Appeal from the Circuit Court of the 10th Judicial Circuit, Putnam County, Illinois, Circuit Nos. 2008 MR 11 2008 MR 13 2008 MR 15 Honorable Scott A. Shore, Judge, Presiding.
The opinion of the court was delivered by: Justice McDADE
JUSTICE McDADE delivered the judgment of the court, with opinion. Presiding Justice Schmidt concurred in the judgment, with opinion. Justice Carter dissented, with opinion.
¶ 1 The underlying dispute arises as the result of an audit determination made by the Illinois Department of Revenue ( IDOR) that sales of Hartney Fuel Oil Co. (Hartney) were subject to state and local sales taxes in Forest View in Cook County, Illinois, rather than being subject only to state sales tax (as there are no applicable local sales taxes) in Mark, Putnam County, Illinois, during the subject audit period.*fn1
¶ 2 Hartney, the Village of Mark and the County of Putnam (hereinafter referred to collectively as plaintiffs) sought declaratory and injunctive relief to (1) determine that the situs of Hartney's sales had been in Mark, (2) redirect the local share of collected state sales taxes to the Village of Mark and the County of Putnam, and (3), as to Hartney, provide relief from tax, penalties and interest assessed against Hartney, and return of sales taxes paid under protest and held in the State of Illinois's protest fund. After a bench trial, the trial court granted the requested relief. Defendants, Brian A Hamer and Dan Rutherford, in their official capacities, and the Village of Forest View, the County of Cook, and the Regional Transportation Authority (hereinafter referred to collectively as defendants), appeal from the trial court's judgment. We affirm.
¶ 5 Hartney is a fuel marketing company that purchases fuel oil from large fuel suppliers and sells it to customers such as railroads, trucking companies, gas stations and other fuel distributors. In or around 1985, Hartney moved its sales operations out of its headquarters in Cook County (Forest View) to Du Page County (Elmhurst) because the lower tax rates in Du Page County allowed it to offer competitive prices to customers. Hartney moved its sales office several other times over the ensuing years, finally locating it in Putnam County (Mark), in 2003. Hartney's headquarters, however, remained in Forest View until November 2008, when Hartney also moved its corporate and accounting staff to Mark.
¶ 6 Upon moving its sales operations to Mark, Hartney contracted with Putnam County Painting (Putnam Painting) to provide office space and personnel. The agreement named Putnam Painting to be its managing sales agent and to provide Hartney with a sales representative to receive, accept and process fuel purchase orders from Hartney customers. Hartney paid Putnam Painting $1,000 per month for personal sales services and for office space.
¶ 7 The owners of Hartney also owned Energy Transportation, Inc. (ETI), a separate corporation providing the services of a common carrier. During the relevant time frame, the two corporations (Hartney and ETI) shared corporate headquarters in Forest View, while Hartney maintained a separate designated sales office elsewhere. Peter Hartney was the president of Hartney. Gary Hartney was the president of ETI. While Hartney moved its corporate and accounting staff to Mark in November 2008, ETI continued to operate from its sole offices in Forest View.
¶ 8 Ever since Hartney first moved its sales operation out of its headquarters in Forest View in 1995, it has conducted its sales in the same manner. Those sales can be broken down into two main categories: (1) ad hoc sales made to established customers who, on any given day, call Hartney's sales office and place an order for a specific quantity of fuel oil to be delivered at a specific time and location (daily purchase orders), and (2) sales made to customers via long-term requirements contracts, with the terms of sale -- such as price and location of delivery -- established in advance (long-term purchase orders).
¶ 9 Daily Purchase Orders
¶ 10 With respect to ad hoc purchase orders, Hartney customers were informed nightly via facsimile or some other form of electronic communication of the next day's price for fuel oil. These customers also received similar solicitations from competing fuel marketers in the area. If a customer wished to purchase fuel from Hartney, the customer contacted its sales office to place the order. The customer provided the sales office with the type of fuel, the quantity, and the time and location where delivery was needed, as well as any special instructions. In a majority of circumstances, Hartney's sales agent in Mark accepted a customer's order on the spot,*fn2 and then arranged for delivery by contacting ETI.
¶ 11 On rare occasions (principally where the customer had not previously passed a credit check or had been placed on credit hold), the sales agent in the Mark office would reject a customer's purchase order. The sales agent knew in advance which customers had been pre-approved or placed on credit hold, so it was not necessary for the agent to check with Hartney's headquarters to determine whether to accept or reject the orders.
¶ 12 From the time an order was placed with the Mark sales office until a bill was prepared by Hartney's accounting staff, the sales agents (located in Mark) were the sole individuals involved in processing the order. Fuel deliveries were the responsibility of ETI, which had no ability to reject or otherwise affect Hartney's acceptance of that order.
