Skip to content
Published by Jake Leahy

Appellate Court Affirms Tax Assessment, Rejects Penalties (Marathon Petroleum Co. v. Cook County Department of Revenue)

First District Appellate Court reverses decision below, imposes tax assessment on book out transactions but removed penalties.
Erik Mclean, Unsplash
February 7, 2023

This is a recent decision released from the First District Appellate Court, Justice Walker, who was joined by Justices Mikva and Tailor delivered the opinion of the court. This is an interesting case that involves some of the nitty-gritty details of a motor fuel tax assessment.


The Cook County Department of Revenue assessed fuel taxes and penalties under the Cook County Retail Sale of Gasoline and Diesel Tax Ordinance for so-called “book-out transactions.” In these transactions, no fuel physically changes hands or locations. When parties are set to sell a similar amount of oil to one another, they will often go through with this type of transaction in order to avoid an unnecessary delivery. Motor fuel sales are often planned out sometime in advance, which is what causes these seemingly unnecessary transfers to be planned in the first place.

The Cook County Department of Revenue assessed the Motor Fuel tax against Marathon, it levied penalties and interest because Marathon had not paid taxes on the book-out transactions. The amount assessed against marathon was $16,450,932.78, this number includes the penalties and interest for the period between 2006 and 2014. Marathon obtained a second notice for diesel fuel, which was for $13,149,477.88. Marathon paid this tax under protest and provided additional information Cook County, Cook County reduced the assessments to $4,398,180.76 and $10,537,077.16, respectively. Despite the significant reductions, Marathon still argued that the assessments included fees from these book out transactions.

Marathon then took the case to the Administrative hearing. After hearing from several witnesses and experts on both sides, the Administrative Law Judge ruled against Marathon, stating that Marathon did not provide enough evidence to show that the book out transactions were not taxable.

After losing at the Administrative level, Marathon filed a complaint to the Circuit Court of Cook County. Judge Curry ruled that even if the assessment of tax was reasonable, Marathon did sufficiently demonstrate that the book out transactions were not taxable events for the Motor Fuel Tax. Judge Curry ruled in favor of Marathon.

Cook County appealed to the Appellate Court.


Marathon argues that Cook County’s audit did not meet a minimum standard of reasonableness as it failed to differentiate book out from standard transactions and that it blatantly ignored Marathon’s documents to differentiate book out from traditional transactions. Marathon contends that there is no transfer of the commodity or any physical or tangible object, therefore, it should not fall within the scope of the Motor Fuel Tax. Marathon also alternatively argues that the this sort of tax on a book out transact runs afoul of the Illinois Constitution as an illegal occupation tax.

Marathon further argues that applying the Motor Fuel Tax to transactions that take place outside of Cook County, are unconstitutional as Cook County does not have nexus with these transactions. Cook County labeled certain transactions as taking place in Chicago, when they did not in fact even take place in Cook County. Marathon cites to Hertz Corp. v. City of Chicago, 2017 IL 119945, a case where the City of Chicago tried to impose an extraterritorial sales tax on rental cars outside the city. While the City of Chicago reduced the coverage from the entire state, to ten miles outside to just three miles, the Illinois Supreme Court still struck down the tax.


While not central to Judge Curry’s opinion below, Cook County argues that, contrary to Marathon’s argument, it did establish that its system to audit did meet a minimum standard of reasonableness. Cook County argues that it did not need to differentiate between these types of transactions because the book out transactions are taxable under the Motor Fuel Tax. Cook County cites to county code, which like most tax ordinances, establishes that once an assessment is issued it is considered prima facie accurate. After this, the burden shifts to the taxpayer to object to the assessment. It argues that once the assessment is issued, the taxpayer must show that it did not meet a minimum standard of reasonableness.


With everything considered, the court found that Cook County’s assessment was not against the manifest weight of the evidence and was therefore affirmed. Despite the court claiming that imposing taxes on book out transactions is “longstanding,” it found that the taxpayer’s decision to not pay those taxes was a “reasonable interpretation of the law.” The court ruled that it is both against the manifest weight of the evidence to reverse Cook County’s assessment, and against the manifest weight of the evidence to affirm penalties for the non-payment of taxes.


This case provides interesting insight into how a tax can be assessed in a relatively new area, the court can claim that it is well established to assess a tax in said area, and the taxpayer can still obtain relief from penalties as the position can be deemed to be a “reasonable interpretation of the law.” This case also provides a reminder as to the deferential standard that administrative law decisions are reviewed. Finally, the court’s rejection of applying Hertz in this case demonstrates the need to provide ample evidence demonstrating the extraterritorial impact of a tax.

Posted in: