American Airlines Inc. v. The Dep't Of Revenue

Decision Date20 July 2010
Docket NumberNo. 1-08-2985.,1-08-2985.
Citation341 Ill.Dec. 769,931 N.E.2d 666,402 Ill.App.3d 579
PartiesAMERICAN AIRLINES, INC., Plaintiff-Appellee, v. The DEPARTMENT OF REVENUE, Defendant-Appellant.
CourtUnited States Appellate Court of Illinois

OPINION TEXT STARTS HERE

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Lisa Madigan, Attorney General of the State of Illinois, Michael A. Scodro, Solicitor General, and Timothy K. McPike, Assistant Attorney General, Chicago, IL, for Appellant.

Michael J. Koenigsknecht, Michael J. Koenigsknecht & Associates, LLC, Chicago IL, for Appellee.

Justice JOSEPH GORDON delivered the opinion of the court:

This case involves two sets of amended tax returns that the plaintiff-appellee, American Airlines, Inc. (hereinafter American Airlines), filed with the defendant-appellant, the Illinois Department of Revenue (hereinafter the Department), claiming a refund of use tax it paid to the Department during the months of July 2000 through December 2000. The Department granted a refund in the amount of $183,873, which American claimed in its first amended tax return (hereinafter original refund claim), filed on October 2, 2003, but denied American a refund in the additional amount of $518,059, which American sought with respect to the same months, but which it filed in a subsequent amended tax return form on May 9, 2005 (hereinafter second refund claim).

American protested the Department's denial and requested a hearing before an administrative law judge (hereinafter ALJ). The parties agreed that the issue to be resolved was whether an amendment to a timely filed claim for a tax refund is deemed filed within the statute of limitations under section 21 of the Illinois Use Tax Act (UTA) (35 ILCS 105/21 (West 2006)). The ALJ found that American's second refund claim had been untimely filed and therefore barred and recommended that the Director of the Department finalize the Department's denial of that claim.

After the Director sent a notice of final determination to American, American sought review of this decision with the circuit court. The circuit court agreed with American and reversed the decision of the Department, ordering the Department to issue refunds of the use tax to American in the amount of $518,059 with applicable interest as required by the Uniform Penalty and Interest Act (35 ILCS 735/3-5 (West 2002)). The Department now appeals, contending that: (1) strictly construing the provision of section 21 of the UTA (35 ILCS 105/21 (West 2006)), American's refund claim was filed outside of the three-year statute of limitations mandated under that provision and was therefore time-barred; (2) American's original refund claim was not a “protective claim,” as defined under the holding of this appellate court in Dow Chemical Co. v. Department of Revenue, 224 Ill.App.3d 263, 166 Ill.Dec. 558, 586 N.E.2d 516 (1991), so as to permit the tolling of the statute of limitations for an amendment to such a claim, because American's second refund claim was not an amendment to the original refund claim but rather a separate claim, based upon different transactions with different factual and legal predicates; (3) the relation-back doctrine does not apply to proceedings under the UTA, so as to permit late amendment to a timely filed claim; rather the only manner in which American and the Department could have agreed to extend the limitations period was under the complementary provisions of sections 4 and 6 of the Illinois Retailers' Occupation Tax Act (ROTA) (35 ILCS 120/4, 6 (West 2006)), which was not done; and (4) the Department's denial of American's second refund claim did not deprive American of its right to due process of law. For the reasons that follow, we reverse.

I. BACKGROUND

The record below reveals the following pertinent facts. American is an international airline corporation, incorporated in the State of Delaware, providing both passenger airline and freight carrier services to customers all over the world. American loads aviation fuel on its planes in Illinois flights to and from locations in other countries around the world. American does not pay use taxes to the person(s) from whom it purchases such fuel. Instead, it self-assesses use taxes on any fuel purchases and pays the Department directly on “the twentieth day after the close of each month.”

American filed its tax return (i.e., Illinois sales and use tax return form) for the period of June 2000 through November 2000 (hereinafter the relevant time period) paying the appropriate use tax for purchases of tangible personal property acquired during that time.

