Continental Illinois National Bank & Trust Co. v. Zagel

here; is and on that we limit our basis persuasive holding: a State is because it is a proper direct party plaintiff and intended in the con- identified beneficiary clearly tract before us. The State’s

The second issue can be decided. readily amended alternatively respectively complaint, III, D, Inc., 8cD I and that C 8c or C counts alleged D, Inc., IBA. C 8c breached the contract with Partnership rule on the court failed to contends appellate D, Inc., circuit court’s dismissal of C 8c as a party proper However, if “the is in doubt as to the defendant. plaintiff redress, he he from whom is entitled person may join defendants, two or more and state his claim them against ***” in the alternative Rev. Stat. ch. (Ill. discussion of the par. 24(3)). Any propriety making D, Inc., C 8c in the absence of party premature proof. reasons,

For court, these we affirm the but appellate above, as delimited and remand the cause to circuit court for further consistent with this proceedings opinion. and remanded.

Affirmed (Nos. 52366 cons.

CONTINENTAL ILLINOIS NATIONAL BANK AND

TRUST COMPANY OF al., CHICAGO et Petitioners, v. ZAGEL, al., B. Director of Revenue, et JAMES Respondents. W. et al., SWANSON —PAUL d/b/a Hill Chapel Petitioners, Properties, B. JAMES ZAGEL, al., Revenue, Director of et Respondents.

Opinion November filed RYAN, dissenting in JJ., concurring part CLARK and and part.

MORAN, dissenting. J., Whalen, K. W. Davis and Wayne Scott J. James Genden, Platt, for Brown Mayer, & peti- Chicago, and Co. tioners Continental Illinois National Bank & Trust Central Illinois Co. Light Moore, of

William I. Donald Goldberg Page Fink, Paul for W. & petitioners Antonow Chicago, et al. Swanson Scott, General, of Attorney

William Springfield J. General, L. First Assistant Caplan, Attorney (Herbert Marsh, General, of Assistant Special Attorney Jeremiah Chicago, respondents. counsel), Bernard of Carey, State’s P. Attorney, Chicago (Paul Biebel, State’s of for Jr., Attorney, Deputy counsel), curiae amicus of Cook. County R. of Counsel,

William Quinlan, Corporation Chicago Retke, Counsel, Assistant and Lee Corporation (Robert J. Schwartz, Counsel, Assistant of Special Corporation for amicus curiae of counsel), City Chicago. A. Power of and Michael Joseph Murray, Chicago J. Harte, of amici curiae for

(William Chicago counsel), J. Park District and of Board Education of the of City Chicago.

R. Garrett of for amicus curiae Phillips, Springfield, Illinois of Association School Boards. Thomas D. Robert Nyhan, C. and Bonges James J.

Brennan, Fowle, of Ballard, & Chicago Shepard (Pope, of curiae for amicus Illinois State Chamber of counsel), Commerce. Poltrock &

Dejong, Giampeitro, Chicago (Lawrence Poltrock, A. B. and N. Wayne Giampietro Freerk- Gregory sen, of for amicus curiae Illinois Federation of counsel), Teachers, AFL-CIO.

MR.' UNDERWOOD delivered the opinion JUSTICE court: Two actions Const. art. original taxpayers’ (Ill. ex rel. VI, People to revenue e.g., sec. (see, 4(a)) relating 242; ex rel. Ill. People v. Howlett 2d (1972), Klinger 476; v. Mahin 49 Ill. Thorpe v. Lewis 2d Ogilvie of this to leave were filed 36) pursuant 2d R. consolidated and argument court 381) (58 seek a Both declaratory judgment complaints opinion. 1SS—1, tax act Act that the Illinois (Pub. 81— referred to as the hereinafter effective August is invalid. Act) date of the was filed on the effective

