Kean v. Wal-Mart Stores, Inc.

• Decision Date: 19 November 2009
• Docket Number: No. 107771.,107771.
• Citation: 919 N.E.2d 926,235 Ill.2d 351
• Parties: Nancy KEAN, Appellant (Chip Russell, Intervenor-Appellant), v. WAL-MART STORES, INC., et al., Appellees (Illinois Department of Revenue et al., Intervenors-Appellees).
• Court: Illinois Supreme Court

919 N.E.2d 926

235 Ill.2d 351

Nancy KEAN, Appellant (Chip Russell, Intervenor-Appellant), v. WAL-MART STORES, INC., et al., Appellees (Illinois Department of Revenue et al., Intervenors-Appellees).

No. 107771.

Supreme Court of Illinois.

November 19, 2009.

Aron D. Robinson, Lance A. Raphael, Stacy M. Bardo and Allison A. Krumhorn, all of Chicago, for appellant.

Arthur M. Scheller III and John A. Simon, of Drinker Biddle & Reath LLP, Chicago, for appellees.

Lisa Madigan, Attorney General, Springfield (Michael A. Scodro, Solicitor General, and Brett E. Legner, Assistant Attorney General, Chicago, of counsel), for intervenors-appellees.

OPINION

Chief Justice FITZGERALD delivered the judgment of the court, with opinion.

At issue in this appeal is whether shipping charges for certain internet purchases of tangible personal property are subject to Illinois sales tax pursuant to the Retailers' Occupation Tax Act (ROTA) (35 ILCS 120/1 et seq. (West 2006)) and Use Tax Act (35 ILCS 105/1 et seq. (West 2006)). We hold that they are and therefore affirm the judgment of the appellate court affirming the dismissal of plaintiffs' complaints. 387 Ill.App.3d 262, 326 Ill.Dec. 199, 899 N.E.2d 416.

BACKGROUND

On October 12, 2006, plaintiff Nancy Kean filed a putative multistate class action lawsuit in the circuit court of Cook County against defendants Wal-Mart Stores, Inc., Wal-Mart.com, U.S.A., LLC, and Wal-Mart Associates, Inc. (collectively, Wal-Mart). Kean alleged that on September 9, 2006, she purchased a trampoline through Wal-Mart's internet store at www.walmart.com. The price of the trampoline was $23.33, shipping charges were $7.97, and sales tax was $2.74, bringing Kean's order total to $34.04, which Kean paid on line with a credit card. Kean alleged that rather than assessing sales tax on the cost of the trampoline alone, Wal-Mart also assessed sales tax on the shipping charges. Citing ROTA (35 ILCS 120/1 et seq. (West 2006)) and the Use Tax Act (35 ILCS 105/1 et seq. (West 2006)), Kean contended that Wal-Mart's imposition of sales tax on shipping charges was without statutory authority. According to documents attached to the complaint, after completing her internet purchase, Kean communicated with Wal-Mart by e-mail regarding the sales tax. Kean advised Wal-Mart that she "recently checked with the State of Illinois, and was told that it is not legal to charge tax on shipping." In its e-mail reply, Wal-Mart stated that it was required by law to charge and collect the tax.

Based on these allegations, Kean claimed, in count I, that Wal-Mart violated the Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq. (West 2006)). Kean sought, inter alia, actual damages on behalf of herself and a class consisting of all consumers who purchased an item from Wal-Mart and were charged sales tax on the shipping of that item "when such consumer resided in a state where the imposition of sales tax on shipping services is prohibited." In count II, Kean claimed that, to the extent Wal-Mart does not remit the improperly collected taxes to the taxing authority, Wal-Mart has been unjustly enriched. Kean sought a disgorgement order on behalf of herself and the class. In count III, Kean sought injunctive relief—the creation of a class protest fund into which Wal-Mart would deposit all sales tax on shipping charges it still held, as well as all sales tax on shipping charges it would collect in the future, until a determination of the merits of the lawsuit was made. Kean also sought a permanent injunction enjoining Wal-Mart from collecting sales tax on shipping charges.

On November 3, 2006, Kean filed a motion for a temporary restraining order and preliminary injunctive relief, seeking the creation of the protest fund described in her complaint. Kean argued that injunctive relief was necessary because, under Illinois law, once Wal-Mart remits the collected taxes to the state, the class members will have no recourse; the disputed tax funds will be outside of their reach. In response to Kean's motion, Wal-Mart maintained that it had, in fact, already remitted to the State of Illinois any sales tax collected during September 2006, including any sales tax Kean paid on her trampoline purchase. Wal-Mart provided a supporting affidavit from its senior tax manager, explaining that taxes Wal-Mart collects are remitted to the State on the twentieth day of the month following the month the tax is charged. Thus, the taxes Kean was charged on her September 9 purchase were remitted by Wal-Mart on October 20. Wal-Mart also argued that injunctive relief was not warranted because Kean had not demonstrated a likelihood of success on the merits. Wal-Mart maintained that the delivery of the trampoline to Kean was an inseparable link in the chain of events leading to completion of the sale. As such, the shipping charges were part of the "selling price" of the trampoline and properly included in Wal-Mart's taxable "gross receipts" under ROTA (35 ILCS 120/2-10 (West 2006)). Finally, Wal-Mart argued that Kean had failed to follow the statutory guidelines for creation of a protest fund. See 30 ILCS 230/2a, 2a.1 (West 2006).

