CASEY‘S MARKETING COMPANY, Plaintiff-Appellant, v. BRIAN HAMER, in His Official Capacity as Director of the Illinois Department of Revenue, THE ILLINOIS DEPARTMENT OF REVENUE, and DAN RUTHERFORD, in His Capacity as Treasurer of the State of Illinois, Defendants-Appellees.
No. 1-14-3485
Appellate Court of Illinois, First District, Second Division
March 1, 2016
2016 IL App (1st) 143485
Honorable James M. McGing, Judge Presiding
JUSTICE SIMON delivered the judgment of the court, with opinion.
Presiding Justice Pierce and Justice Neville concurred in the judgment and opinion.
OPINION
¶ 1 This appeal asks us to determine whether the most recent cigarette tax increase is unconstitutional. The appellant argues that it violates the uniformity clause of the
¶ 2 BACKGROUND
¶ 3 Plaintiff Casey‘s Marketing Company operates several hundred convenience stores in Illinois and over a thousand in the country. The stores sell gasoline, groceries, other small goods and, importantly here, cigarettes. On June 14, 2012, the State enacted a law increasing the cigarette
“Any retailer having cigarettes in his or her possession on June 24, 2012 to which tax stamps have been affixed is not required to pay the additional tax that begins on June 24, 2012 imposed by this amendatory Act of the 97th General Assembly on those stamped cigarettes. Any distributor having cigarettes in his or her possession on June 24, 2012 to which tax stamps have been affixed, and any distributor having stamps in his or her possession on June 24, 2012 that have not been affixed to packages of cigarettes before June 24, 2012, is required to pay the additional tax that begins on June 24, 2012 imposed by this amendatory Act of the 97th General Assembly to the extent the calendar year 2012 average monthly volume of cigarette stamps in the distributor‘s possession exceeds the average monthly volume of cigarette stamps purchased by the distributor in calendar year 2011. This payment, less the discount provided in subsection (b), is due when the distributor first makes a purchase of cigarette stamps on or after June 24, 2012 or on the first due date of a return under this Act occurring on or after June 24, 2012, whichever occurs first.”
35 ILCS 130/2(a) (West 2012).
¶ 4 The State circulated a bulletin to advise all cigarette distributors about the tax. The bulletin refers to the new law as a tax rate increase and advises distributors that their inventory might be subject to a floor tax.3 The State also supplied a form that the distributors were to use to determine if their inventory was subject to the tax and, if so, a method by which they could calculate the amount owed.
¶ 5 To paraphrase, the form directs distributors to: Add the number of affixed and unaffixed tax stamps in your inventory as of December 31, 2011 to the number of tax stamps purchased this year (from January 1, 2012 to June 23, 2012). Divide that result by 5.8. That amount is the average number of stamps in your possession in 2012. Then, take the average monthly tax stamps purchased in 2011 and subtract that amount from the average number of stamps in possession in 2012.4 If the result
result was positive (meaning, proportionally, more tax stamps were possessed in 2012), the distributor was instructed that it was subject to the tax and directed the distributor as to how the amount owed should be calculated.
¶ 6 Casey‘s was subject to the tax in the amount of $279,816. It paid the tax under protest and, on July 17, 2012, filed a complaint seeking a declaration that the tax was invalid, demanding that its payment be refunded. The basis of Casey‘s objection that is relevant to this appeal is that the tax increase violated the “uniformity clause” of the Illinois Constitution.5 The uniformity clause states that, “[i]n any law classifying the subjects or objects of non-property taxes or fees, the classes shall be reasonable and the subjects and objects within each class shall be taxed uniformly.”
¶ 7 An understanding of some of the mechanics of the cigarette taxation process will be helpful going forward. Generally, the taxes are imposed entirely on the “retailer,” the one that sells the product to the end user.
¶ 8 Section 2 of the statute, which imposes the tax, is rather lengthy. Instead of using a new statutory section or replacing the section for each tax increase, the General Assembly has opted to just add to the existing section by amendment. So the statute begins with the initial cigarette tax
of 5 1/2 mills per cigarette imposed in 1941 and is followed by several clauses that state something to the effect of “after this date of this year, there is an additional mill tax in this amount.” Beginning in 1989, the General Assembly began to delve into taxing cigarettes in a distributor‘s possession based on whether the cigarettes had tax stamps affixed at the time the tax became effective; a type of floor tax. It was in the 1989 amendment that the General Assembly first began to refer to the distributor as the payer of the tax.6 In 1993, for the first time, the General Assembly went forward with assessing what is considered to be a floor tax. The 1993 amendment states that “[a]ny distributor having cigarettes to which stamps have been affixed in his or her possession for sale at 12:01 a.m. on the effective date of this amendatory Act of 1993, is required to
¶ 9 The parties filed cross-motions for summary judgment. The State argued that the tax was valid. Casey‘s argued that the tax was invalid because the formula, based on the number of stamps possessed, resulted in a different tax on each distributor (or perhaps retailer) without any
constitutionally permissible classification or justification for the classification. The trial court entered summary judgment in favor of the State. The trial court found that the distributor is the “intended taxpayer” of the floor tax and that it was “not th[e] court‘s duty to redraw the lines for a ‘better’ tax.” The court explained that the temporary difference in tax rates paid “appear[s] to be an unavoidable necessity.”
