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3. Genoas reported sales tax situs violates Illinois statutory law because none of the

Retailers actual business of selling in this state occurs within Genoa. In reality, the Retailers

conduct their sales within the RTAs taxing jurisdiction in Elgin, Illinois. The Retailers thus enjoy

the benefits of the RTAs transportation services in Elgin without contributing their fair share of

sales taxesall 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 Hartneydecision invalidated

the Illinois Department of Revenues (IDORs) 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 ofHartneys

composite of selling activities test in various circumstances. The Rules list nine factors that are

to be used to determine whether a seller is engaged in the business of selling in a particular

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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. The practices complained of herein violate an Illinois law that has been in place

for 40 years.

7. On March 5, 2014, attorneys for the RTA sent a letter to the Defendant Retailers

by certified mail, fax, and e-mail advising that the RTA had reason to believe that the Retailers

were engaging in selling activities within the RTAs 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 RTAs attorneys to discuss the matter. As of the

time of filing this complaint, neither of the Defendant 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.

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PARTIES

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

created by Illinois law. The RTAs primary responsibility is the financial and budget oversight of

the Chicago Transit Authority (CTA), 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 RTAs 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 Genoa is a non-home rule municipal corporation located in DeKalb

County, Illinois.

12. Defendant Boncosky is an Illinois corporation with retail offices and/or warehouse

facilities at 739 N. State Street, Elgin, Kane County, Illinois 60123. Boncosky is a distributor of

industrial petroleum products, automotive and commercial lubricants, fuels, distillates, and

related products. In 2006, Boncosky joined three other large ExxonMobil distributors to form

PetroLiance.

13. Defendant PetroLiance is a Delaware limited liability company with its Northern

Illinois Regional Headquarters, retail offices and/or warehouse facilities located at 739 N. State

Street, Elgin, Illinois 60123. PetroLiance was formed through the consolidation of Boncosky and

three other regional fuel and oil distribution companies: Commercial Ullman Lubricants

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Company of Ohio, Lubricant Technologies of North Carolina, and Young Oil Company of Florida.

Upon information and belief, the merger of the four companies made PetroLiance one of the

largest ExxonMobil distributors in the United States.

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 have inflicted damage, and because it is the county in which all or part of the transaction

giving rise to the causes of action 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).

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

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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 WillCounties.

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 RTAs 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,

e.g., 70 ILCS 3615/4.03.

22. In Illinois, the location of the business of selling determines which local

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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 higher-

taxed 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:

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

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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 agreemententered 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 RTAs taxing jurisdiction and/or

deliver their retail products to customers from retail or warehouse locations within the RTAs

taxing jurisdiction where the retailers engage in the business of selling, and their sales are or

should be subject to the RTAs sales taxes.

29. As a direct result, the RTA is deprived of significant sales tax revenue.

Economic Development Agreement Between Genoa and Boncosky/PetroLiance

30. In the case at issue in this complaint, Boncosky, which is located within the

higher-taxing community of Elgin, Illinois, entered into a contract called an Economic

Development Agreement (EDA) with the lower-taxing municipality of Genoa. A copy of the

EDA is attached as Exhibit C.

31. Elgin is located within the RTAs taxing jurisdiction. Its combined sales tax rate is

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PetroLiance. A copy of the July 3, 2006 Amendment to the EDA is attached as Exhibit E.

36. As projected, both PetroLiance and Genoa realized significant financial benefits

from this arrangement. PetroLiance paid a lower sales tax rate than it would have paid in Elgin

and also received substantial revenue from Genoas sales tax rebate (all without truly changing

its operations in any material fashion). At the same time, PetroLiance required virtually no

municipal services for its small sales office in Genoa, since its primary sales operations and

staff where it actually engaged in the business of selling remained within RTAs taxing

jurisdiction.

37. PetroLiance recently confirmed the purpose of its Genoa sales office. In a letter

to the IDOR dated March 10, 2014, PetroLiance Chief Executive Officer Kevin McCarter described

PetroLiance sales office in Genoa as merely an order acceptance office staffed by only 3

people. According to McCarter, orders taken at that office accounted for approximately

$50,000,000 of PetroLiances revenues in 2013. The letter contains a return address from the

PetroLiance Northern Illinois Regional Headquarters in Elgin, Illinois. A copy of the

March 10, 2014 letter is attached as Exhibit F.

38. Genoa received an unjustified windfall in sales tax revenue without incurring the

expense of providing municipal services to PetroLiance.

39. Meanwhile, the RTA, the City of Elgin and Kane County were left with the burden

of continuing to provide services to PetroLiance and its employees without receiving the sales

taxes necessary and appropriate to support such services.

TheHartneyDecision and Emergency Rulemaking

40. The Illinois Supreme Court in Hartney Fuel Oil Company v. Hamer, 2013 IL

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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.

41. 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.

42. On January 22, 2014 the IDOR issued the aforementioned Rules to replace the

Jurisdictional Questions regulations invalidated by the Hartneydecision. 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 took effect upon issuance and are to be treated as law as of

that date.

43. The Rules specifically declare that, with few exceptions, mere retail order

acceptance does notby 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

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theHartneycomposite of selling activities test.See Exhibit A, 86 Ill. Adm. Code 320.115(b)-(c).

44. 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).

45. 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

retailers inventory at the time of its sale or delivery. Exhibit A, 86 Ill. Adm. Code 320.115(c)(2).

46. 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

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 retailers ordering, billing, accounts receivable and

other administrative functions. Exhibit A, 86 Ill. Adm. Code 320.115(c)(3).

