What was the tax dispute between Arlington Heights and Rolling Meadows about?

The dispute centered around nearly USD 1.1 million in sales tax that was mistakenly allocated to Rolling Meadows instead of Arlington Heights between 2011 and 2020.

How did the Illinois Department of Revenue (IDOR) contribute to the sales tax misallocation?

The IDOR incorrectly registered Cooper’s Hawk Winery and Restaurants as a business located in Rolling Meadows for tax purposes, causing the misallocation of sales tax revenues.

What was the outcome of the Illinois Supreme Court’s ruling?

The Illinois Supreme Court ruled that the first-instance court correctly dismissed Arlington Heights' complaint, stating that the IDOR has exclusive jurisdiction to resolve sales tax misallocation disputes.

How much money was involved in the sales tax misallocation between the two municipalities?

The misallocated sales tax amounted to nearly USD 1.1 million, which Arlington Heights sought to recover from Rolling Meadows.

What did the Illinois Department of Revenue do after Arlington Heights reported the error?

The IDOR corrected the taxable location code, ensuring future taxes were credited to Arlington Heights, but only reimbursed USD 109,000 and directed Arlington Heights to seek reimbursement from Rolling Meadows.

What lessons can municipalities learn from this sales tax dispute case?

Municipalities should regularly verify business registrations and promptly report discrepancies to the Tax Authority to avoid lengthy and complicated tax disputes.

Illinois Supreme Court Resolves Sales Tax Allocation Dispute Between Arlington Heights and Rolling Meadows

The Illinois Supreme Court settled an interesting case regarding the tax allocation dispute between the Village of Arlington Heights and the City of Rolling Meadows. The case revolves around the wrongly allocated sales tax of nearly USD 1.1 million to the City of Rolling Meadows instead of the Village of Arlington Heights between 2011 and 2020.

Facts of the Case and the Supreme Court Decision

Cooper’s Hawk Winery and Restaurants (Cooper’s Hawk) registered its business in 2011 in Arlington Heights with the Illinois Department of Revenue (IDOR). However, the IDOR incorrectly registered that it belonged to Rolling Meadows for tax purposes. Moreover, throughout 2011, the IDOR sent all the reports and listing to Arlington Heights and Rolling Meadows, where the Cooper’s Hawk was listed as allocated within the borders of Rolling Meadows.

Since none of the municipalities noticed the mistake and did not notify the IDPR of it, the IDOR determined the information as correct and continued to tax Cooper’s Hawk as if it were located in Rolling Meadows.

However, in 2020, Arlington Heights noticed the mistake and notified the IDOR, stating that from 2011 to 2020, Cooper’s Hawk’s tax revenues were nearly USD 1.1 million. Although the IDOR changed the code for taxable persons' location, ensuring that all subsequent taxes would be credited to Arlington Heights, it reimbursed only USD 109,000. Additionally, the IDOR directed Arlington Heights to ask Rolling Meadows for agreement-based reimbursement.

Because the two municipalities could not agree, Arlington Heights filed a complaint against Rolling Meadows regarding the misallocated tax revenue and requested reimbursement. The first-instance Court ruled in favour of Rolling Meadows, but the Appellate Court reversed the ruling. Due to this outcome, Rolling Meadows petitioned before the Illinois Supreme Court.

After carefully analysing all the facts of the case and relevant case law, the Illinois Supreme Court concluded that the first-instance court correctly dismissed the complaint, stating that IDOR has exclusive jurisdiction to determine sales tax misallocation disputes.

Conclusion

The case showcases how complicated settling a tax dispute between municipalities can be, underlining the importance of administrative procedure and competent bodies' due diligence. Moreover, the factual situation and the dispute's outcome warn municipalities to regularly verify business registrations and promptly report any discrepancies to the Tax Authority.

Although the case primarily involves a dispute between two municipalities, it has crucial implications for taxable persons, serving as a reminder to ensure their registration details are accurate and up to date.

Source: Illinois Supreme Court - 2025 IL 130461, Bloomberg