Illinois Appellate Court Upholds Finding of Consumer Fraud Act Violation in Sales Tax Overcollection Case

By on February 9, 2016
Posted In Illinois, Sales Tax

The Illinois Appellate Court recently affirmed a finding for a plaintiff individual, upholding the circuit court’s conclusion that defendant Sears, Roebuck and Co. (Sears) violated the Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1) (the Act) by overcharging plaintiff sales tax on his purchase of a digital television converter box (converter box”). Aliano v. Sears, Roebuck & Co., 2015 IL App (1st) 143367 (Dec. 30, 2015). Sears appealed the circuit court’s ruling on two bases: (1) that the court failed to find that the plaintiff was actually deceived by any alleged misrepresentation made by Sears (an element required to be found for a violation of the Act); and (2) that the court found Sears had violated that Act based on its determination that overcollection of sales tax “is a de jure deceptive practice violation of the [Act].” Although it upheld the underlying ruling, the court reversed the circuit court’s award of attorneys’ fees pursuant to the Consumer Fraud Act and remanded for a determination of the amount of reasonable fees to which the plaintiff is entitled.

Plaintiff’s claim under the Act was based on his purchase of a converter box. At the time of his purchase, Plaintiff presented a coupon issued by the federal government for a $40 credit against the purchase price. The coupon entitled Sears to a reimbursement by the federal government for the lesser of $40 or the purchase price of the converter box. Approximately a year before Plaintiff’s purchase, the Illinois Department of Revenue (the Department) had issued a bulletin stating that the portion of the selling price covered by the coupon was not subject to Illinois sales tax. Despite this guidance, the Sears sales associates who handled Plaintiff’s purchase charged him sales tax on the full selling price of the converter box. Plaintiff sued, alleging that Sears wrongfully collected sale tax on the value of the coupon.

In arguing that Plaintiff was not deceived by the sales associate’s representation of the amount of tax owed, Sears contended that Plaintiff knew he would be overcharged sales tax on the purchase, and that he “went shopping for a lawsuit.” One month before Plaintiff’s purchase, the case captioned Nava v. Sears, Roebuck & Co. was filed in the circuit court, in which virtually identical allegations were made against Sears. (On allegations that Sears violated the Act, the appellate court eventually determined that a genuine issue of material fact existed and reversed the circuit court’s grant of summary judgment in favor of Sears (see Nava v. Sears, Roebuck & Co., 2013 IL App (1st) 122063 (July 29, 2013).) Despite finding that “[t]he facts relied upon by Sears could certainly support the inference that the plaintiff was not deceived by the representations of Sears’s sales associate as to the net amount that he owed and that he was well aware at the time that he purchased the converter box that sales tax should not have been assessed on the $40 value of the NTIA coupon which he tendered,” the court agreed with the circuit court’s findings of fact. The court determined that the findings of fact turned on the Plaintiff’s credibility, which the court stated the circuit court is “in a far better position to judge” and are to be deferred to unless they are against the manifest weight of evidence.

Plaintiff testified that he paid Sears the excess sales tax in reliance on the sale associate’s representation that he owed it, and at the time he did not realize that he has been charged too much tax.  Plaintiff further testified that had he been aware he was being overcharged, he would not have paid the excess tax.  As to whether the Plaintiff was actually deceived by the sales associate’s representation that he owed tax on the full retail price, the court determined “that is the only conclusion which can reasonably by drawn from [the] factual findings.”

On Sears’ second argument on appeal that the circuit court erroneously held that overcollection of sales tax is a “de jure deceptive practice violation,” the court also found for Plaintiff, determining that “the findings of fact contained within [the circuit court’s] order clearly reflect that Sears’s liability was not predicated merely upon an isolated miscalculation of the sales tax due on the plaintiff’s purchase.”  The court pointed to the circuit court’s findings of fact that Sears had been aware since July 2008 that tax should not be collected on the value of the coupon but did not update its systems accordingly, and had charged tax on the value of the coupons in more than 280 transactions in a one month period.

The court, however, found for Sears in its appeal from the circuit court’s award of more than $150,000 in attorneys’ fees under the Act, on the basis that the computer generated records of attorney time billed were inadmissible in the absence of the underlying original time sheets on which the records were based.

Catherine A. Battin
Catherine (Cate) A. Battin represents clients in state and local tax controversies at the audit, administrative and judicial levels in numerous jurisdictions. She provides national state tax strategies for clients on a full range of state tax issues, including income tax apportionment, nexus, combination and sales tax characterization of products and services. She has defended numerous internet sellers in cases brought under the Illinois False Claims Act alleging fraudulent failures to collect and remit use tax. Read Catherine A. Battin's full bio.




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