On September 21, 2015, the Illinois Attorney General filed several Motions to Dismiss in Illinois False Claims Act (“IFCA”) matters in which the defendants were able to show, in response to the Attorney General’s inquiry, that their websites offered their Illinois customers, including the named IFCA plaintiff Stephen B. Diamond P.C., a product pick-up option at the seller’s location. Although the Attorney General’s inquiry to the defendants was patterned on the Private Letter Rulings that Reed Smith obtained from the Department of Revenue that provided for no tax on shipping where the pick-up option was available, the Illinois Attorney General has filed these motions based on its “prosecutorial discretion” under the Illinois False Claims Act (740 ILCS 175/4(c)(2)(A)). Further, the Illinois Attorney General states in its Motions that “The State has investigated the allegations in Relator’s Complaint and determined that (1) success on the merits is unlikely, and (2) the amount of any potential recovery to the State is de minimis compared to the expenditure of State and judicial resources required to litigate this matter.”

As reported in our prior alert, on August 31, 2015, the Illinois Attorney General, through its representatives, appeared in court to stay proceedings in IFCA matters against three wineries that had joined the Wine Institute in an action Reed Smith filed on their behalf against the Illinois Attorney General and the Department in an effort to put an end to hundreds of IFCA prosecutions. The Motions to Dismiss are the product of the review that the Attorney General, at that time, represented to the court that it would conduct prior to the court’s ruling on Reed Smith’s pending motions.

It should be noted that these filings do not affect every ongoing IFCA proceeding, and each case should be analyzed on its own facts – i.e., whether the defendant offered a pick-up option. Additionally, these motions do not answer the question of whether a retailer that relied on the Illinois Department of Revenue’s regulation, 86 Ill. Admin. Code 130.415, which was unchanged for six years after the Kean case, can escape liability as well.

For more information on the False Claims Act suits in Illinois, contact the authors of this Alert or another member of the Reed Smith State Tax Group. For more information on Reed Smith’s Illinois tax practice, visit http://www.reedsmith.com/iltax/.

Client Alert 2015-261