In an effort to stop the unlawful practices of two neighboring towns, Cook County Board President Toni Preckwinkle was joined by Cook County State’s Attorney Anita Alvarez in announcing that the County has filed a twelve count complaint against the City of Kankakee, the Village of Channahon and three separate Retail Acceptance Brokers to stop a wrongful sales-tax kickback scheme.
The suit alleges that Kankakee and Channahon pretends that sales take place where the order is “received,” – often in a virtually empty office – even when the bulk of the transaction takes place somewhere else. These municipalities collect sales taxes based on these transactions, then kickback up to 85% of the proceeds to the retailers and brokers.
Preckwinkle says her administration is not going to let these schemes harm Cook County tax payers any longer.
“This type of practice by any municipality or government is fundamentally wrong and we are determined to protect the interests of Cook County and those businesses that are complying with the law,” President Preckwinkle said. “We are not going to tolerate any practice that harms taxpayers so we are taking our fight to the courts and deprives our County of resources. We are looking to the courts to grant us the remedies we are afforded under law.”
Every retail sale that is wrongfully sourced to Kankakee and Channahon hurts law-abiding businesses, and robs other local governments of their fair share of tax proceeds. When sales are wrongfully sourced, local governments don’t get their fair share of sales taxes, even though they incur the costs of the services, roads, and infrastructure that are utilized to support the business. Instead, towns where an order is “accepted” get the taxes, but don’t incur costs associated with the actual business. Businesses who pay their fair share of sales taxes see their prices unfairly undercut by those who source their sales to other regions.
State’s Attorney Anita Alvarez said her office is prepared to pursue this lawsuit and take whatever steps are necessary to stop these unlawful practices and ensure that retailers pay their fair share going forward.
As Cook County government struggles with its ongoing budget crisis, there is no better time for us to do everything within our power to ensure that we are capturing all possible sales tax revenues, Alvarez said. And it is important to send the message out today that we will be very diligent in our efforts.
The lawsuit concerns wrongful sales sourcing and kickback schemes, practices that were banned by the state legislature in 2004 because they are fundamentally unfair to law-abiding retailers and local governments.
It is nearly impossible to quantify the financial impact this has had on Cook County because Kankakee and Channahon continue to keep hidden what businesses have unlawfully benefited from the kickback scheme.
In implementing this scheme, Kankakee and Channahon have been supported by self-named “retail order acceptance brokers,” including MTS Consulting, Inspired Development and Minority Development who join the towns as Defendants in the lawsuit. Two of these retail order acceptance brokers are now being sued by local governments in California, for precisely the same reason.
The City of Chicago and the RTA have already filed similar lawsuits with Kankakee and Channahon. Cook County’s suit varies slightly with these because it addresses the region of Cook County as a whole.