JACK CAVENEY et al., Appellees, v. GLEN L. BOWER, Director of Revenue, et al., Appellants.
No. 92963
Supreme Court of Illinois
May 8, 2003
Rehearing denied September 29, 2003.
CONCLUSION
For the foregoing reasons, we remand the cause to the circuit court of Cook County for proceedings consistent with this opinion.
Remanded with directions.
Richard A. Hanson and Theodore R. Bots, of McDermott, Will & Emery, of Chicago, for appellees.
Gino L. DiVito, Michael I. Rothstein and Michael Grant, of Tabet, DiVito & Rothstein, L.L.C., of Chicago, for amicus curiae Appellate Lawyers Association.
JUSTICE THOMAS delivered the opinion of the court:
Plaintiffs, Jack and Margaret Caveney, are shareholders in Panduit Corporation. For the tax years ending December 31, 1993, 1994, and 1995, Panduit elected to be treated as a subchapter S corporation for federal and state tax purposes. During the tax years in question, plaintiffs claimed a credit against their Illinois income tax liability, pursuant to
Seeking a return of the amounts paid under protest, plaintiffs filed suit under the
Before the appellate court, plaintiffs not only repeated their previous arguments but also argued for the first time that they qualified for the research and development tax credit under a 1999 amendment to
The State filed a petition for leave to appeal (177 Ill. 2d R. 315(a)), and this court issued a supervisory order vacating the appellate court‘s judgment and remanding the cause for reconsideration in light of Commonwealth Edison Co. v. Will County Collector, 196 Ill. 2d 27, 37 (2001). Caveney v. Bower, 195 Ill. 2d 549 (2001) (supervisory order). On remand, and with one justice dissenting, the appellate court again affirmed the entry of summary judgment in plaintiffs’ favor. 326 Ill. App. 3d 1. We granted the State‘s petition for leave to appeal. 177 Ill. 2d R. 315(a).
ANALYSIS
Motion to Strike
At the outset, we must address plaintiffs’ motion to
Plaintiffs’ motion is utterly without merit. First, the State clearly preserved these issues for review. The contested arguments were fully briefed and argued in both the trial court and the appellate court. The appellate court‘s decision to affirm on other grounds does not amount to a procedural default by the State. Second, the State could not have asserted the contested arguments as a basis for reversing the appellate court‘s judgment because, as plaintiffs concede in their motion, the appellate court did not reach these issues. Although these issues formed the basis for the trial court‘s decision, the appellate court affirmed on a wholly different basis, namely, the retroactive application of the 1999 amendment. Given that the retroactive application of the 1999 amendment was the only issue addressed in the appellate court‘s decision, it is only natural that that issue constituted the State‘s sole basis for reversing that decision. Finally, and contrary to representations contained in plaintiffs’ motion, the State did raise the contested arguments in its petition for leave to appeal. The following footnote appears on page 15 of the State‘s petition for leave to appeal:
“The Caveneys, of course, have maintained that they were entitled to the tax credits even under the pre-amendment version of
section 201(k) . The petitioners have taken the opposite position. The appellate court has never reached the issue, twice deciding the case on the ground that the 1999 amendment was retroactive. If this court grants leave to appeal, the petitioners would naturally raise the tax issue in addition to the issue of retroactivity. The petitioners do not raise the tax issue as a ground for leave to appeal because the appellate court never decided the issue.” (Emphasis added.)
Section 201(k): Original Version
Turning to the merits, we first address whether plaintiffs qualify for the research and development tax credit under the version of
The fundamental rule of statutory construction is to ascertain and give effect to the legislature‘s intent.
Prior to the 1999 amendment,
“Beginning with tax years ending after July 1, 1990, a taxpayer shall be allowed a credit against the tax imposed by subsections (a) and (b) of this Section for increasing research activities in this State. The credit allowed against the tax imposed by subsections (a) and (b) shall be equal to 6 1/2% of the qualifying expenditures for increasing research activities in this State.”
35 ILCS 5/201(k) (West 1998) .
For purposes of
We find no ambiguity in the foregoing statute and conclude that plaintiffs are ineligible for the research and development tax credit that existed prior to the 1999 amendment. Prior to that amendment,
This conclusion is supported by the fact that, when the legislature originally enacted
“For *** shareholders of Subchapter S corporations[ ] there shall be allowed a credit under this subsection (f) to be determined in accordance with the determination of income and distributive share of income under Sections 702 and 704 and Subchapter S of the Internal Revenue Code.”
35 ILCS 5/201(f)(1) (West 1992) .
Section 201(k): Amended Version
We next consider whether plaintiffs qualify for the research and development tax credit under the 1999 amendment to
“For partners, shareholders of subchapter S corporations, and owners of limited liability companies, if the liability company is treated as a partnership for purposes of federal and State income taxation, there shall be allowed a credit under this subsection to be determined in accordance with
the determination of income and distributive share of income under Sections 702 and 704 and subchapter S of the Internal Revenue Code.” 35 ILCS 5/201(k) (West 2000) .
