Illinois Bottom Feeding Lawyer Goes After Wine Shippers
Direct to consumer shipping into the state of Illinois is about to get a lot more expensive for a number of wineries due to a guttersnipe of a lawyer and an attorney general who can’t see their way to putting a stop to this litigious tyrant they have publicly condemned. Hundreds of thousands of dollars are at state for wineries that will be ensnared in this ambulance chaser’s net.
Illinois’ “False Claims Act” is a “whistle-blower” law that encourages people to come forward who have first hand knowledge of fraudulent acts and fraudulent claims made to the Illinois government by companies attempting to defraud the state. The whistle blowers are not only protected, but they are entitled to a portion of the fees or taxes as well as the penalties that are assessed when their whistle blowing results in lawsuits that deliver such consequences — including settlements.
Steven Diamond of Schad Diamond and Shedden in Chicago, is using the False Claims Act to privately file hundreds of lawsuits that seek not to blow a whistle on companies acting nefariously or attempting to defraud the government, but rather to bully them into settling the lawsuits so he and his firm can collect hundreds of thousands, if not millions, of dollars as the original “whistle blower”>
According to the publication Tax Analysts, Diamond and his firm are using the False Claims Act in accusing remote sellers (retailers, including many wineries) of “committed fraud by failing to collect use tax on the shipping and handling charges associated with its Internet and catalog sales in the state. The firm, which purports to conduct its own investigations into the sales and use tax practices of online retailers by buying items over the Internet, is able to file such whistle-blower actions as the consumer in the transactions.”
To date a number of wineries and wine retailers have been sued by Diamond and his firm for the crime of deliberately or recklessly disregarding Illinois law by not charging sales tax on the shipping and handling portion of wine purchases that are shipped to Illinois buyers. The cost to the wineries to defend themselves on the merits of the cases can run into the hundreds of thousands of dollars in attorneys fees. Diamond hopes they will settle and pay fines and penalties rather than defend themselves since he will get a portion of any settlement — plus payment of attorneys fees for his trouble. It’s a scam. But a very effective one.
The reason it has been effective is due to the Illinois Attorney General’s reluctance to side with the victims of the lawsuits.
But first, what about this issue of collecting and remitting sales tax on shipping and handling charges. Every winery I’ve talked to told my they are not required to do so. Why do they think this when Diamond and his cronies are suing them for not doing so?
Title 86 Part 130 Section 130.415 of the Illinois Department of Revenue Regulations is clear. Shipping charges are not taxable if:
1. The shipping charges are separate from the price of the goods
2. The shipping charges do not exceed that which is charged to the retailer by the common carrier transporting the goods to the customer
3. The amount of the shipping charges the customer pays that exceed the cost of shipping charged to the retailer are taxable.
4. When shipping is “included in the price” the of goods, they are taxable.
So why the lawsuits if the law is this straightforward? In 2009 the Illinois Supreme Court in 2009 decided Kean v. Wal-Mart Stores Inc. and essentially ruled that in some cases shipping charges, even if negotiated separately as stated above, are still eligible to be assessed sales tax because the shipment of the item is inherent in the purchase. Tax Analysts puts it this way:
“However, the court did not invalidate Title 86 Part 130 Section 130.415 of the Illinois regulatory code and it is still in effect. In other words, the same regulation that wineries and other retailers have been adhering to regarding charging sales tax on shipping that has long been an explicit part of Illinois’ black and white regulations is still the guidance given by the state even after the court case.
And yet Lawyer Diamond and his merry band of shakedown artists continues to sue company after company after company following these explicit regulations not because he is concerned with the state collecting what it is due, but because they are a band of merry band of shakedown artists.
Recently a Cook County Circuit Court judge ruled against Diamond in Schad Diamond and Shedden v. National Business Furniture LLC, a case in which National Business Furniture was sued for not collecting sales tax on shipping charges. According to Tax Analysts:
“Mulroy wrote that because the case was brought under the False Claims Act, it wasn’t for the court to interpret or apply various Illinois tax laws. Rather, Mulroy said, the whistleblower had the burden of proving that the taxpayer had acted in deliberate ignorance or reckless disregard of Illinois law. “The Court finds Relator has not met its burden.”
This is very good news. The idea that wineries or retailers not charging sales tax on shipping charges are doing so out of deliberate ignorance or reckless disregard of Illinois law is preposterous. As the same judge that ruled in National Business Furniture case said in another case where he ruled against Diamond, “One cannot but wonder why this case is authorized by the State of Illinois and brought under these facts. It stands logic on its head in my opinion to hold the taxpayer to a higher standard of knowledge on the taxation of delivery charges than the Illinois Department of Revenue.” But it is a single case and the judge that issued this ruling has said that each new case will be taken on its own.
Why hasn’t the Illinois Attorney General done something to stop these nuisance lawsuits? On a number of occasions they have condemned them and said the law should be changed so that private parties may not bring tax related whistle-blower lawsuits on their own without the approval of the Attorney General. Again, according to Tax Analysts:
“Last decade, Schad Diamond brought the same kind of nexus qui tam tax actions in Nevada and Tennessee, but attorneys general in those states intervened early on, and they won dismissal of the suits on the grounds that the actions were inconsistent with the states’ obligation to enforce and interpret the tax law. By contrast, the Illinois attorney general intervened in support of the plaintiff in some of Schad Diamond’s nexus qui tam actions….The attorney general has made a policy decision against blanket intervention in most of the shipping and handling qui tam tax cases…the amount of resources and time it took the state to deal with those 104 individual cases.”
What should a winery or retailer shipping to Illinois do given all this? I’m not a lawyer. And this post does not constitute legal advice. However, if I owned a winery or wine store, this is what I would do:
1. Immediately check to see if I have sold or shipped wine to anyone in Illinois named Diamond, Schad, or Shedden or if I have shipped wine to their address: 332 South Michigan Avenue, Chicago, IL 60604
2. If you have sold this bottom feeding lawyer any wine, contact your attorney immediately
3. If you are not already, start charging sales tax on shipping charges to Illinois.
I don’t understand people like Stephen Diamond who choose to make a living by intentionally inflicting pain on innocent people. There are all sorts of names for people like this: Blood suckers, bottom feeders, immoral, deceitful, etc, etc. However, just because we know such actions are unethical it doesn’t mean we shouldn’t take measures to protect ourselves and this is one case where every winery and every wine retailer in America that engages in shipping ought to be pro-active—particularly when not doing so can cost you hundreds of thousands of dollars just to satisfy the appetite of a bottom feeder.