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jurisdiction. 3. Savanna’s reported sales tax situs violates Illinois statutory law because none of

the retailers’ actual “business of selling” in this state occurs within Savanna. In reality, the Retailers conduct their business of selling within the RTA’s taxing jurisdiction in Schaumburg, Illinois. The Retailers thus enjoy the benefits of the RTA’s transportation services in Schaumburg without contributing their fair share of sales taxes—all at great expense to the citizens and law abiding taxpayers living and doing business there. This scheme deprives the RTA of its portion of sales tax revenues necessary to fund its continued operations. 4. A recent Illinois Supreme Court case, Hartney Fuel Oil Company, et al. v. Hamer, et

al., 2013 IL 115130, ¶ 36, 998 N.E.2d 1227, Ill. 2013 (“Hartney”), reaffirmed that “the business of selling” under local retailers’ occupation taxes (“local ROT Acts”) is a fact-intensive “composite of many activities” and the legislative intent for enacting local ROT Acts was “to allow local jurisdictions to tax the composite of selling activities taking place within their jurisdictions, collecting taxes in relation to services enjoyed by the retailer.” The Hartney decision invalidated the Illinois Department of Revenue’s (“IDOR’s”) rules governing retailers’ occupation taxes imposed by local jurisdictions. 5. In the wake of Hartney, the IDOR issued emergency rules on January 22, 2014,

which declare that mere retail order acceptance does not by itself constitute “the business of selling” for taxing purposes (“the Rules”). A copy of the Rules is attached as “Exhibit A,” 86 Ill. Adm. Code §320.115 (amended by emergency rulemaking at 38 Ill. Reg. ____, effective Jan. 22, 2014 for a maximum of 150 days). The Rules set forth guidance on the application of Hartney’s “composite of selling activities test” in various circumstances. The Rules list nine factors that are

2

to be used to determine whether a seller is engaged in the business of selling in a particular Illinois taxing jurisdiction. Id. at §320.115(c)(1)-(3). According to the Rules, each of these factors must be viewed in light of the overarching principle that “the retailer incurs local retailers’ occupation tax in the jurisdiction where it ‘enjoyed the greater part of governmental protection [and] benefitted by being conducted under that protection.’” Id. at §320.115(c)(4)(A). 6. for 40 years. 7. On March 5, 2014, attorneys for the RTA sent a letter to the Retailers by certified The practices complained of herein violate an Illinois law that has been in place

mail, fax, and e-mail advising that the RTA had reason to believe that the Retailers were engaging in selling activities within the RTA’s jurisdiction. The letter requested specific information relating to the Retailers’ operations in the State of Illinois so the RTA could assess whether the RTA was receiving all of the tax revenue to which it was entitled. A copy of the letter is attached as Exhibit B.” 8. The letter specifically stated that it was sent in an attempt to avoid litigation and

that if there was no response by March 13, 2014, the RTA would take the necessary actions to protect its rights. The letter invited a call to the RTA’s attorneys to discuss the matter. As of the time of filing this complaint, neither of the Retailers has contacted the RTA or its attorneys in response to the March 5, 2014 letter. 9. This action is brought to require the Defendant Retailers to pay taxes in the

proper jurisdiction, to recover statutory damages from the Defendant municipality, and to obtain appropriate and full monetary and equitable relief from all of the Defendants.

3

PARTIES 10. The RTA is a special purpose unit of local government and municipal corporation

created by Illinois law. The RTA’s primary responsibility is the financial and budget oversight of the Chicago Transit Authority, the Commuter Rail Division of the RTA (Metra), the Suburban Bus Division of the RTA (Pace), and regional transit planning initiatives. The RTA is the third largest public transportation system in North America, providing more than two million rides per day, and its system covers 7,200 route miles in a six-county region with a population of approximately eight million people. The six counties comprising the RTA’s taxing jurisdiction are Cook, DuPage, Kane, Lake, McHenry, and Will. The RTA is funded, in part, through the Regional Transportation Authority Retailers’ Occupation Tax pursuant to the Regional Transportation Authority Act (“the RTA Act”), 70 ILCS 3615/4.03(e). 11. Defendant Savanna is a non-home rule municipal corporation located in Carroll