Plaintiffs insist that, although this amendment was enacted in 1999, it nevertheless applies retroactively because the State does not a possess a “vested right” to collect taxes owed under the prior version of the law. The State disagrees, arguing that, under this court‘s recent decision in Commonwealth Edison Co. v. Will County Collector, 196 Ill. 2d 27 (2001), retroactive application of the amendment is prohibited because such an application would attach new legal consequences to previously completed acts. We agree with the State, but we do so for different reasons.
In Commonwealth Edison, this court for the first time adopted the United States Supreme Court‘s retroactivity analysis, as set forth in Landgraf v. USI Film Products, 511 U.S. 244, 114 S. Ct. 1483, 128 L. Ed. 2d 229 (1994). Under the Landgraf analysis, as adopted by this court, the first question is whether the legislature has clearly indicated the temporal reach of an amended statute. Commonwealth Edison, 196 Ill. 2d at 38. If so, then, absent a constitutional prohibition, that expression of legislative intent must be given effect. Commonwealth Edison, 196 Ill. 2d at 38. If not, then the court must determine whether applying the statute would have a retroactive impact, i.e., whether it would impair rights a party possessed when he acted, increase a party‘s liability for past conduct, or impose new duties with respect to transactions already completed. Commonwealth Edison, 196 Ill. 2d at 38. If there would be no retroactive impact, then the amended law may be applied retroactively. Commonwealth Edison, 196 Ill. 2d at 38. If there would be a retroactive impact, however, then the court must presume that the legislature did not intend that it be so applied. Commonwealth Edison, 196 Ill. 2d at 38.
As it turns out, despite the analytical challenges typi-
“No new law shall be construed to repeal a former law, whether such former law is expressly repealed or not, as to any offense committed against the former law, or as to any act done, any penalty, forfeiture or punishment incurred, or any right accrued, or claim arising under the former law, or in any way whatever to affect any such offense or act so committed or done, or any penalty, forfeiture or punishment so incurred, or any right accrued, or claim arising before the new law takes effect, save only that the proceedings thereafter shall conform, so far as practicable, to the laws in force at the time of such proceeding.”
5 ILCS 70/4 (West 2000) .
In Glisson, this court construed the foregoing language as authorizing the “retroactive application of amendments or repeals in criminal statutes *** only if such changes are procedural in nature.” Glisson, 202 Ill. 2d at 507. Conversely, section 4 “forbids retroactive application of substantive changes to statutes.” Glisson, 202 Ill. 2d at 507. Thus, section 4 represents a clear legislative directive as to the temporal reach of statutory amendments and repeals: those that are procedural in nature may be applied retroactively, while those that are substantive may not.
Of course, in Glisson, we spoke only of “amendments or repeals in criminal statutes” (emphasis added) (Glisson, 202 Ill. 2d at 507), whereas the present case is clearly a civil matter. This is of no consequence, however, as nothing on the face of section 4 confines its application
In Connell, the decedent‘s will provided that a certain portion of his estate be devoted to the founding of a college. At the time of the decedent‘s death in 1897, bequests for educational purposes were subject to the Illinois inheritance tax. In 1901, and before a petition for the collection of decedent‘s estate taxes had been filed, the legislature amended the Inheritance Tax Act to exempt bequests for educational purposes. In rejecting the executor‘s argument that the 1901 exemption should apply retroactively to the decedent‘s educational bequest, this court explained:
“The amendatory act of 1901 does not, in terms, repeal the former act. It contains no saving clause, nor does it in terms purport to affect, in any way, any right, whether vested or inchoate, which might then exist. Section 4 of chapter 131 (Hurd‘s Stat. 1899, p. 1650) furnishes the guide for determining the effect to be given the amendatory enactment. That section provides: ‘No new law shall be construed to repeal a former law, whether such former law is expressly repealed or not, as to any *** right accrued or claim arising under the former law, or in any way whatever to affect *** any right accrued or claim arising before the new law takes effect, save only that the proceedings thereafter shall conform, so far as practicable, to the
laws in force at the time of such proceedings.’ It is to be assumed the amendatory act was framed in view of the provisions of said section 4 of chapter 131, and that it was the legislative intent the amendatory act should have prospective operation, only. Statutes declaring the effect of or the construction to be given subsequently enacted repealing acts will be deemed operative and effective by the courts unless a contrary intent is plainly manifested in the later enactment. [Citations.] The right which accrued or the claim which arose to the tax, under the statute in force at the time of the death of the testator, was therefore unaffected, and remained enforcible notwithstanding the subsequent enactment exempting bequests for educational purposes from the tax. [Citations.]” Connell, 210 Ill. at 386-87.