¶ 10 ANALYSIS
¶ 11 We review the grant of summary judgment de novo. Illinois Tool Works Inc. v. Travelers Casualty & Surety Co., 2015 IL App (1st) 132350, ¶ 8. Summary judgment is appropriate when the pleadings, depositions, admissions, and affidavits, viewed in a light most favorable to the nonmovant, fail to establish a genuine issue of material fact, thereby entitling the moving party to judgment as a matter of law.
¶ 12 Casey‘s argues that the trial court erred by finding that the distributor was the “intended
taxpayer” of the 2012 tax increase. To support its argument, it points to certain references in section 2 of the Act to that effect, such as the very first sentence which states that “[a] tax is imposed upon any person engaged in business as a retailer of cigarettes in this State.”
¶
¶ 14 The language throughout this section is inartful, but, as evidenced by the 1993 amendment and the subsequent amendments that contemplate the idea, there is nothing in the Act that prohibits a floor tax on wholesale inventory. The section‘s opening clause declares that it imposes a tax on “any person engaged in business as a retailer of cigarettes in this State,” and later states that “[t]he
impact of the tax levied by this Act is imposed upon the retailer.”
¶ 15 Casey‘s argues that whether a retailer paid the tax increase “hung entirely on the arbitrary choice by the retailer *** to purchase from one distributor or another,” and that certain retailers “randomly escaped” paying the tax increase. But once the tax increase was effective, all purchases by the retailer were subject to the tax. “Beginning on June 24, 2012, in addition to any other tax imposed by this Act, a tax is imposed upon any person engaged in business as a retailer of cigarettes at the rate of 50 mills per cigarette sold or otherwise disposed of in the course of such business in this State.”
¶ 16 The potentially colorable claim that Casey‘s makes for unconstitutionality does not turn on the identity of the taxpayer, it turns on whether the General Assembly‘s method of implementing the tax violated the uniformity clause by perhaps requiring some distributors to pay the tax at a different rate than other distributors. The retailers all paid the same tax rate after the tax increase went into effect, but certain discrepancies might have resulted on the distributors’ end as a result of
the floor tax formula. Some distributors’ inventory might have escaped the floor tax altogether or they might have paid a lesser rate, giving them either a potential competitive
¶ 17 The “uniformity clause” provides that “[i]n any law classifying the subjects or objects of non-property taxes or fees, the classes shall be reasonable and the subjects and objects within each class shall be taxed uniformly.”
¶ 18 Here, Casey‘s fails to make completely clear what classification its uniformity challenge is based upon. We presume the argument is directed at the outcome of the tax increase and at the differences between some distributors that were required to prepay the floor tax and the ones that were exempt or paid a different rate. But at times during its argument it seems that the classification it is challenging is the disparate effect on retailers and distributors. We will nonetheless focus on the former, because, as explained above, the allegedly disparate treatment of distributors is the only potentially viable claim available to Casey‘s.
¶ 19 Focusing on the first part of the analysis, we must decide whether the classification made between distributors was reasonable. To determine whether the subjects of nonproperty taxes are classified reasonably, the classification must (1) be based on a real and substantial difference
between the people taxed and those not taxed, and (2) bear some reasonable relationship to the object of the legislation or to public policy. Empress Casino Joliet, 231 Ill. 2d at 69. The reasons justifying the classification do not need to appear on the face of the statute, and the classification must be upheld if any set of facts reasonably can be conceived that would sustain it. Id. at 76.
¶ 20 The tax is applied to any distributor having cigarettes in his or her possession on June 24, 2012 to which tax stamps have been affixed, and any distributor having stamps in his or her possession on June 24, 2012 that have not been affixed. A serious argument can be made that the General Assembly has not “classified” the potential taxpayers at all. The General Assembly does not make any specific attempt at “classifying the subjects or objects of nonproperty taxes” that the constitution sometimes forbids. Thus, it is not even clear that there could be a uniformity issue at all because, on its face, the tax applies equally to all distributors meeting the statutory criteria. See Sun Life Assurance Co. of Canada v. Manna, 227 Ill. 2d 128, 137-38 (2007) (where a tax treats all foreign companies uniformly as a class, exempting all Illinois companies presents no uniformity issue); American Beverage Ass‘n v. City of Chicago, 404 Ill. App. 3d 682, 691 (2010) (a tax that applies to all noncarbonated water, but that does not apply to flavored or carbonated water satisfies the first prong of the uniformity analysis); see also Primeco Personal Communications, 196 Ill. 2d at 84 n.2.