County, Illinois. 12. Defendant Palatine Oil is a retail fuel, oil and lubricant distributor. It is an Illinois

corporation with a main retail location at 900 National Parkway, Suite 260, Schaumburg, Cook County, Illinois 60173 and other locations within the RTA’s taxing jurisdiction. Palatine Oil provides its customers with on-site bulk delivery of motor fuels, as well as oil, lubricants and fuel storage equipment. Upon information and belief, Palatine Oil is a wholly owned subsidiary of Rabine Group. 13. Defendant Rabin Group is, upon information and belief, a privately-held Illinois

holding company composed of Palatine Oil and a number of limited liability companies, including: Rabine Paving American, LLC; Rabine Paving, LLC; Rabine Sealco LLC; Rabine Utility

4

Pavements, LLC; Rabine Snow Pros LLC; Rabine Power Performance LLC; and Crawford Roofing Experts, LLC. Rabine Group claims to be a local, regional, and national provider of commercial paving, commercial roofing, industrial flooring, fuel, and oil distribution services. It maintains corporate offices and/or retail facilities at 900 National Parkway, Suite 260, Schaumburg, Cook County, Illinois 60173. JURISDICTION AND VENUE 14. This Court has jurisdiction over the Defendants pursuant to 735 ILCS 5/2-209

because they are residents of, and transact business within, the State. 15. Venue is proper in the Circuit Court of Cook County pursuant to 735 ILCS 5/2-

101, 5/2-102, and 5/2-103 because it is the county where the Defendants’ activities described herein inflicted damage, and because it is the county in which all or part of the transaction giving rise to the causes of action described herein occurred. FACTUAL ALLEGATIONS Sales Tax Background 16. Illinois’ sales tax is imposed upon retailers at a rate of 6.25% pursuant to the

Illinois Retailers’ Occupation Tax, 35 ILCS 120/1 et seq. Municipalities receive a “Local Share” of the statewide 6.25% tax, which presently equals 1.0% of the sale price. See 35 ILCS 120/3; 30 ILCS 105/6z-18. The State also authorizes home rule county governments, home rule municipal governments, and the RTA to impose their own local retailers’ occupation taxes through the Home Rule County Retailers’ Occupation Tax Law (55 ILCS 5/5-1006), the Home Rule Municipal Retailers’ Occupation Tax Act (65 ILCS 5/8-11-1), and the RTA Act (together referred to as the “local ROT Acts”).

5

17.

The local ROT Acts allow these government entities to levy retail occupation taxes

“upon all persons engaged in the business of selling tangible personal property” at retail within the county, municipality, or metropolitan region. 55 ILCS 5/5-1006; 65 ILCS 5/8-11-1; 70 ILCS 3615/4.03(e). 18. The RTA Act contains a statement of legislative purpose, describing public

transportation as an “essential public purpose” as follows: There is an urgent need to reform and continue a unit of local government to assure the proper management of public transportation and to receive and distribute State or federal operating assistance and to raise and distribute revenues for local operating assistance. System generated revenues are not adequate for such service and a public need exists to provide for, aid and assist public transportation in the northeastern area of the State, consisting of Cook, DuPage, Kane, Lake, McHenry and Will Counties. 70 ILCS 3615/1.02(a)(i). 19. The Illinois Supreme Court recently made clear the legislative intent of the RTA

Act: “such taxes are to be collected in part because the revenues generated by public transportation are insufficient to support that ‘essential public purpose’ in Cook, DuPage, Kane, Lake, McHenry, and Will Counties.” Hartney, 2013 IL 115130, ¶ 29, 998 N.E.2d 1227, 1236 Ill. 2013. 20. The RTA Act thus imposes a sales tax upon the business of selling in the

aforementioned six counties comprising the Chicago metropolitan region and RTA’s taxing jurisdiction. 70 ILCS 3615/4.03(e). 21. The State of Illinois, by law, also provides to the RTA additional annual funding

equal to 30% of its sales tax revenue as a match on sales made in the six-county RTA region. See,

