Knowledge Center

Wednesday, July 24, 2013

HMB Prevails on Its Motion for Preliminary Injunction to Enjoin Cook County from Enforcing Use Tax

Memo to Clients and Friends

On July 24, 2013, Judge Lopez Cepero of the Cook County Circuit Court issued a preliminary injunction enjoining Cook County from enforcing the Cook County Non-Titled Personal Property Use Tax. The County will now file a motion to reconsider, and HMB will have the opportunity to respond.

Judge Lopez Cepero cited three critical areas which favor the issuance of a preliminary injunction. First, the Judge expressed concern that the Use Tax violates the Illinois Constitution's prohibition on ad valorem personal property taxes. Because the tax assigns a cash value to personal property and then taxes that value, HMB had argued that the tax necessarily violates the state prohibition on ad valorem taxes. The Judge found that this argument weighed in favor of the taxpayer.

Second, Judge Lopez Cepero expressed concern that irreparable harm to taxpayers may result in the absence of an injunction. He referenced the Performance Marketing case in which Judge Lopez Cepero held the state's click-through statute unconstitutional for the proposition that paying unlawful taxes can have a negative impact on vendors forced to comply with the tax.

Finally, Judge Lopez Cepero referenced HMB's argument regarding the United States Constitution's Commerce Clause. In our Reply, HMB argued that the Use Tax was not only unconstitutional because it had imposed a different tax rate on property bought outside the County, but because it taxed a different base (value as opposed to purchase price). The Judge noted that tax statutes should be interpreted in favor of the taxpayer, and that the disparate tax burdens imposed on property bought outside the County and within the County weighed in favor of a preliminary injunction.

In summing up his thoughts, Judge Lopez Cepero noted that the arguments going forward are uphill for the County. While this does not spell the end of the litigation, the County may not enforce or collect the tax unless Judge Lopez Cepero reconsiders and lifts the injunction after the parties brief the County's motion to reconsider, or an appellate court reverses the decision in the future. Thus, taxpayers are not obligated to file any further Cook County Non-Titled Personal Property Use Tax returns unless and until the injunction is dissolved.

HMB Comment

We expect that the Judge's decision on the motion to reconsider will be consistent with his order issuing a preliminary injunction. At that time, HMB will move to make the injunction permanent.


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