Cause No. 52339 Bank Trust Continental Illinois National Act by Illinois and Central Company. Light Chicago Company several of tire Act on seeks invalidation That petition IX, attributable to article constitutional primarily grounds, of 1970. On Constitution the Illinois section 5(c), No. a related 20, 1979, we ordered cause August Hill entitled action filed Chapel Proper- partnership No. ties, with cause be consolidated 52339. Relying Constitution, IX, of the on article 3(a), primarily of the of that seeks invalidation No. portion cause tax on an income which would partnerships. Act impose claims, the basis of these constitutional petitioners On the to restrain seek an appropri- in both causes injunction the Act. Because State officials ate enforcing we of the issue and expedited briefing urgency importance and argument. of the constitutional requires challenges

Appreciation Entitled and of the Act’s an examination purpose. origin valorem of ad to the abolition personal “An Act in relation lost of revenues thereby tax and the replacement IX, ***,” to 5(c), it was enacted pursuant Constitution, which 1970 Illinois provides: of the 1979, 1, the General Assem- January or “On before personal valorem all ad bly by law shall abolish shall thereafter concurrently therewith and taxes and government of local units replace all revenue lost of ad valorem result of the abolition districts as a school 2, subsequent January property taxes to 1971. replaced by imposing Such shall be revenue statewide taxes, estate, than real solely other ad taxes on valorem on of those classes of ad paying relieved burden of personal property valorem taxes because the abolition 2, any to 1971. If subsequent January such taxes taxes imposed replacement purposes for such are taxes or income, replacement measured taxes such shall not be for of one purposes considered limitations tax and of 8 3(a) ratio to 5 set forth in Section of this Article.”

The General a failed to Assembly provide ad valorem 1, tax personal property prior January 1979. In Client Co. v. Follow-Up Hynes 208, 230, we held that section article IX rendered ad valorem tax after invalid existing and constituted a mandate to January continuing the General to enact a tax. On Assembly June 30, 1979, the General House Bill Assembly passed which was an earlier version of the Act. Subsequently, Governor exercised an over veto House Bill amendatory and the General session Assembly special his recommendations on 1979. approved August Upon the Governor’s certification of the General Assembly’s actions, the Act became law on August

The Act two taxes. One is the imposes income which increases the income yearly corporate rate tax from until 4% 6.85% January thereafter. This 6.5% trusts and subjects partnerships, for which there is in effect for corporations tire taxable an election under section the Internal year Revenue Code to additional income taxes (subchapter S) at an rate annual The other is the invested 1.5%. tax, which various to a capital utilities subjects public tax of on invested The 0.8% Act further yearly capital. Fund, establishes the Personal Tax Property Replacement into which both taxes will be proceeds placed.

The assert that the Act unconstitutional petitioners First, on several maintain that the grounds. petitioners Governor’s his exercise of veto ex- amendatory power ceeded the bounds of article IV of the 1970 9(e) Constitution, Illinois which provides: may together

“The Governor return a bill with specific change recommendations for house in originated. which it The bill shall considered in the be manner specific same as a vetoed bill but recom- may accepted by mendations be a record vote of a majority of the members elected to each house. Such bill presented again shall be to the if he Governor and certifies acceptance specific such conforms to his recom- mendations, If the bill shall become law. he does not so certify, he shall return it as a vetoed bill to house in which it originated.”

The Governor veto to make the employed amendatory recommendations: reduction of the increase following (1) in the income tax from the yearly 2.85% corporate in House Bill for the 2.5% provided period 1, 1981; for following January (2) special provisions returns affected the rate in the taxpayers’ change middle of a tax consistent treatment in the year; (3) of base income and of returns for computation filing the first S Only subchapter corporations. partnerships this recom- recommendation challenged. Arguing mendation involved more than a minor or technical change of House Bill maintain that the Gover- petitioners nor’s use of the veto unconstitutional. We power disagree.