6

e.g., 70 ILCS 3615/4.03. 22. In Illinois, the location of “the business of selling” determines which local

governmental units receive the local share of the statewide tax on retail sales. Thus, municipalities are highly motivated to attract retailers to their communities to garner the resulting sales tax revenue. 23. The IDOR collects all sales taxes paid by retailers and remits to local government

units their respective shares. Sales Tax Schemes and the 2004 Statutory Change 24. In an attempt to take advantage of different municipalities’ combined sales tax,

certain municipalities, brokers, and/or retailers, beginning as early as 2000, attempted to make it appear that sales transactions occurred in lower-taxed jurisdictions when, in fact, they took place in other, higher-taxed jurisdictions. These brokers and retailers asserted that the situs of the retailers’ sales should be at the location of purported “sale acceptance,” even if the retailers’ “business of selling” occurred elsewhere. The entities opened sham “sales offices” in low tax areas while the subject retailers actually conducted their predominant selling activity in highertaxed locales. 25. In light of the prevalence of such kickback schemes and the harm they caused to

municipal corporations, the Illinois legislature took action. The General Assembly passed a statute prohibiting certain retailers and municipalities from entering into retail sales tax rebate agreements after June 1, 2004 where such agreements deprived other government units of sales tax revenue. 65 ILCS 5/8-11-21 (the “2004 Statute”). Said statute recites in part:

7

Sec. 8-11-21. Agreements to share or rebate occupation taxes. (a) On and after June 1, 2004, the corporate authorities of a municipality shall not enter into any agreement to share or rebate any portion of retailers' occupation taxes generated by retail sales of tangible personal property if: (1) the tax on those retail sales, absent the agreement, would have been paid to another unit of local government; and (2) the retailer maintains, within that other unit of local government, a retail location from which the tangible personal property is delivered to purchasers, or a warehouse from which the tangible personal property is delivered to purchasers. Any unit of local government denied retailers' occupation tax revenue because of an agreement that violates this Section may file an action in circuit court against only the municipality. Any agreement entered into prior to June 1, 2004 is not affected by this amendatory Act of the 93rd General Assembly. Any unit of local government that prevails in the circuit court action is entitled to damages in the amount of the tax revenue it was denied as a result of the agreement, statutory interest, costs, reasonable attorney's fees, and an amount equal to 50% of the tax. 26. This statute is intended to prohibit one jurisdiction from “poaching” retailers from

another for sales tax purposes utilizing tax rebates, while the former jurisdiction still retains a retail or warehouse location from which tangible personal property is delivered to purchasers. 27. Despite said statute, some retailers and brokers entered into tax rebate

agreements directly with low-tax municipalities even after the effective date of the 2004 statute. 28. Many of the said retailers are located within the RTA’s taxing jurisdiction and/or

deliver their retail products to customers from retail or warehouse locations within the RTA’s taxing jurisdiction where the retailers engage in the business of selling, and their sales are or should be subject to the RTA’s sales taxes. 29. As a direct result, the RTA is deprived of significant sales tax revenue. Economic Incentive Agreement Between Savanna and Palatine Oil 30. In the case at issue in this complaint, Palatine Oil, which is located within the

higher-taxing community of Schaumburg, entered into a contract called an “Economic Incentive

8

Agreement” (“EIA”) with the lower-taxing municipality of Savanna. A copy of the EIA is attached as “Exhibit C.” 31. The community of Schaumburg is located within the RTA’s taxing jurisdiction. Its

combined sales tax rate is 9.00%, whereas Savanna’s combined sales tax rate is only 6.50%. 32. Pursuant to the EIA, Palatine Oil opened a small “sales office” in Savanna which

commenced operations on or about May 1, 2008. Although the “sales office” was described in the EIA as Palatine Oil’s “principal corporate business and sales office,” this was a fiction. See Exhibit C, Section 3. This “sales office” in Savanna had little, if any, decision-making authority and did not conduct the “business of selling.” 33. In return for Palatine Oil’s establishment of its sham “sales office,” Savanna

