrative Fund, the trade association lacked taxpayer standing.

Having decided the case on other grounds, the court reserved judgment on the trade association’s argument that the transfer of excess revenues from the Administrative Fund to the state’s general fund converted the licensing fee into a tax.

Donnie Morgan