Il Supreme Court rules on practice allowing businesses to avoid paying local taxes

Nov 22, 2013

The Illinois Supreme Court has ended a practice that let businesses avoid paying millions of dollars in local taxes. The decision could change things in the future WITHOUT punishing companies for past practices. IPR'S Brian Mackey has more.

Most retail companies based in Chicagoland have to pay a fairly high tax rate. In the past, if you set up a way to take orders somewhere else in Illinois, you’d face a much lower tax burden there, instead. This is reportedly fairly widespread, but now the Illinois Supreme Court is stopping it.

In a unanimous opinion, the court indicates it’s a problem that companies get out of paying local taxes, but still enjoy local services, like police and fire protection. The ruling was based on a lawsuit filed by Hartney Fuel Oil Co., then headquartered in the relatively high-tax suburb of Forest View. To take orders, Hartney installed a fax machine 100 miles away in Mark, Illinois. The state forced Hartney to pay $23 million in back taxes, which led the company to sue.

The Supreme Court says because Hartney was acting in accord with state regulations — however flawed — the company is entitled to a refund. But the court says companies cannot use that tactic in the future.