agreed to pay Palatine Oil a rebate of thirty-six percent (36%) of the sales tax revenue paid to it by the IDOR for the purported “sales” conducted by Palatine Oil at its sham “sales office.” Exhibit C, Section 4, ¶ (A). 34. Palatine Oil and Savanna realized significant financial benefits from this

arrangement. Palatine Oil paid a lower sales tax rate than it would have paid in Schaumburg and also received substantial compensation from Savanna’s sales tax rebate (all without truly changing its operations in any material fashion). At the same time, Palatine Oil required virtually no municipal services for its small “sales office” in Savanna, since its primary sales operations and staff where it actually engaged in the business of selling remained within RTA’s taxing jurisdiction. 35. Savanna received an unjustified windfall in sales tax revenue without incurring the

expense of providing municipal services to Palatine Oil.

9

36.

Meanwhile, the RTA, the Village of Schaumburg and Cook County were left with

the burden of continuing to provide services to Palatine Oil and its employees without receiving the sales taxes necessary and appropriate to support such services. The Hartney Decision and Emergency Rulemaking 37. The Illinois Supreme Court in Hartney Fuel Oil Company v. Hamer, 2013 IL

115130, 998 N.E.2d 1227, Ill. 2013 analyzed the question of the proper situs for sales tax liability under the local ROT Acts. In its November 21, 2013 decision, the court concluded that the location of the “business of selling” under the local ROT Acts is a fact-intensive composite of many activities. Hartney, 21013 IL 115130 at ¶36. 38. With this principle in mind, the Supreme Court examined the administrative

regulations governing situs of the local ROT Acts, namely the “Jurisdictional Questions” sections found in the regulations pertaining to home rule counties (86 Ill. Adm. Code §220.115), home rule municipalities (§270.115), and the RTA (§320.115). The court found that these regulations erroneously treated the situs of sellers’ acceptance of purchase orders or other contracting actions as “the most important single factor” in determining the location of sales activity. Hartney, 2013 IL 115130 at ¶¶45-56. This treatment was inconsistent with the “fact-intensive composite of many activities” test mandated by the local ROT Acts and Supreme Court precedent and was thus “too inconsistent with the statutes and case law to stand.” Hartney, 21013 IL 115130 at ¶¶57-64. 39. On January 22, 2014 the IDOR issued the aforementioned Rules to replace the

“Jurisdictional Questions” regulations invalidated by the Hartney decision. Exhibit A, 86 Ill. Adm. Code §320.115 (amended by emergency rulemaking at 38 Ill. Reg. ____, effective Jan. 22, 2014 for

10

a maximum of 150 days). The Rules took effect upon issuance and are to be treated as law as of that date. 40. The Rules specifically declare that, with few exceptions, mere retail order

acceptance does not by itself constitute the “business of selling” under the local ROT Acts. See Exhibit A, 86 Ill. Adm. Code §320.115(b)(8)(A). They also provide guidance on the application of the Hartney “composite of selling activities test.” See Exhibit A, 86 Ill. Adm. Code §320.115(b)-(c). 41. For typical retailers, such as those conducting over-the-counter sales of tangible

personal property in which the purchaser takes possession of the property immediately or the seller ships the property to the purchaser from the location where the sale was made, the Rules dictate that the “business of selling” occurs “in the jurisdiction where the over-the-counter sale occurred.” Exhibit A, 86 Ill. Adm. Code §320.115(c)(2). 42. For sellers whose particular retail operations make determining sales tax situs

more difficult, the Rules set forth four “Primary Factors” and five “Secondary Factors” for determining the true location of the ”business of selling.” The Primary Factors are: A) the location of officers, executives and employees with discretion to negotiate on behalf of, and to bind, the seller; B) the location where offers are prepared and made; C) the location where purchase orders are accepted or other contracting actions that bind the seller to the sale are completed; and D) the location of inventory if tangible personal property that is sold is in the retailer’s inventory at the time of its sale or delivery. Exhibit A, 86 Ill. Adm. Code §320.115(c)(2). 43. The Rules caution that the Secondary Factors are only to be considered if the