Significantly, section 4 reads exactly the same today as it did on July 1, 1874, the day it was enacted.
In light of section 4, the Landgraf analysis in Illinois becomes quite simple. Indeed, with respect to a statutory amendment or repeal, it is virtually inconceivable that an Illinois court will ever go beyond step one of the
Turning back to the question at hand, then, we must decide whether the 1999 amendment to
Uniformity Clause
Finally, we are asked to consider whether the version of
The uniformity clause of the Illinois Constitution provides as follows:
“In 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. Exemptions, deductions, credits, refunds and other allowances shall be reasonable.”
Ill. Const. 1970, art. IX, § 2 .
In light of the foregoing language, we are hard pressed to identify even the basis for a uniformity challenge to the preamended version of
CONCLUSION
For the foregoing reasons, the judgments of the ap-
Judgments reversed; cause remanded with directions.
JUSTICE FREEMAN, specially concurring:
Although I agree with the result the court reaches, I write separately to note my disagreement with the analysis utilized with respect to whether amended
In Commonwealth Edison Co. v. Will County Collector, 196 Ill. 2d 27 (2001), this court adopted the retroactivity test developed by the United States Supreme Court in Landgraf v. USI Film Products, 511 U.S. 244, 128 L. Ed. 2d 229, 114 S. Ct. 1483 (1994). According to these cases, the first step in undertaking the retroactivity analysis is to determine whether the legislature has prescribed the statute‘s proper reach. If there is no legislative directive on the temporal reach of the statute, we must then establish whether the application of the statute to the conduct at issue would result in a retroactive effect. If so, then we must presume that the statute does not apply to that conduct. See Commonwealth Edison, 196 Ill. 2d at 38, citing Landgraf, 511 U.S. at 280, 128 L. Ed. 2d at 261-62, 114 S. Ct. at 1505.
Despite the fact that the United States Supreme Court has warned that “deciding when a statute operates ‘retroactively’ is not always a simple or mechanical task” (Landgraf, 511 U.S. at 268, 128 L. Ed. 2d at 254, 114 S. Ct. at 1498), my colleagues today hold that, in Illinois, the task is indeed simple: “[A]pplication of the Landgraf approach *** should prove uneventful.” 207 Ill. 2d at 92. This is so “because, as this court recently acknowledged in People v. Glisson, 202 Ill. 2d 499 (2002), the legislature has clearly indicated the ‘temporal reach’ of every amended statute.” (Emphasis in original.) 207 Ill. 2d at 92. The legislature does so either expressly in the new legislative amendment or by default in section 4 of the Statute on Statutes, which serves, according to the court, as a “clear legislative directive as to the temporal reach of statutory amendments.” 207 Ill. 2d at 92. The court concludes that “it is virtually inconceivable that an Illinois court will ever go beyond step one of the Landgraf approach.” 207 Ill. 2d at 94. In this way, “for purposes of Landgraf‘s first step, the legislature always will have clearly indicated the temporal reach of an amended statute, either expressly in the new legislative enactment or by default in section 4 of the Statute on Statutes.” (Emphasis in original.) 207 Ill. 2d at 95. I am wary of this expansive holding for several reasons, which I address seriatim.
As an initial matter, the application of section 4 of the Statute on Statutes to this case is not before us. The appellate court did not rely on the statute in reaching its conclusion, and none of the parties have ever argued that the statute has any bearing on this case. I further note that, even though we entertained oral argument in this case in November 2002 and our decision in People v. Glisson, 202 Ill. 2d 499 (2002), was handed down just weeks later, neither party has moved to cite Glisson as supplemental authority in this case. If Glisson holds that “the legislature has clearly indicated the ‘temporal reach’ of every amended statute,” as the court says it does (emphasis in original) (207 Ill. 2d at 92), then I find it somewhat surprising that the case has not been cited to us, especially by the State, because it has been the position of both parties in this appeal that the legislature did not clearly express the temporal reach of the amended
Moreover, the attorneys representing both parties in this matter have prepared very thorough and comprehensive briefing, so I do not believe that the failure to cite
More fundamentally, however, I believe the court errs when it holds that section 4 serves as the clear expression of legislative intent that is contemplated in the first step of the Landgraf analysis. Under Landgraf, the initial inquiry is fairly straightforward—did the legislative body identify, with clarity, the conduct, past or future, to which the newly enacted statute was to apply? Stated differently, we must ask whether the legislature expressed an intent that the statute be applied to events which occurred before the statute was enacted.3 This inquiry must be distinguished from the second step of the analysis, which is whether the statute will have an impermissible retroactive impact or effect on past conduct. This comports with the Supreme Court‘s observation in Landgraf:
“A statute does not operate ‘retrospectively’ merely because it is applied in a case arising from conduct antedating the statute‘s enactment [citation] or upsets expectations based in prior law. Rather, the court must ask whether the new provision attaches new legal consequences to events completed before its enactment. The conclusion that a particular rule operates ‘retroactively’ comes at the end of a process of judgment concerning the nature and extent of the change in the law and the degree of connection between the operation of the new rule and a relevant past event. Any test of retroactivity will leave room for disagreement in hard cases, and is unlikely to classify the enormous variety of legal changes with perfect philosophical clarity. However, retroactivity is a matter on which judges tend to have ‘sound ... instinct[s],’ [citation] and familiar considerations of fair notice, reasonable reliance,
and settled expectations offer sound guidance.” Landgraf, 511 U.S. at 269-70, 128 L. Ed. 2d at 254-55, 114 S. Ct. at 1499.
