Alerts and Updates

Federal Court Dismisses Illinois Consumer Fraud Act Case for Alleged Overcollection of Illinois Sales Tax

December 8, 2016

The court found that the store’s interpretation of the regulations was likely more correct than the plaintiff’s, or at least was reasonable, and that a consumer fraud act violation cannot be maintained against a business following the regulations or taking a reasonable interpretation of the regulations. 

On December 5, 2016, in Bartolotta v. Dunkin’ Brands Group, Inc. et al., 16 CV 4137, Judge Thomas Durkin of the U.S. District Court for the Northern District of Illinois ruled that a Dunkin’ Donuts franchise in Illinois that collected a high rate of sales tax (6.25 percent plus applicable local tax) on sales of coffee bags, rather than the low rate of tax (1 percent plus applicable local tax), did not violate the Illinois Consumer Fraud and Deceptive Business Practices Act nor was it negligent misrepresentation. Basically, the franchise store followed the Illinois Department of Revenue regulations on food sales, and based on the store’s interpretation of these regulations, collected and remitted the high rate of tax. The plaintiff challenged that interpretation, as well as whether the regulations clearly reflected Illinois law. The court found that the store’s interpretation of the regulations was likely more correct than the plaintiff’s, or at least was reasonable, and that a consumer fraud act violation cannot be maintained against a business following the regulations or taking a reasonable interpretation of the regulations. 

The U.S. District Court for the Northern District of Illinois also observed that if the store had not collected the high rate of tax and was later determined to be wrong, it would have to pay the difference to the state. As a result, the court stated: “It is simply not fraud or an unfair business practice for the Store to follow this conservative practice, even if the Store’s interpretation of the regulation is incorrect and the lower 1% tax could have been imposed.” Notably, the court also suggested that because the plaintiff voluntarily paid the tax, the voluntary payment doctrine could have barred the claim.

[Note: Duane Morris represented the Dunkin Donuts franchise store in the case discussed in this Alert.]

For Further Information

If you would like more information on how this may affect your company, please contact Stanley R. Kaminski, any other member of the State and Local Tax Practice Group or the lawyer in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.