Primary Factors fail to resolve the question of situs. Exhibit A, 86 Ill. Adm. Code §320.115(c)(3). The Secondary Factors are: A) the location where marketing and solicitation occur; B) the

11

location where purchase orders or other contractual documents are received when purchase orders are accepted, processed, or fulfilled in a location or locations different from where they area received; C) the location of the delivery of the property to the purchaser; D) the location where title passes; and E) the location of the retailer’s ordering, billing, accounts receivable and other administrative functions. Exhibit A, 86 Ill. Adm. Code §320.115(c)(3). 44. Pursuant to the Rules, determining sales tax situs must be performed in keeping

with the principle that “the retailer incurs local retailers’ occupation tax in the jurisdiction where it ‘enjoyed the greater part of governmental protection [and] benefitted by being conducted under that protection.’” Exhibit A, 86 Ill. Adm. Code §320.115(c)(4)(A). 45. It is clear that Hartney’s fact-intensive approach for determining the situs of “the

business of selling” controls application of the local ROT Acts.

CLAIM FOR LOST REVENUES UNDER 65 ILCS 5/8-11-21 (the 2004 Statute) The RTA v. Savanna 46. Count I. 47. Savanna entered into the aforesaid EIA with Palatine after the effective date of The RTA repeats and realleges paragraphs 1-45 above as paragraphs 1-45 of this

COUNT I

the 2004 Statute. 48. The actions of Savanna violated the 2004 Statute because: a. Absent the agreement, Palatine Oil and its parent, Rabine Group, would not have paid and would not be paying sales taxes in Savanna but would have paid or be paying taxes in one or more of the municipalities contained within the RTA’s taxing jurisdiction; and On information and belief, Palatine Oil and Rabine Group maintain retail or warehouse locations within the RTA’s taxing jurisdiction from which tangible personal property is delivered to purchasers.

b.

12

49.

By reason thereof, the RTA has and is suffering loss and Savanna is liable to the

RTA for damages in the amount of the tax revenue it was denied as a result of the said EIA, statutory interest, costs, reasonable attorney’s fees, and an amount equal to fifty percent of the lost tax consistent with 65 ILCS 5/8-11-21. 50. The RTA does not know the exact amount of sales tax received by Savanna and

thus denied to the RTA from the said EIA. However, such sums shall be determined in the course of discovery in this case. WHEREFORE, the Plaintiff, the REGIONAL TRANSPORTATION AUTHORITY, requests this Court to enter judgment in its behalf and against the CITY OF SAVANNA, for an amount equal to the amount of tax revenue each was denied as a result of said violation of 65 ILCS 5/8-11-21, plus statutory interest, costs, reasonable attorney’s fees and an amount equal to fifty percent of such lost tax, and for such other and further relief as the Court deems proper.

CLAIM FOR DAMAGES AND EQUITABLE RELIEF (post-Hartney decision) The RTA v. Savanna, Palatine Oil and Rabine Group 51. Count II. 52. Savanna entered into an EIA with Palatine Oil. The activity conducted by Palatine The RTA repeats and realleges paragraphs 1-45 above as paragraphs 1-45 of this

COUNT II

Oil in Savanna under the EIA purportedly consists of accepting sales purchase orders and possibly other minor related activities. Such actions do not constitute the business of selling by the retailer pursuant to Hartney, 2013 IL 115130, 998 N.E.2d 1227, Ill. 2013, and the Rules. 53. Due to the EIA, the Retailers, on information and belief, misreported tax situs.

