2020 IL App (1st) 180855
Ill. App. Ct.2020Background
- Mid-City Parking, Inc. managed multiple Chicago lots including Broadway and Ohio; the City audited Mid-City for July 1, 2006–June 30, 2010 and assessed $461,307.88 for unpaid parking tax, interest, and penalty. A separate RO (responsible officer) assessment of $462,328.05 was issued to William Sommerfeld (Mid‑City’s president/RO).
- The City audited using a Test Period (judgmental sampling) method focused on three days in June 2010; Mid‑City refused to sign the audit election form and produced only summary sheets for June 2010, not detailed records for other months.
- The City’s auditor treated amounts labeled "rent" paid by valet services, restaurants, and other entities as consideration for parking and extrapolated an error percentage from June 2010 across the audit period; Mid‑City’s protest argued it was a landlord, not a parking‑lot operator.
- An ALO found the assessment correct (Mid‑City was an “operator” and Mid‑City failed to rebut the prima facie assessment with books/records); the circuit court reversed the ALO on audit‑methodology grounds. The City appealed.
- Separately, Sommerfeld claimed he lacked proper notice of the RO assessment; the ALO sided with him and dismissed the RO action for lack of notice, the circuit court reversed, and Sommerfeld appealed.
- The appellate court consolidated the matters: it reversed the circuit court and affirmed the ALO on the City’s appeal (upholding the assessment against Mid‑City), and it affirmed the circuit court and reversed the ALO on Sommerfeld’s appeal (finding notice/service to Sommerfeld sufficient).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Mid‑City is a parking‑lot “operator” under the Parking Tax Ordinance | City: Mid‑City is an operator because it received consideration for the parking of vehicles from renters | Mid‑City: Payments were rent to a landlord for space use, not taxable operator collections | Held: Mid‑City is an operator; evidence showed rent was paid by entities that used space for parking and Mid‑City received consideration for parking |
| Whether the City’s assessment was prima facie correct and who bore burden of proof | City: Assessment (admitted) is prima facie correct; burden shifted to Mid‑City to rebut with books/records | Mid‑City: Assessment speculative and based on flawed single‑month sample; overreporting suggests no unpaid tax | Held: Assessment prima facie correct under URPO; Mid‑City failed to rebut with documentary evidence; ALO’s finding affirmed |
| Whether the City’s failure to follow its Tax Audit Process (TAP) or audit methodology violated Mid‑City’s due process | Mid‑City: City’s deviation from TAP and use of single‑month Test Period deprived it of fair process | City: TAP was informal; Mid‑City forfeited/process arguments by not raising them in its written protest | Held: Mid‑City waived the TAP/due‑process claim by not raising it administratively; court declined to overturn ALO on that ground |
| Whether the City could seek RO liability before final resolution against Mid‑City and whether Sommerfeld received proper notice | Sommerfeld: URPO bars separate RO action until operator assessment is final; also he did not receive November RO notice | City: URPO permits RO assessments; notice via express mail to business address (Mid‑City’s address) was valid | Held: URPO does not require waiting for final adjudication of the operator before issuing RO assessment; express‑mail notice to the business address was valid and service proper; ALO erred on notice issue |
Key Cases Cited
- PPG Industries, Inc. v. Department of Revenue, 328 Ill. App. 3d 16 (2002) (taxpayer must produce corroborating records to rebut a tax assessment)
- Balla v. Department of Revenue, 96 Ill. App. 3d 293 (1981) (unsupported testimony insufficient to defeat assessment without records)
- Department of Revenue v. Heartland Investments, Inc., 106 Ill. 2d 19 (1985) (statutory scheme controls when officer liability is derivative of taxpayer liability)
- Jacobs v. City of Chicago, 53 Ill. 2d 421 (1972) (distinguishing ultimate incidence of tax from obligation to collect)
- Thompson v. Department of Employment Security, 399 Ill. App. 3d 393 (2010) (mail service not invalid merely because recipient denies receipt)
- Navarroli v. Department of Revenue, 170 Ill. App. 3d 355 (1988) (notice to business address listed on returns can be proper notice to responsible officer)
- White ex rel. Smith v. Apfel, 167 F.3d 369 (7th Cir.) (agency decisions based on speculation are unsupported by substantial evidence)
- American Federation of State, County & Municipal Employees v. Illinois State Labor Relations Board, 216 Ill. 2d 569 (2005) (standard for "clearly erroneous" in administrative review)