Citibank, N.A. v. Ill. Dep't of Revenue

• Citation: 104 N.E.3d 400,2017 IL 121634
• Decision Date: 30 November 2017
• Docket Number: Docket No. 121634
• Parties: CITIBANK, N.A., Appellee, v. The ILLINOIS DEPARTMENT OF REVENUE et al., Appellants.
• Court: Illinois Supreme Court

2017 IL 121634

104 N.E.3d 400

CITIBANK, N.A., Appellee,

v.The ILLINOIS DEPARTMENT OF REVENUE et al., Appellants.

Docket No. 121634

Supreme Court of Illinois.

Opinion filed November 30, 2017.

Lisa Madigan, Attorney General, of Springfield (David L. Franklin, Solicitor General, and Carl J. Elitz, Assistant Attorney General, of Chicago, of counsel), for appellants.

Fred O. Marcus and David S. Ruskin, of Horwood Marcus & Berk Chtrd., and Jason Stiehl and Mark S. Bernstein, of Akerman LLP, both of Chicago, and Brian R. Harris, of Akerman LLP, of Tampa, Florida, and Peter O. Larsen, of Akerman LLP, of Jacksonville, Florida, for appellee.

CHIEF JUSTICE KARMEIER delivered the judgment of the court, with opinion.

¶ 1 In this appeal, we review the determination of the Department of Revenue (Department) on a claim filed by Citibank, N.A. (Citibank), for tax refunds pursuant to the provisions of section 6 of the Retailers' Occupation Tax Act (ROTA) ( 35 ILCS 120/6 (West 2012) ). Citibank sought refunds of ROTA taxes paid through affiliated retailers upon their sale of goods, transactions that were financed through Citibank, and that ultimately resulted in uncollectible debt, portions of which corresponded to the tax originally paid. The Department denied Citibank's claim. The circuit court of Cook County reversed the Department's decision. The appellate court affirmed the decision of the circuit court, concluding that Citibank had standing to pursue a refund of ROTA taxes, attributable to the uncollected debts, as a result of the assignments from the retailers. 2016 IL App (1st) 133650, 409 Ill.Dec. 133, 67 N.E.3d 345. We granted the Department's petition for leave to appeal ( Ill. S. Ct. R. 315(a) (eff. Mar. 5, 2016)) and now reverse the judgment of the appellate court.

¶ 2 The ROTA imposes a tax " 'upon persons engaged in the business of selling at retail tangible personal property.' " Kean v. Wal–Mart Stores, Inc. , 235 Ill. 2d 351, 362, 336 Ill.Dec. 1, 919 N.E.2d 926 (2009) (quoting 35 ILCS 120/2 (West 2006) ). The tax is computed as a percentage of "gross receipts" ( 35 ILCS 120/2–10 (West 2012) ), defined as the "total selling price" ( 35 ILCS 120/1 (West 2012) ). The retailer making the sale is responsible for remitting the tax to the Department. Kean , 235 Ill. 2d at 363, 336 Ill.Dec. 1, 919 N.E.2d 926. We are concerned here with the refund provisions of the ROTA.

¶ 3 PRINCIPAL STATUTE AND ADMINISTRATIVE PROVISION

¶ 4 Section 6 of the ROTA, which governs issuance of credit memoranda or refunds of ROTA tax payments, provides in pertinent part:

"If it appears, after claim therefor filed with the Department, that an amount of tax or penalty or interest has been paid which was not due under this Act, whether as a result of a mistake of fact or an error of law, except as hereinafter provided, then the Department shall issue a credit memorandum or refund to the person who made the erroneous payment ***. *** If no tax or penalty or interest is due and no proceeding is pending to determine whether such person is indebted to the Department for tax or penalty or interest, the credit memorandum or refund shall be issued to the claimant; or (in the case of a credit memorandum) the credit memorandum may be assigned and set over by the lawful holder thereof, subject to reasonable rules of the Department, to any other person who is subject to this Act [or other specified tax acts]. ***

*** No credit may be allowed or refund made for any amount paid by or collected from any claimant unless it appears (a) that the claimant bore the burden of such amount and has not been relieved thereof nor reimbursed therefor and has not shifted such burden directly or indirectly through inclusion of such amount in the price of the tangible personal property sold by him or her or in any manner whatsoever; and that no understanding or agreement, written or oral, exists whereby he or she or his or her legal representative may be relieved of the burden of such amount, be reimbursed therefor or may shift the burden thereof; or (b) that he or she or his or her legal representative has repaid unconditionally such amount to his or her vendee (1) who bore the burden thereof and has not shifted such burden directly or indirectly, in any manner whatsoever; (2) who, if he or she has shifted such burden, has repaid unconditionally such amount to his own vendee; and (3) who is not entitled to receive any reimbursement therefor from any other source than from his or her vendor, nor to be relieved of such burden in any manner whatsoever. No credit may be allowed or refund made for any amount paid by or collected from any claimant unless it appears that the claimant has unconditionally repaid, to the purchaser, any amount collected from the purchaser and retained by the claimant with respect to the same transaction under the Use Tax Act.