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47. 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).

48. It is clear that Hartneys fact-intensive approach for determining the situs of the

business of selling controls application of the local ROT Acts.

COUNT I

CLAIM FOR LOST REVENUES UNDER 65 ILCS 5/8-11-21 (the 2004 Statute)

The RTA v. Genoa

49. The RTA repeats and realleges paragraphs 1-48 above as paragraphs 1-48 of this

Count I.

50. Genoa entered into the aforesaid EDA with Boncosky/PetroLiance after the

effective date of the 2004 Statute.

51. The actions of Genoa violated the 2004 Statute because:

a. Absent the agreement, Boncosky and, subsequently, PetroLiance wouldnot have paid and would not be paying sales taxes in Genoa but would

have paid or be paying taxes in one or more of the municipalities

contained within the RTAs taxing jurisdiction; and

b. On information and belief, Boncosky/PetroLiance maintain retail or

warehouse locations within the RTAs taxing jurisdiction from which

tangible personal property is delivered to purchasers.

52. By reason thereof, the RTA has and is suffering loss and Genoa is liable to the

RTA for damages in the amount of the tax revenue it was denied as a result of the said EDA,

statutory interest, costs, reasonable attorneys fees, and an amount equal to fifty percent of the

lost tax consistent with 65 ILCS 5/8-11-21.

53. The RTA does not know the exact amount of sales tax received by Genoa and

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thus denied to the RTA from the said EDA. However, such sums shall be determined in the

course of discovery in this case.

WHEREFORE, the REGIONAL TRANSPORTATION AUTHORITY, requests this Court to enter

judgment in its behalf and against the CITY OF GENOA, 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 attorneys fees and an amount equal to fifty percent of such lost tax,

and for such other and further relief as the Court deems proper.

COUNT II

CLAIM FOR DAMAGES AND EQUITABLE RELIEF (post-Hartneydecision)The RTA v. Genoa, Boncosky and PetroLiance

54. The RTA repeats and realleges paragraphs 1-48 above as paragraphs 1-48 of this

Count II.

55. Genoa entered into an EDA with Boncosky/PetroLiance. The activity conducted by

Boncosky/PetroLiance in Genoa under the EDA 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.

56. Due to the EDA, the Retailers, on information and belief, misreported tax situs.

Boncosky/PetroLiance reported Genoa as the situs of their tax sales when in fact their business

of selling was within the RTAs taxing jurisdiction.

57. An actual controversy exists between the RTA, on the one hand, and Genoa,

Boncosky and PetroLiance 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

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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 Genoa and:

(a) find and declare that the activities conducted by the Retailers in Genoa 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 theHartneydecision and the Rules promulgated by the IDOR, within the RTAs taxing

jurisdiction;

(c) enjoin the Retailers from siting said retail sales to the City of Genoa;

(d) 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 RTAs taxing

jurisdiction;

(e) order an equitable accounting of the sales tax revenue at issue;

(f) 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;

(g) award plaintiff its costs of suit; and

(h) grant such other and further relief as the Court deems proper.

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PLAINTIFFDEMANDSA RIALBYAJURYOFTWELVE 12)O LLCOUNTSAND SSUES TRIABLE BYA UR Y.

The REGIONAL TRANSPORTATIONAUTHORITY,an l l i n o i s s p e c i a l purpose u n i t of

governmentand municipal corporation

HYL ROYSTER V ER ALLENTimoth y L B e r t s c h y ARDC 199931John P . H e i l r . ARDC6237286Maury Yusof ARDC6278767Al ex S . Ketay ARDC631322019 . L a S a l l e S t r e e t S u i t e 1203

Chicago L 60603Telephone: 312.853.8710Fa s m e : 312.782.0040

and124 SWAdams t r e e t S u i t e 6

P e o r i a I L 61602Telephone: 309.676.0400Fa s me : 39.676.33 4

Cook CountyFirm No. 15 683

16

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INTHEIRCUIT COURTOFCOOKCOUNTY,LLINOISCOUNTYDEPARTMENT,CHANCERY IVISION

The REGIONAL TRANSPORTATIONAUTHORITY, n I l l i n o i s s p e c i a l purpose u n i tofgovernmentandm u n i c i p a l c o r p o r a t i o n ,

P l a i n t i f fv s . CaseNo.

TheCITY OFGENOA,n I l l i n o i s nonhomeu l em u n i c i p a l i t y , BONCOSKYILCOMPANYndPETROLIANCELLC

Defendants. }ILLINOIS SUPREMECOURTRULE22b)AFFIDAVIT

MauryY u s o f , h vingbeen d u l y sworn and upono a t h , s t a t e s s f o l l o w s :

1 . am competent tot e s t i f y concerni ngthe m a t t e r s contai ned i n t h i s A f f i d a v i t .

2 . As a t t o r n e y f o r the P l a i n t i f f havere viewedthe f a c t s of t h i s case and have determined

the t o t a l amount of moneydamagessought exceeds i f t y thousandd o l l a r s and00/100

c e n t s ( 5 0 , 0 0 0 . 0 0 ) .

HEYL ROYSTER, VOELKER LLERI19 . L a S a l l e S t r e e t , S u i t e 1203Chicago L 60603Telepho ne:312.8 53.8710ANDSENDALLPLEADINGSTO:HEYL ROYSTER, /OELKER ALLEN124SWAdams t r e e t S u i t e 600P e o r i a , I L 61602Te e o : 309.67 6.0 400F a c s i m i l e : 309.676.3374F i r m No. 15683

17

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STATE OF LLINOISs s .

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