The extent of the Governor’s veto amendatory power under section of article IV was examined this court 9(e) ex rel. v. Howlett People Klinger There, it that section authoriza was concluded 9(e)’s did not tion recommendations “specific change” include the substitution of a new bill completely through exercise veto While amendatory power. noting the existence of such words of limitation in the records the constitutional convention as “corrections” and “pre- corrections,” cise in the debates was significant exchange also noted. In Netsch’s response Delegate question: “Then was it the that the Committee’s conditional thought be veto would available errors?”, correct technical a committee member “No Ma’am.” Ill. replied: 2d (50 242, The absence clarification, course, of further of 249.) leaves unclear the drafter’s intent as to the of precise scope veto amendatory power.

While that constitutional debates often recognizing assist in of unclear constitu comprehending purpose tional we have that “the provisions, true emphasized concerns the of its inquiry understanding provisions by who, voters vote, their have life to the given product the convention.” Co. v. (Client Follow-Up Hynes (1979), 75 Ill. 2d ex rel. People Keenan v. citing McGuane 520, 527; 13 Ill. 2d v. (1958), Avery Wolfson 78, 88; 6 Ill. Burke v. Snively Ill. 2d (1955), 208 344; see also Hoogasian Transportation Regional Authority In Client Follow- 2d v.Co. Up we relied to a Hynes, extent on significant public of section IX of the comprehension Constitution to determine that it abolished ad valorem taxes as 1979. We January inferred from views public part understanding expressed in the who roles in press by persons played significant the 1970 Constitution and whose would framing opinions with voters. presumably carry great weight (75 Even less of inference is to ferret 224-26.) by way required out IV, section of article public understanding 9(e) since the voters themselves have addressed the very we now consider. resolution of the question General By a for Assembly, proposal amending 9(e) submitted to the voters in 1974. That would have proposal altered the sentence of section to read: “The opening 9(e) Governor return a bill with recom may together specific mendations the correction of technical errors or matters of form to the House in which it originated.” (H.J. This amendment 78th Gen.

Res. Const. Amend. Assem.) 1974 referendum. When the voters in the was rejected by restriction is viewed of the this rejection proposed public somewhat with the interpretation imprecise along of article IV was not that section it is clear 9(e) delegates, veto to restrict the voters amendatory intended by device. Although point power proofreading does not extend veto which the amendatory power beyond or refer- debates clear from the constitutional is not as not, reached here. endum, in our judgment, point the Governor made by The recommendations specific in the contain no Bill House change regarding so nor are they fundamental legislation, purpose his use of the veto as to render or so substantial expansive IV. of article of section violative 9(e) power violates section the Act Petitioners also assert insofar Constitution IX of the 1970 Illinois of article 5(c) the under as the revenue to be collected replacement the been collected under which would have exceeds that that the have tax. The stipulated parties personal million in revenue will raise during $520 replacement have million would been 1980 and that $468 tax in 1980. the collected under million difference $52 contends that Petitioner tax is a “revenue genera- establishes that replacement contem- tax as a “revenue rather than replacing” ting” IX. of article section 5(c) plated fail. Section must 5(c) the contention In our judgment on the IX an affirmative duty legislature of article places of local units all revenue lost to government “replace of ad of the abolition as a result districts and school to January taxes subsequent valorem personal property not limit does legislature’s While this 1971.” language lost, as actual revenue to the amount duty replacement lost, a such limitation revenue from potential distinguished constitu- commentary during by delegate supported rate nature and as to the When tional debates. questioned McCracken indicated an replacement Delegate intention on the of the drafters to “reimburse part local for their actual lost revenue.” governments only (5 Record of Sixth Illinois Constitutional Con- Proceedings, vention hereinafter referred to as Proceedings.) this in the context of a Although explanation given income, discussion of the tax on corporate there is no indication of a intention in the contrary discussion of the tax on invested companion replacement we view the mandate of section capital. Accordingly, 5(c) IX lost revenue as replace replace- requiring ment of the value of the amount collected rather than the amount extended under the tax. personal property not, however,