On November 14, 2006, the circuit court denied Kean's motion for a temporary restraining order "for the reasons stated in open court." A transcript of the hearing on Kean's motion and the circuit court's oral ruling has not been made a part of the record on appeal.

Wal-Mart filed a combined motion to dismiss Kean's complaint pursuant to section 2-619.1 of the Code of Civil Procedure (Code) (735 ILCS 5/2-619.1 (West 2006)). Wal-Mart argued that count I should be dismissed with prejudice under section 2-615 of the Code (735 ILCS 5/2-615 (West 2006)) because Wal-Mart had a legal obligation to collect the sales tax and thus Kean cannot plead any set of facts entitling her to relief under the Consumer Fraud Act. As to count II, Wal-Mart argued for dismissal under section 2-619(a)(9) of the Code (735 ILCS 5/2-619(a)(9) (West 2006)) because, as evinced by the affidavit of Wal-Mart's senior tax manager, the sales tax at issue had already been remitted to the state and thus Wal-Mart cannot have been unjustly enriched. Finally, Wal-Mart argued that count III should be dismissed with prejudice pursuant to section 2-615 of the Code because Kean cannot allege any facts entitling her to injunctive relief since Wal-Mart properly collected and remitted the sales tax.

Prior to the disposition of Wal-Mart's dismissal motion, the Illinois Department of Revenue (Department) and then State Treasurer, Judy Baar Topinka, filed a motion to intervene as party defendants (see 735 ILCS 5/2-408(a)(2), (a)(3) (West 2006)), and for leave to file a motion to dismiss Kean's complaint. The circuit court granted both motions.¹ In its dismissal motion, filed under section 2-619(a)(9) of the Code (735 ILCS 5/2-619(a)(9) (West 2006)), the Department argued that Kean failed to follow the statutory procedures for creation of a protest fund and recovery was therefore barred under Illinois' voluntary payment doctrine.

In response to Wal-Mart's dismissal motion, Kean argued that, in line with the majority of private letter rulings and general information letters issued by the Department, as well as its own regulations, the shipping charges for her internet purchase were separately agreed upon and were not part of Wal-Mart's "selling price" or "gross receipts" on which the sales tax is properly assessed. See 35 ILCS 105/2, 3-10 (West 2006); 35 ILCS 120/1, 2-10 (West 2006); 86 Ill. Adm.Code §§ 130.410, 130.415 (2009). Though recognizing that Wal-Mart had not filed a summary judgment motion, Kean nonetheless filed a supporting affidavit detailing her internet purchase. As summarized in Kean's response to Wal-Mart's dismissal motion, Kean's internet purchase proceeded as follows:

"First, [Kean] selected the product at a listed price of $23.33. Next, [Kean] clicked a button agreeing to add the item to `her electronic shopping cart.' Upon reviewing her cart, [Kean] was provided a subtotal, from which she could proceed to `checkout.' At `checkout,' [Kean] was first presented with the option of selecting the destination for her package. After agreeing to a destination, [Kean] was presented with three different options for shipping, while the purchase price remained the same. In other words, none of the three different `ascertainable delivery charges' affected the price of the product. The options were to pay for `standard shipping,' * * *, `2-3 day shipping,' * * *, or `1-day shipping,' * * *, all [of] which Wal-Mart represented were the actual costs of shipping.

[Kean] selected the standard delivery option * * *, at which time [Kean] agreed to pay for UPS to deliver the product purchased from Wal-Mart to her * * * home. * * * [Kean] was supplied with a link to a UPS tracking number. When accessed, the link directs the consumer to the UPS tracking site." (Emphasis in original.)

Kean claimed she was overcharged 69.7 cents in sales tax on this transaction.

In her separate response to the Department's dismissal motion, Kean argued that her payment of the sales tax to Wal-Mart was not voluntary. Although Kean argued that the statutory procedure for creation of a protest fund did not apply to her, she nonetheless maintained that she reasonably complied with the statute.

Prior to the circuit court's consideration of the dismissal motions, Chip Russell, a resident of Cook County, filed a petition to intervene as a party plaintiff. See 735 ILCS 5/2-408(a)(2), 2-804(a) (West 2006). In his petition, Russell alleged that on December 5, 2006, he purchased a Leapfrog Leapster Learning System from Wal-Mart's internet store, www.walmart.com, and that Wal-Mart improperly charged him sales tax on the cost of shipping. Based on this purchase, Russell claimed to be a member of Kean's proposed class. Russell argued that his petition should be granted because Kean's...