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Citibank N.A. v. The Illinois Department of Revenue

Court of Appeals of Illinois, First District, Third Division

November 2, 2016

CITIBANK, N.A., Plaintiff-Appellee,
v.
THE ILLINOIS DEPARTMENT OF REVENUE and BRIAN HAMER, Director of Revenue, Defendants-Appellants. CHRYSLER FINANCIAL SERVICES AMERICAS, LLC, n/k/a TD Auto Finance, LLC, Plaintiff-Appellant,
v.
THE ILLINOIS DEPARTMENT OF REVENUE and BRIAN HAMER, Director of Revenue, Defendants-Appellees.

         Appeal from the Circuit Court of Cook County. No. 13 L 50072 The Honorable Patrick J. Sherlock, Judge Presiding.

         Appeal from the Circuit Court of Cook County. No. 13 L 50005 The Honorable Robert Lopez-Cepero, Judge Presiding.

          JUSTICE PUCINSKI delivered the judgment of the court, with opinion. Presiding Justice Fitzgerald Smith and Justice Lavin concurred in the judgment and opinion.

          OPINION

          PUCINSKI JUSTICE.

         ¶ 1 These consolidated appeals involve the review of the determinations of the Department of Revenue (Department) on claims by plaintiffs Citibank, N.A. (Citibank) and Chrysler Financial Services America, LLC, n/k/a TD Auto Finance, LLC (Chrysler), for refunds of taxes under section 6 of the Retailers' Occupation Tax Act (ROTA) (35 ILCS 120/6 (West 2012)). Citibank and Chrysler sought refunds of ROTA taxes associated with uncollectible debt on credit and installment contracts financed by Citibank and Chrysler for the purchase of goods. The Department denied both Citibank's and Chrysler's claims for refunds. The circuit court reversed the Department's determination on Citibank's claim, which the Department now appeals (Appeal No. 1-13-3650). In contrast, the circuit court affirmed the Department's determination on Chrysler's claim, in response to which Chrysler instituted the other appeal at issue in this matter (Appeal No. 1-15-0812).

         ¶ 2 For the reasons that follow, we affirm the judgment of the circuit court on Citibank's claim. Although involving very similar facts relevant to the issue of standing, Chrysler's appeal must be dismissed for lack of jurisdiction.

         ¶ 3 BACKGROUND

         ¶ 4 Appeal No. 1-13-3650

         ¶ 5 In its claim to the Department, Citibank sought a refund of $1, 600, 853.32 in ROTA taxes paid on sales funded through the use of consumer accounts owned by Citibank. Citibank's claim was submitted to the Department's administrative law judge (ALJ) on facts stipulated to by the parties. Those stipulated facts established the following:

         ¶ 6 The retailers (doing business in Illinois) involved in the sales at issue provided their customers with the option to finance their purchases, including the applicable ROTA tax, on a credit basis. Citibank, through agreements with the retailers, would then originate or acquire those consumer charge accounts and receivables from the retailers on a non-recourse basis. Under these agreements, Citibank acquired all rights related to the accounts, including the right to all payments from the consumers and the right to claim ROTA tax refunds or credits.

         ¶ 7 Each time a consumer used his or her account to finance a purchase, Citibank would remit to the retailer the full amount financed by the consumer, including any applicable ROTA tax. The retailer would then remit the ROTA tax to the State.

         ¶ 8 Eventually, some of the consumers on these accounts defaulted, leaving unpaid balances that included amounts attributable to financed ROTA taxes. After attempting to collect the balances on the defaulted accounts, Citibank determined that the defaulted accounts were worthless, wrote the balances off on its books and records, and claimed the balances as bad debt on its federal income taxes between January 1, 2008, and December 31, 2009.

         ¶ 9 The $1, 600, 853.32 Citibank sought to have refunded constituted that portion of the ROTA taxes attributable to the unpaid and written off balances of the defaulted consumer accounts.

         ¶ 10 On January 31, 2011, the Department issued a Notice of Tentative Denial to Citibank. In response, Citibank requested an administrative hearing. In his recommendation for disposition, the ALJ recommended that (1) Citibank's claim be denied on the bases that Citibank did not include all of the required information or sufficient detail on its application for a refund, (2) Citibank did not bear the burden of the ROTA tax, (3) the ROTA tax was not paid in error, (4) there was no evidence that any erroneously paid taxes were refunded to the consumer, (5) Citibank was not the remitter of the taxes to the State, and (6) the assignments from the retailers to Citibank did not give Citibank a right to a refund of the ROTA taxes. On December 13, 2012, the Director of the Department adopted the ALJ's recommendation. Citibank appealed to the Circuit Court of Cook County.

         ¶ 11 On October 17, 2013, the circuit court issued an order reversing the Department's denial of Citibank's claim. The circuit court concluded that the primary issue was whether Citibank bore the burden of the taxes, not whether it was a retailer, as neither the applicable statute nor the applicable administrative regulation limited refunds to retailers. According to the circuit court, even if it was of some consequence whether Citibank was a retailer, the retailers had properly assigned their rights to Citibank, entitling Citibank to a refund. Finally, the circuit court concluded that Citibank was not required to refund the taxes to the consumer before seeking a refund and that Citibank did not fail to provide all of the information required in its application for a refund.

         ¶ 12 The Department then filed a timely notice of appeal.

         ¶ 13 Appeal No. 1-15-0812

         ¶ 14 In its claim, Chrysler sought a refund of $4, 630, 622.71 in ROTA taxes on the sales of certain motor vehicles. As in the previous appeal, Chrysler's claim was submitted to the Department's ALJ on facts stipulated to by the parties. Those stipulated facts established the following.

         ¶ 15 For the sales at issue, the retailer and consumer entered into retail installment contracts (in Illinois) under which the consumer agreed to pay the entire amount financed over time in fixed installments of a specific sum. The total amount financed included the total purchase price of the vehicle, along with the total ROTA tax due on the sale, minus any down payment made by the consumer. Any down payments were applied pro rata between the purchase price and the ROTA tax.

         ¶ 16 Contemporaneously with the execution of the installment contracts, the retailers assigned to Chrysler all of their rights, titles, and interests in the installment contracts, without recourse. The assignments included the right to enforce the debt and to repossess the collateral in the event of default by the consumers. In exchange for these assignments, Chrysler paid the retailers the entire amounts financed under the contracts. The retailers then reported and remitted to the State the amount of ROTA taxes due on each of the sales.

ΒΆ 17 Some of the consumers who entered into the installment contracts with the retailers defaulted on their obligations to pay, resulting in a failure to fully repay the total purchase price and ROTA tax amounts. In some instances, the vehicles were repossessed and sold. Any amounts collected on the sale of the repossessed ...


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