This construction does require holding that section of article IX a dollax-for-dollar 5(c) requires The of section is to replacement. underlying objective 5(c) insure that local entities and school districts governmental receive funds sufficient revenue lost operating replace abolition of the through tax. (Client Follow-Up Co. Hynes citing Elk Grove v. Korzen Co. Engineering 55 Ill. 2d Also of concern, fundamental however, is that the revenue raised under the tax not be to undermine permitted the 8-to-5 ratio of corporate individual income tax in section specified of article 3(a) IX, a which exists because section possibility of article IX income tax exempts from that ratio. The is illustrative: following exchange just

“MR. WILSON: I have one question additional I’d like to ask Mr. just I McCracken. wanted to be sure you that I understood correctly. proposal Your here [the 5(c) exemption] would not disturb the eight-to-five ratio provided in section except that it would allow an additional measured solely income and only for the purpose of providing these funds. that Is correct? ‘allow’; Well, MR. McCRACKEN: not ‘require.’ Not

‘allow’; ‘require’ require an additional tax over and above — eight-to-five. the it, otherwise, the WILSON: Over and above but MR. eight-to-five preserved. is ratio integrity MR. McCRACKEN: Correct. Proceedings you.” 5 3836.

MR. WILSON: Thank the involved in the drafting Clearly, delegates IX that their of article proposal 5(c) recognized When asked whether the same not free problems. have to be raised from a revenue would amount therein class even may membership though particular decline, McCracken negatively: responded Delegate you point with this which There are difficulties

“No. even and there are by your question, Knuppel, Mr. out recognize. which we greater difficulties no, your question is sayme the answer to Let by the legislature. determined going it’s to have to be but just my part. I would ‘no’ on categorical It’s not a would use reason. anticipate legislature the else, something perhaps out point let me But 1979, each district of this: In even a more difficult result dollars, that’s what ‘X’ because going get reimbursed is in raised in the district Suppose these to have inflation. we continue Suppose on. on and so and so grow and so districts continue compensating things, for those by this means We are not Proceedings very imperfect (5 solution.” so this is a was not the intention that it This demonstrates passage IX to of article drafters of section place 5(c) rather, in a they straitjacket; recognized legislature trends and chose and inflationary uncertainties economic to arrive at a leeway the General Assembly give We conclude that solution. reasonable replacement be raised under Act of revenue to amount anticipated an unreasonable as to constitute not so excessive is out discretion exercise of carrying legislative IX, when of section mandate particularly of a 1980 dollar the diminished power purchasing considered.

401 is the in which The 1980 first year proceeds year realized, tax will and a the be replacement comparison the for is the least estimated revenues that be year likely final Governor’s Committee to distorted. In its the report, Personal Tax indicated the Replace Corporate Property that the to raise $460 was designed replacement million in because the estimated that represented amount of tax for collection under the personal property of the Governor’s Committee to (Final Report the Personal Tax Replace Corporate Property 2 (Apr. however, The that have the 1979).) parties stipulated, would raise million in 1980 and that $520 replacement the tax would have raised million $468 in 1980. These differences the extent demonstrate which the revenue those projections, especially pertaining to the are Given the fact that replacement speculative. economic alter trends those may significantly projections, However, become even less even assum- they meaningful. the which the have ing projections parties accurate, are we do find stipulated not the reasonably difference of in so 10% revenue collectible great as to the transform Act from the revenue- required to a measure. The replacing prohibited revenue-generating estimates, inherent in speculation these the including inflation, effect of and the continuing uncertainty economic makes trends consideration post-1980 projec- tions of little noor value.

