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Citgo Wants $6.4 Million Tax Refund From Illinois

CHICAGO (CN) - Citgo wants the Illinois treasury to refund a $6.4 million tax assessment on gains the energy company claims are non-business income.

Citgo Petroleum Corporation sued the Illinois Department of Revenue, Director Brian Hammer, and Illinois State Treasurer Dan Rutherford in the Cook County circuit court.

As outlined in the complaint, in 2007, Citgo sold its 15.8 percent stake in the Colonial oil pipeline, and 6.8 percent stake in the Explorer oil pipeline, realizing a gain which it distributed to shareholders.

In a subsequent audit, Illinois asserted that Citgo must pay taxes on the gain as business income, and owed the state $6,447,953.94 in back taxes, interest, and penalties.

Citgo claims that the gain from selling its stake in Colonial and Explorer was non-business income, and therefore not subject to taxation. Nevertheless, on December 4, it paid the tax levy "under protest"; it filed this lawsuit to recoup the payment the very next day.

"Throughout the period of Citgo's stock ownership of Colonial and Explorer, Citgo was entitled to and did have a maximum of only one director on the Board of Directors of Colonial, which had 5-9 directors, and Explorer, which had 8 directors," the complaint says.

Citgo claims it "had no shared functions with Colonial or Explorer, including no joint purchasing, no share engineering or maintenance, no joint marketing, no shared human resource function, no shared benefit plans, and no shared insurance.

"Citgo used the Colonial and Explorer pipelines as a customer on the same terms as other users who were not shareholders," and did not participate in the management of either pipeline, the company says.

As a result, the company claims, the Treasury was wrong when it determined that Citgo's business was so intertwined with the pipeline companies that the gain constituted business income subject to taxation.

Citgo seeks the refund of its payment to the Treasury within 30 days.

The energy company also claims that its late payment penalties should be refunded because it "made a good faith effort to determine its proper amount of tax under the return at issue and did not make an affirmative statement contrary to the position taken in Illinois."

Citgo is represented by Jane May and Lauren Ferrante of McDermott Will & Emery in Chicago.

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