Rolling Meadows could owe Arlington Heights $1 million over taxes received in error

Rolling Meadows may have to pay Arlington Heights more than $1 million in misallocated sales taxes from Cooper’s Hawk Winery & Restaurant, following a recent state appeals court’s opinion.

In a 2-1 decision issued Friday, the First District Appellate Court reversed a lower court’s decision that initially dismissed Arlington Heights’ lawsuit seeking more than eight years’ worth of back taxes.

The neighboring Northwest suburban municipalities dispute whether the sales tax revenue collected by the state Department of Revenue and incorrectly paid out to Rolling Meadows can now be recovered by Arlington Heights.

The recent ruling remands the matter back to the Cook County Circuit Court. But Rolling Meadows City Manager Rob Sabo said Tuesday he and city officials are evaluating the appellate court’s opinion and will consider whether to take the case to the Illinois Supreme Court.

Arlington Heights Village Manager Randy Recklaus said he and village officials are pleased with the recent court decision.

“We always felt that this was a pretty straightforward situation of one community accidentally getting the sales tax of another community, and having to give it back once it was discovered,” Recklaus said.

Following the opening of Cooper’s Hawk at 798 W. Algonquin Road in June 2011, the state revenue department mistakenly coded the restaurant in its system as a Rolling Meadows business, even though it is within Arlington Heights. For the next eight years, the state collected sales taxes the restaurant generated, and sent the local 1% share to Rolling Meadows - until Arlington Heights discovered the error at the onset of the pandemic.

The state reimbursed Arlington Heights $109,000 covering six months of revenue for the last half of 2019, which is the maximum allowable under state law.

Arlington Heights sued Rolling Meadows in 2022 when the latter municipality refused to return the rest - more than $1 million - plus interest.

According to court documents, the two sides disagree about whether Rolling Meadows officials knew of the error. Arlington Heights asserts Rolling Meadows failed to respond to a letter from the state asking to verify that the restaurant was located within its city limits. Rolling Meadows officials say there’s no evidence they received the letter or intentionally disregarded it.