This determination effectively disposes petitioners’ that, next contention the because revenue collectible under the Act exceeds that under which collectible the tax, and because the excess is primarily income, attributable to tax on corporate the failure to observe 8-to-5-ratio in limitation of article IX not redeemed to the 3(a) exemption ratio limitation in section of article IX. That exemp- 5(c) tion is restricted its to taxes imposed language income for Since we have deter- replacement purposes. do fact function as taxes

mined that taxes, follows necessarily replace- for the tax on income exemption ment qualifies corporate in section limitation as from the 8-to-5-ratio provided IX. of article in section

Petitioners also challenge requirement IX tax be of article that a imposed replacement 5(c) ad of the burden relieved paying on those classes “solely of the abolition taxes because valorem personal property is con- 2, 1971.” It to taxes of such subsequent January on this tax violates provision the tended replacement some partnerships the corporations, following grounds: the asset trusts, capital as those whose only and such the under no liability incurred of a stock corporation, the to tax but are subject replace- now property personal incurred tax; real property ment partnerships owning now but are tax under the no personal property liability tax income; on the to tax replacement subject replacement railroads, who some such as does not reach many persons, to the income, no who were have taxable but subject tax; are discrepan- there large allegedly personal property tax and the cies between amounts by replacement imposed tax; and those levied the foreign- personal property tax when source income is to the subject replacement from tax. the exempt personal property on the same issue premised Arguments involving IX were of article the same in section requirement 5(c) v. Kusper Co. Bank & Trust made in American National under consideration Ill. 374. The Act there 2d tax all from the property exempt personal attempted exclusive benefit held in trust for the personal property because In the Act a natural invalidating person. a replace failed to enact concurrently General Assembly tax, that a we the contention replacement ment rejected not since trusts were currently being tax was unnecessary tax in most counties and because replacement taxed under would shift the burden trusts exempt previously that “the fact tax. We reasoned the personal property from ad hold trusts exempt some previously property fact valorem and the that trust taxation personal property view, not, in our from to time does assets time change of a statewide render imposition as (69 totally impossible plaintiffs.” suggested on While we deem it to rule unnecessary extent to which the tax may impose on subjects liability previously exempt personal IX we do find that section property does not in the tax an exact correla require tion of taxed with those persons formerly tax. Such a result was subject the drafters. Illustrative is the specifically rejected by to a that the word “those” be substitu response proposal ted for the words “class or classes” in the section 5(c) sentence “Such revenue shall be providing replaced by *** statewide taxes those classes solely imposing relieved of the burden of ad valorem paying ***.” taxes Cicero responded: Delegate language Knuppel

“The that Delegate suggesting was avoided, specifically because it raises an even more critical problem, susceptible interpretation and that is it is of the taxpayer pay that the each has exact amount that he’s every of. The then taxpayer relieved idea would be that personal property relieved of whatever his last assessment was, situation, pay. or some similar would have to The they require idea here was that are not —that it not an taxpayer, you exact correlation on each since that gets problems back into all the of assessment of the individual taxpayers personal system; under the so I think language you that suggesting the are raises even more of a problem by the narrowing language.” focus than does this (5 Proceedings 3889.)

This defense of the contained in the explicit language restriction of section the narrow imposition 5(c) precludes construction is clear that petitioners urge, tax was to be intended on replacement imposed broadly those classes rather than on those particular persons

relieved of tax. personal property paying

Moreover, in section of article very provision 5(c) IX tax income from the 8-to-5- exempting replacement ratio limitation reveals that a new form of was intended to be taxed. Since a tax on replacement imposed of income the basis in section expressly contemplated we cannot those who 5(c), agree persons incurred under the were liability personal property fact the intended of the taxes. subjects a tax the basis income would not Certainly imposed be those who had little or no expected exempt Since it is conceded that the property. particular corpora tions and trusts the basis of are claim forming petitioners’ within the classes defined under because we find the classes to the subject correlative to those classes to the sufficiently subject tax, as identified this court in Hanley 452, 463, v. Kusper Ill. and Lake 2d Shore (1975), 237, 239, Auto Parts Co. v. Korzen cert. 54 Ill. 2d (1973), 1039, 329, denied 414 U.S. 38 L. Ed. 94 S. Ct. 2d (1973), 539, we conclude that the restriction in class-imposition IX has not been violated. and other common