¶ 13 Long-Term Purchase Orders
¶ 14 Long-term purchase orders were negotiated with customers by Peter Hartney. Peter generally signed the agreement first and then sent the agreement to the customer. The customer then signed the agreement and sent it back to the Mark sales office. If Peter had not signed the contract first, the customer mailed the partially executed agreement to the Mark sales office. Peter would then travel to the Mark sales office to sign the contract. The fully executed contract would then be mailed from the Mark sales office to the customer. The originals of the sales contracts were stored at the Mark sales office, with copies sent to the customer as well as to Hartney's accounting department in Forest View. The price for some long-term purchase order customers did not include freight. These customers often hired a common carrier to retrieve their fuel from a Hartney terminal. In some cases, the common carrier selected by the customers was ETI.
¶ 16 Between 1990 and the present appeal, IDOR audited Hartney's operations eight times. Five of those audits covered periods during which Hartney had a sales office separate from its Forest View headquarters.
¶ 17 In 1998, IDOR audited Hartney's payment of both retailers' occupation tax (ROT) and motor fuel tax (MFT) in connection with Hartney's sales out of its Du Page County office. In connection with that audit, Joseph Stratman, an agent with IDOR's Bureau of Criminal Investigations, visited Hartney's sales office in Du Page County. Stratman concluded that Hartney was accepting orders in Du Page County and thus subject to the Du Page County MFT.
¶ 18 The auditor, having consulted Stratman, concluded that all orders were accepted in Du Page County and thus agreed that Hartney was subject to Du Page County MFT. Hartney and IDOR litigated the assessment. While both agreed that Hartney's sales were accepted at the DuPage County sales office, Hartney interpreted the Du Page County MFT as applying to sales made only to locations within Du Page County. IDOR, however, interpreted the DuPage County MFT as being a point-of-acceptance tax like the ROT. As a result of finding that Hartney accepted all purchase orders at its sales office in Du Page County, IDOR levied a $3 million assessment against Hartney.
¶ 19 In late 1998, Hartney moved its sales office to La Salle County -- a county that did not charge additional MFT on any sales. Hartney operated its sales office in La Salle County in substantially the same manner in which it had operated its sales office in Du Page County. IDOR sent an individual to the La Salle County office to investigate Hartney's La Salle County sales operations. In 2001, the IDOR audited Hartney's payment of ROT over the period of September 1, 1998 to August 31, 2001. The audit produced no adjustments, finding that all sales during the applicable period occurred in La Salle County.
¶ 21 In August 2003, Hartney opened the Mark sales office, which operated in the same manner as had the La Salle and Du Page County offices.*fn3 Hartney reported that substantially all of its fuel sales occurred in Mark. Shortly after Hartney moved to Mark, IDOR sent a representative to visit the Mark sales office. That representative asked a number of questions regarding how Hartney's sales agent in Mark performed her duties. The representative witnessed the sales agent accept a purchase order on behalf of Hartney then left and did not return.
¶ 22 IDOR audited Hartney from January 1, 2005, until June 30, 2007. Gerise Ricard was assigned to the Hartney audit. Ricard completed an audit history worksheet, and she and her supervisor, Robert Szymanski, also prepared an audit narrative setting out the bases for the IDOR's audit conclusion. In conducting Hartney's audit, Ricard did not review any of Hartney's past audit files. Neither Ricard nor anyone else from IDOR ever visited the Mark sales office or spoke to any of the individuals who worked in that office in connection with the audit. In May 2008, as the audit was nearing its completion, IDOR destroyed the prior audit files relating to its investigations of Hartney.
¶ 23 Ricard ultimately determined, based on nine audit conclusions, that Hartney's sales were attributable to Forest View, not Mark. As a result, on September 5, 2008, IDOR issued a notice of tax liability (NTL) for the 2005-07 audit period. The NTL reflected Forest View's 1% ROT rate, Cook County's 0.75% ROT rate, and the Regional Transportation Authority's (RTA) 0.75% ROT rate, as well as interest and penalties, for a total of $23,111,939.11 (the disputed tax).
¶ 25 Hartney paid the disputed tax under protest. On November 7 and 17, 2008, Hartney initiated two lawsuits (cases No. 08 MR 13 and No. 08 MR 15) pursuant to the State Officers & Employees Money Disposition Act (Protest Monies Act) (30 ILCS 230/2a.1 (West 2008)). The first of these cases related to the disputed tax, and the second to IDOR's refusal -- starting in the fall of 2008 -- to remit the local portion of Hartney's tax payments to Mark and Putnam County. Earlier, on October 3, 2008, the board of commissioners of Putnam County and the board of trustees of the Village of Mark had filed suit (case 08 MR 11) seeking relief from IDOR's refusal to remit the local portion of Hartney's tax payments to those entities. The three cases were consolidated on February 9, 2009.
¶ 26 After a bench trial, the trial court issued judgment in favor of plaintiffs. The court held that plaintiffs showed by a preponderance of the evidence that (1) Hartney's daily purchase orders "were completed and accepted at its dedicated sales office in Mark, Illinois," and (2) the long-term purchase orders "became binding upon execution and return to the Mark sales office, whether signed first or later signed in Mark by President Peter Hartney." Additionally, the court found that IDOR had violated its common law duty to preserve the prior audit records that it ...