Circuit Court Ends Cook County Tax on Cross-Border Purchases

Published October 10, 2013

A Cook County, Ill. judge has ruled against the county’s use tax on certain items purchased outside the county by in-county businesses.

The ruling by Circuit Court Judge Robert Lopez Cepero makes permanent a preliminary injunction against the tax he ordered in July. Cook County Board President Toni Preckwinkle and other board members are mulling filing an appeal.

Cepero’s ruling followed a request by the Chicagoland Chamber of Commerce and several member firms to block the tax. The tax did not apply to titled property such as real estate or vehicles, just to non-titled tangible items such as office supplies, furniture, and equipment. The tax applied to purchases that totaled $3,500 or more in a year. It went into effect on April 1 of this year. The tax rate was set at 1.25 percent but was lowered on June 19 to match the county’s tax rate on purchases within the county.

Business Savings: $1 Million a Month

Preckwinkle had recommended the tax to help reduce a multimillion dollar budget shortfall and to encourage purchases to be made within Cook County. County officials estimated the county would take in more than $1 million per month in additional revenue.

Preckwinkle appeared on a local radio show over the summer and acknowledged the court challenge was a factor in reducing the tax rate from 1.25 percent to 0.75 percent.

“We proposed the … tax reduction to address business community concerns and to strengthen our legal arguments,” she said on WBEZ radio.

The Chamber of Commerce and law firms Reed Smith LLP and Horwood Marcus & Berk sued to block the tax on the grounds that it violated the Illinois Constitution and state statute. Additionally, the Chamber argued the tax “violated the U.S. Constitution’s Commerce Clause” prior to the Cook County Board lowering the tax rate on out-of-county purchases to match the county’s rate on in-county purchases.

‘Facially Unconstitutional’ Regardless

In an email, Horwood Marcus & Berk attorney Christopher T. Lutz said the law firm “also maintained a challenge to the tax on the basis that it violated the Commerce Clause of the U.S. Constitution even after the County changed its rate from 1.25 percent to 0.75 percent. Put simply, the argument was that this is a completely separate tax which is imposed exclusively upon purchases made outside the County and therefore is facially unconstitutional notwithstanding the fact that the County had equalized the rates. The Court found this argument persuasive and held in favor of this argument” at the October 8 hearing.

J. Thomas Johnson, president emeritus of the Taxpayers’ Federation of Illinois, also told county commissioners after the judge’s decision that even after the rate reduction, the use tax “runs afoul of state laws that prohibit counties from imposing such taxes on personal property.”