I must point out that just because a newly enacted statute might reach back to antecedent events does not mean that the statute is impermissibly retroactive. Therefore, the first step of the Landgraf analysis is concerned with fixing the temporal reach of the statute while the second step, undertaken only if the temporal reach extends to past events, examines the impact the newly enacted statute will have on the past conduct. If that impact is “impermissibly retroactive,” it will not be allowed. Section 4 of the Statute on Statutes does not expressly prescribe the temporal reach of every amendment in any way. Rather, the section is concerned with whether the new legislation will impact upon past conduct in an impermissibly retroactive manner.
In addition, I think it important to stress that the United States Supreme Court has not utilized the federal general savings statute (
In addressing these arguments, the Supreme Court noted that “the first step in determining whether a statute has an impermissible retroactive effect is to ascertain whether Congress has directed with the requisite clarity that the law be applied retrospectively.” St. Cyr, 533 U.S. at 316, 150 L. Ed. 2d at 372, 121 S. Ct. at 2288. The Supreme Court rejected the INS‘s arguments that the comprehensiveness of the legislation, its effective date, and the inclusion of a saving provision within the legislation itself dictated the temporal reach of the amendment in question. St. Cyr, 533 U.S. at 317-20, 150 L. Ed. 2d at 372-74, 121 S. Ct. at 2288-90. Critically, the Supreme Court did not resort to the federal general saving statute in the absence of the requisite clear expression of congressional intent. Rather, the Supreme Court “proceed[ed] to the second step of Landgraf‘s retroactivity analysis in order to determine whether depriving removable aliens of consideration for [discretionary] relief produces an impermissible retroactive effect for aliens who, like respondent, were convicted pursuant to a plea agreement at a time when their plea would not have rendered them ineligible for [discretion-
The Supreme Court‘s analysis in St. Cyr is instructive on the type of analysis a court is to employ in the first step of the Landgraf test. It would appear that a court is to focus on the language of the Act itself (St. Cyr, 533 U.S. at 317-19, 150 L. Ed. 2d at 372-73, 121 S. Ct. at 2288-89) and its legislative history (St. Cyr, 533 U.S. at 320 n.44, 150 L. Ed. 2d at 374 n.44, 121 S. Ct. at 2290 n.44). I note that the Supreme Court did not look to the federal savings statute after it determined that the language of the amendment was silent as to temporal reach. This suggests that a general savings statute, such as section 4, has little relevance in this step of the analytical process. In fact, my independent research has failed to unearth a single case in which a savings statute such as section 4 has been used in the manner advanced by the court today. This court adopted the Landgraf analysis in Commonwealth Edison just two years ago; however, the analysis has been applied in the federal courts since 1994. It would seem to me that if a general savings statute has the applicability to the analysis that the court posits here, some federal jurist would have noted it over the course of time. The fact that not one has done so, coupled with the inapplicability of Glisson, causes me to regard the broad conclusions reached today with a skeptical eye.
In view of the foregoing, I believe the better approach in this case is to apply the Landgraf test as suggested by the parties and in the manner set forth by the United States Supreme Court. As I noted previously, neither party contends that the General Assembly provided a clear expression of the temporal reach of the amended
After reviewing the arguments of the parties in this case, I believe that to grant a retroactive tax credit would “attach new legal consequences” to completed events. See Commonwealth Edison, 196 Ill. 2d at 39. Retroactive application of the amendment would give plaintiffs new rights to tax credits, take away the Department‘s old rights to tax revenues, and impose new obligations on the Department to refund taxes. As the United States Seventh Circuit Court of Appeals has recognized, “[c]hanging today‘s financial consequences of an earlier transaction is the paradigm of retroactivity.” Jahn v. 1-800 Flowers.com, Inc., 284 F.3d 807, 811 (7th Cir. 2002). Therefore, in the absence of a clear legislative indication
CHIEF JUSTICE McMORROW and JUSTICE KILBRIDE join in this special concurrence.