They reported Savanna as the situs of Palatine Oil’s tax sales when in fact the business of selling 13

occurred within the RTA’s taxing jurisdiction. 54. An actual controversy exists between RTA, on the one hand, and Savanna,

Palatine Oil and Rabine Group, on the other hand, and therefore by the terms and provisions of 735 ILCS 5/2-701 of the Illinois Code of Civil Procedure, this Court is vested with the power to declare the rights and liabilities of the parties hereto and to give such other and further relief as may be necessary and proper. WHEREFORE, the Plaintiff, the REGIONAL TRANSPORTATION AUTHORITY, prays this Court adjudicate the rights of the parties with respect to the activities conducted at the office maintained by the Retailers in Savanna and: (a) find and declare that the activities conducted by the Retailers in Savanna do

not constitute the “business of selling” as defined by the Hartney decision and the Rules promulgated by the IDOR; (b) find and declare that the Retailers are engaged in the “business of selling,” as

defined by the Hartney decision and the Rules promulgated by the IDOR, within the RTA’s taxing jurisdiction; (c) (d) enjoin the Retailers from siting said retail sales to the City of Savanna; mandatorily enjoin the Retailers to site said sales for retail sales tax purposes

to the location where the Retailers conduct the “business of selling” within the RTA’s taxing jurisdiction; (e) (f) order an equitable accounting of the sales tax revenue at issue; enter judgment in favor of the RTA and against Defendants for sales taxes

lost to the RTA from the Retailers’ sales from such date as the Court deems proper;

14

(g) (h}

award Plaintiff its costs of suit; and grant such other and further relief as the Court deems proper. PLAINTIFF DEMANDS A TRIAL BY A JURY OF TWELVE (12) ON ALL COUNTS AND ISSUES TRIABLE BY A JURY. The REGIONAL TRANSPORTATION AUTHORITY, an Illinois special purpose unit of government and municipal corporation ~. B
Ii '~

Y~

HEYL, ROYSTER,~;V E R &ALLEN ~; Timothy L. Bertschy, ARDC #199931 John P. Heil, Jr., ARDC #62372$6 M a u ra Yusof, ARDC #6278767 Alex S. Ketay, ARDC #6313220 19 S. LaSa I I e Street, Suite 1203 Chicago, IL 6003 Telephone: 312.853.8710 Facsi m i I e: 312.782.0040 and 124 SW Adams Street, Suite 600 Peoria, IL 61602 Telephone: 309.676.0400 Facsimile: 309.676.3374 Cook County Firm No. 15683

15

IN THE CIRCUIT COURT 4F COOK COUNTY,ILLINOIS COUNTY DEPARTMENT, CHANCERY DIVISION The REGIONAL TRANSPORTATION AUTHORITY, an Illinois special purpose unit ) )

of government and municipal corporation, Plaintiff, vs.
The CITY OF SAVANNA, an Illinois non-home rule municipality, PALATINE OIL COMPANY, INC. and RABINE GROUP,

) } ) ) Case N o. }
) ) )

Defendants.

)

ILLINOIS SUPREME COURT RULE 222(b) AFFIDAVIT

Maura Yusof, having been duly sworn and upon oath, states as follows: 1. 2. I am competent to testify concerning the matters contained in this Affidavit. As attorney for the Plaintiff, I have reviewed the facts of this case and have determined the total amount of money damages sought exceeds fifty thousand dollars and 00/100 cents ($50,000.00).

aura Yu sof ~# 7 67 H EYL, ROYSTER, VOELKER &ALLEN 19 S. LaSalle Street, Suite 1203 Chicago, IL 6603 Telephone: 312.853.8710 AND SEND ALL PLEADINGS TO: H EYL, ROYSTER, VOELKER &ALLEN 124 SW Adams Street, Suite 600 Peoria, IL 61602 Telephone: 309.676.0440 Facsimile: 309.676.3374 Firm No. 15683

16

STATE OF ILLINOIS COUNTY OF COOK

) ss. ~

SUBSCRIBED AND SWORN to before me this ~ ~ da y of March, 2014.

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NOTARY PUBLIC

24597858 l.DOCX

NOTARY PIJBLlC -STATE OF fLLINQIS MY COMNl1SSIQN EXPIRES Q6-27-Z01~

OFFICIAL SEAL DAiIVN till. M I LLElR

17

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