* * *

If a retailer who has failed to pay retailers' occupation tax on gross receipts from retail sales is required by the Department to pay such tax, such retailer, without filing any formal claim with the Department, shall be allowed to take credit against such retailers' occupation tax liability to the extent, if any, to which such retailer has paid an amount equivalent to retailers' occupation tax or has paid use tax in error to his or her vendor or vendors of the same tangible personal property which such retailer bought for resale and did not first use before selling it, and no penalty or interest shall be charged to such retailer on the amount of such credit. However, when such credit is allowed to the retailer by the Department, the vendor is precluded from refunding any of that tax to the retailer and filing a claim for credit or refund with respect thereto with the Department. The provisions of this amendatory Act shall be applied retroactively, regardless of the date of the transaction." 35 ILCS 120/6 (West 2012).

¶ 5 The applicable administrative regulation promulgated by the Department ( 86 Ill. Adm. Code 130.1960 (2000) ) purports to govern ROTA tax liability and tax relief for "lending agencies," "installment sales," and "bad debts," addressing each in separate subsections.¹ The issue in this appeal concerns eligibility for tax relief on account of bad debts. Hence, we consider here subsection (d), relating to "bad debts." Subsection (d), titled "Bad Debts," provides:

"1) In case a retailer repossesses any tangible personal property and subsequently resells such property to a purchaser for use or consumption, his gross receipts from such sale of the repossessed tangible personal property are subject to Retailers' Occupation Tax. He is entitled to a bad debt credit with respect to the original sale in which the default has occurred to the extent to which he has paid Retailers' Occupation Tax on a portion of the price which he does not collect, or which he is not permitted to retain because of being required to make a repayment thereof to a lending agency under a 'with recourse' agreement. Retailers of tangible personal property other than motor vehicles, watercraft, trailers and aircraft that must be registered with an agency of this State may obtain this bad debt credit by taking a deduction on the returns they file with the Department for the month in which the federal income tax return or amended return on which the receivable is written off is filed, or by filing a claim for credit [as] provided in subsection (d)(3) of this Section. Because retailers of motor vehicles, watercraft, trailers and aircraft do not pay Retailers' Occupation Tax to the Department on retail sales of motor vehicles, watercraft, trailers, and aircraft with monthly returns, but remit the tax to the Department on a transaction by transaction basis, they are unable to take a deduction on the returns that they file with the Department, but may file a claim for credit with the Department, as provided in subsection (d)(3), on any transaction with respect to which they desire to receive the benefit of the repossession credit.

2) Retailers who incur bad debt on any tangible personal property that is not repossessed may also obtain bad debt credit as provided in subsections (d)(1) and (3).

3) In the case of tax paid on an account receivable that becomes a bad debt, the tax paid becomes a tax paid in error, for which a claim for credit may be filed in accordance with Section 6 of the Retailers' Occupation Tax Act, on the date that the Federal income tax return or amended return on which the receivable is written off is filed." 86 Ill. Adm. Code 130.1960(d) (2000).

¶ 6 BACKGROUND

¶ 7 Departmental Proceedings

¶ 8 Citibank's claim was submitted to the Department's administrative law judge (ALJ) on stipulated facts. In the parties' stipulations, Citibank's business relationship with the pertinent Illinois retailers was explained as follows.

¶ 9 Citibank provided sales financing programs to numerous retailers in Illinois. As part of their normal business practice, the retailers offered customers the option of financing their purchases, including the amount of Illinois tax due on the purchases. Citibank would originate or acquire consumer charge accounts and receivables from the retailers on a non-recourse basis.² When a customer financed a purchase using the consumer's account, Citibank remitted to the retailer the amount the customer financed. That amount included some or all of the purchase price, depending upon whether the customer financed the entire purchase or only a portion of the purchase, and the amount of the tax owed based on the selling price of the property purchased. "The retailers then remitted the complementary amount of the [ROTA] tax they owed to the State for each transaction."

¶ 10 Under the agreements between Citibank and the retailers, Citibank acquired "any and all applicable contractual rights relating thereto, including the right to any and all payments from the customers and the right to claim Retailer's Occupation Tax (ROT) refunds or...