As reported in our March 2012 issue, a multitude of whistleblower suits were filed, by an opportunistic Chicago based law firm in the wake of the Illinois Supreme Court’s decision in Kean v. Walmart Stores, Inc., 919 N.E. 2d 926 (Ill. 2009). That court ruled delivery charges were subject to Illinois Retailers Occupation Taxes (generically “sales tax”) where online purchasers were required to pay for delivery. Retailers hit with these suits typically settled them rather than facing protracted litigation and the risk of onerous penalties, including treble damages.
As this litigation winds down, however, retailers have received a bit of good news. In the first suit to actually go to trial, a Cook County Circuit Court judge granted a motion to dismiss filed by the defendant, Fansedge Incorporated, an online sports apparel retailer. The judge’s decision emphasized the credibility of Fansedge’s witness, the company’s controller, who testified he had asked an Illinois Department of Revenue auditor point blank, during the course of one of two Department sales/use tax audits during the period at issue, whether taxes were due on shipping and handling charges, and he was informed by the auditor that the charges were nontaxable. The judge dismissed the complaint based on this testimony finding the Department failed to demonstrate that Fansedge intentionally, knowingly, or recklessly concealed non-collection of tax on its shipping and handling charges.
This taxpayer victory came in one of the few remaining unsettled whistleblower suits on the shipping and handling charge issue. Although it came too late to be of use to retailers that have previously settled suits, Illinois retailers can at least take heart from this decision because it supports the position that an Illinois Department of Revenue audit that has squarely addressed a legal issue may immunize the retailer from a subsequent whistleblower suit on this issue.