On October 3, 2003, American filed its original refund claim with the Department, i.e., six separate amended sales and use tax return forms (hereinafter ST-1-X forms), claiming overpayment of the use tax during the relevant time period and seeking a refund in the amount of $183,873. 1 On each of American's six ST-1-X forms, in the part of the form where a filer is asked to identify the reason why the filer is correcting its original tax return, and seeking a refund, American wrote:

“According to IRS Ruling 2002-50, the IRS has a new interpretation of flights that qualify for international or foreign trade. Based on this new interpretation, we have more international flights. Therefore, we are requesting a refund of jet fuel paid on these additional flights.”

American's ST-1-X forms were delivered to the Department on October 7, 2003, and the Department acknowledged its receipt to American in a letter dated November 4, 2003.

On January 1, 2004, the statute of limitations for filing refund claims for use taxes paid from July 1, 2000, through December 31, 2000, ran. 2

The Department assigned auditor Phyllis Mondy to audit American's refund request, and she documented her audit in an audit history worksheet. According to this worksheet, Mondy received actual physical possession of America's ST-1-X forms on May 14, 2004. On September 20, 2004, Mondy met with American's tax specialist, Marie Arredondo, to begin the Department's audit of American's refund claim. At that meeting, Arredondo gave Mondy a copy of Ruling 2002-50 made by the federal Internal Revenue Service (IRS) (hereinafter IRS Ruling 2002-50) 3 as evidence supporting the refund claim. Arredondo also gave Mondy a schedule of fuel used on additional flights during July 2000 through December 2000 that American had not included in its original claim for refund and asked if Mondy could include the additional flights in the audit.

Mondy subsequently contacted the agency's Technical Review Department to determine whether IRS Revenue Ruling 2002-50 had any bearing on American's refund claim for its payment of the Illinois use tax. On November 3, 2004, Mondy received a response from the agency's Technical Review Department indicating that the refund claim must “follow Department regulations.” On November 30, 2004, Mondy notified American that its refund claim would be denied because it did not follow Department regulations.

Mondy also consulted her supervisor, Tony Gonerka, about American's request to include additional flights in the audit. After receiving instruction from Gonerka, on January 19, 2005, Mondy informed Arredondo by e-mail that American must file new and amended ST-1-X forms in order to seek a refund for the additional flights not included in its initial refund claim. Monday's email specifically stated:

“The claims filed for 7/00-12/00 have been returned to me for corrections. The additional information submitted to me for review has to be filed on ST-1-Xs. Please amend the ST-1-Xs filed requesting a refund for $183,873 and include the total amount you are requesting. Please contact me when the ST-1-X's are done. I will pick them up and mail them to Springfield for processing.”

On April 20, 2005, Mondy telephoned Arredondo and again explained that American's refund claim would be denied because American did not base it on Illinois regulations. When Arredondo informed Mondy that they [American] did follow Illinois regulations,” Mondy agreed to meet Arredondo to discuss American's claim further.

On May 9, 2005, Mondy and Arredondo met and Arredondo gave Mondy a set of revised ST-1-Xs refund claim forms. This second refund claim sought a refund in the amount of $701,932, i.e., $518,059 4 for the newly identified flights and $183,873 for the flights previously identified in American's original ST-1-X forms. The amended forms again cited to IRS Ruling 2002-50 as the basis for the additional refunds, stating, as before:

“According to IRS Ruling 2002-50, the IRS has a new interpretation of flights that qualify for international or foreign trade. Based on this new interpretation, we have more international flights. Therefore, we are requesting a refund of jet fuel paid on these additional flights.”

However, in her worksheet, Mondy noted that upon receipt of the revised ST-1-X forms Arredondo explained to her:

“the original exempt fuel did not include fuel used on flights that carried passengers and/or cargo that didn't go all the way through ( i.e. passenger didn't continue to destination outside the [U]nited [S]tates, however, flight arrived at destination outside the [U]nited [S]tates).”

Mondy indicated that upon receipt of the revised ST-1-X forms, she performed her audit by, inter alia, examining “schedules reflecting additional fuel used on international flights,” a report detailing the “month/year, destination airport, flight number, flight date, aircraft tail no., city pair [from] which gallons [were] taken from, [and] all airports [a] flight flew to,” and the “flight operation report which contained fuel gallons of city pair.”

On May 11, 2005, Mondy completed her audit and sent American a letter indicating that the second refund claim had been approved. That letter stated in pertinent part:

“The claim for refund requested for tax overpaid in the amount of $701,932 has been...

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