¶
justification for the statute. Wirtz v. Quinn, 2011 IL 111903, ¶ 83. Instead, once the government has offered a reason for its classification, the plaintiff has the burden to show that the defendant‘s explanation is insufficient as a matter of law or unsupported by the facts. Id. A minimum standard of reasonableness is all that is required. Arangold Corp., 204 Ill. 2d at 155.
¶ 22 Whether the “classifications” drawn by the General Assembly are based on real and substantial differences between distributors and whether those supposed disparities bear some reasonable relationship to the object of the legislation are fairly interrelated in this case. Thus, those two requirements have been, as they should be, considered and treated separately but, because of the significant overlap here, they are addressed together in the subsequent analysis.
¶ 23 One legitimate justification for the General Assembly‘s choice to employ the formula that it did to implement the tax increase is the reasonable objective of implementing the tax based on volume. The floor tax only applied to the extent that the calendar year 2012 average monthly volume of cigarette stamps in the distributor‘s possession exceeded the average monthly volume of stamps purchased by the distributor in calendar year 2011. The tax is on the volume of the distributor‘s activity. The General Assembly imposed a tax increase on the year-over-year increase in stamps in a distributor‘s inventory. Of course, the purpose of the General Assembly‘s action to increase the tax was to raise revenue. By using the increased stamps in possession for 2012, the General Assembly was able to account for distributor‘s increased activity whether it was
innocent or by design.7 For example, by taking all of the 2012 stamps in possession into account, the General Assembly was able to prevent any distributor from purchasing stamps in advance of the increase to avoid its impact. The General Assembly‘s method even prevented against unintentional surplus accumulations based on, perhaps, a company‘s purchasing methods. The increase took the broader view of taxing the increase for the calendar year. The end result is that each distributor‘s tax burden was designed to be proportionally the same in 2012 as it was in 2011—a reasonable means of implementing the tax increase.
¶ 24 Another legitimate justification would be similar to one found to be valid in Empress Casino Joliet, where the court found that it was permissible to impose a tax assessed on one‘s current economic activity. In that case, the General Assembly assessed a tax by way of a surcharge
for tax stamps bought in 2011, and at the same proportion be reimbursed at post-increase prices for tax stamps bought in 2012.
¶ 25 As the trial court observed, this one-time tax increase did have the potential to result in some discrepancies among distributors during the transitional period. But as it also recognized, there can be discrepancies when the tax is made only on a distributor‘s future purchases like in 1997 and 2002. In those years, distributors that, either intentionally or unintentionally, hoarded cigarettes before the tax became effective ended up paying a lower effective tax rate thereby getting a type of windfall on the opposite side of the supply chain. When the tax is imposed in that manner, distributors that have surplus inventory (like Casey‘s does here) benefit and those with less stamps in their possession are negatively affected with an overall higher effective tax burden. Although the result of a change in taxation produces some inequality, if its framework is reasonably drawn, the law does not violate the uniformity clause. Arangold Corp. v. Zehnder, 329 Ill. App. 3d 781, 793 (2002), aff‘d, 204 Ill. 2d 142 (2003). There were other means that the General Assembly could have chosen; like using the same means as the 1993 floor tax as Casey‘s suggests. But it is not our place to second guess the wisdom of a statute that is rationally related to a legitimate state interest. Crusius v. Illinois Gaming Board, 216 Ill. 2d 315, 332 (2005).
¶ 26 A few final points. All taxes prepaid by Casey‘s as a result of the increase will be repaid to it by retailers. Everything that Casey‘s paid to the State was fully chargeable to the next party down the chain of distribution, so it effectively has no loss.8 In addition, and importantly, Casey‘s did not submit any evidence that could potentially show that the tax actually impacted some distributors differently than others. There was no evidence from which the trial court could have
found a lack of uniformity. Casey‘s did not put forth any evidence that the tax increase did not apply uniformly in practice or, perhaps more significant, that it was adversely affected as compared to other distributors.
¶ 27 CONCLUSION
¶ 28 The lack of clarity in Casey‘s argument makes it difficult to nail down certain positions it advances. But the heart of the appeal is whether the 2012
¶ 29 Based on the foregoing, we affirm.
¶ 30 Affirmed.
Notes
(6) Write the total number of stamps purchased in 2011.
(7) Figure your average monthly stamps purchased in 2011.
(8) From your 12/31/2011 Schedule CF, write the number of affixed and unaffixed stamps.
(9) Write the number of stamps you purchased from 1/1/2012 through 6/23/2012.
(10) Add Lines 8 and 9.
(11) Write the amount from Line 10 and divide it by 5.8. This is your average number of stamps in your possession in 2012.
(12) Subtract Line 7 from Line 11. This is the comparison of 2011 to 2012.
If the result is greater than zero (positive), write the result and continue to Step 3. Note: If the result is zero or less (negative), skip Steps 3 and 4. Go to Step 5.