The fact railroads specified carriers are from that replace exempted portion of utilities to tax which the invested ment subjects capital In order for this not alter our conclusion. taxation does succeed, must con every negate argument petitioners classifi ceivable basis which challenged might support 66 Ill. cations. v. 2d City Chicago (1977), (Williams v. Lake Shore Auto Parts Co. Lehnhausen citing 93 S. 35 L. Ed. 410 U.S. 2d (1973), 1006; v. Berry see also Costello Ct. 257; 342; 413 Ill. v. Halpin (1952), Reif Johnson We have previously upheld

Barrett for tax utilities classification particular separate in the a uniformity-clause challenge purposes against was unrea- the classification absence of a showing sonable and Gas & Coke Co. v. arbitrary. (Peoples Light Too, City railroads were Chicago treated from other utilities under the differently regulated tax insofar as utilities were personal property system to a tax while railroads subject separate personal property were to a on all the or owned subject property they used noncarrier real estate Rev. Stat. except (Ill.

ch. par. 561).

While that the petitioners argue replacement corporate income tax includes income of the foreign-source corpora- IX, tion violation of section of article it seems clear that since were corporations subject are a class within the of a they scope income tax and the source of that income is irrelevant unless excluded by legislature.

That claim which portion petitioners’ challenges income tax on imposition partnerships merits additional consideration. Petitioners contend that the Act violates section of article IX 3(a) by taxing income of in addition to the income of partnerships individual In partners. considering petitioners’ primary that of section argument plain language 3(a) operates taxation, exclude income from partnership we must consider section in its 3(a) entirety:

“A tax on or measured income shall be at a non-graduated any may rate. At one time there no be imposed by more than one such tax the State for State purposes on imposed individuals and one such tax so on corporations. any imposed In upon corporations such tax imposed the rate shall not exceed the rate on individuals IX, more than a ratio of 8 to (Ill. 5.” Const. art. 3(a).) sec. construction,

Under petitioners’ only “corporations” “individuals” be taxed and be may only may single either; a tax on a is not imposed partnership unauthorized, it also constitutes double taxation construction, individual. We find this based predominantly 406 a fair

on of reading negative implication, unsupported with relevant of the statute in conjunction portions from our of constitutional debates. examination Nothing the debates indicates that section was so intended. As 3(a) who in following passages delegates participated reveal, of section this section was 3(a) drafting intended of a only prevent imposition graduated tg.x: income *** purpose “MR. DAVIS: he sole of this [T] substantially 3(a) amendment in an earlier but [section not, by the state will

similar is to make certain that form] one or more taxes on a base superimposing income graduated income tax situation.” income create a Proceedings 1961. *** 3(a) “MR. in an earlier CICERO: t [section [I] substantially simply was intended but similar form] Delegate Davis concerned prevent the matter that individuals, perhaps of about and that is a series taxes way imposing groups as a a embracing different income tax; I that is the sole graduated and think income objective to both individuals this sentence as corporations.” Proceedings of relevant in the From our examination passages debates, unable to find of the we are any transcripts intended to indication that the drafters of section 3(a) income tax. In exclude from the partnerships replacement fact, is from discussions intention contrary suggested tax on income the contemplated replacement concerning In to remarks in section concerning 5(c). response tax would be which the classes expected upon fall, McCracken stated: Delegate taxpayers in the talking types “I am about different talking I about generic or most sense. am broadest individuals, perhaps in I about corporations; talking am in their perhaps capacities proprietors, their as sole talking I sure whether am partners. I am not capacities as not, supreme of the I am not sure them or because about “individual”; may I but of the term interpretation court’s may talking I be about talking proprietors, about sole be I talking corporations, partnerships, definitely I am about trusts, may talking may talking I be about be about That, think, possibilities.” (Empha- estates. I exhausts the added.) (5 Proceedings sis indicates,

As this at were least aware passage delegates be to the prospect partnerships subject might tax on income. Having recognized possi- it seems reasonable to assume that the drafters bility, would at have least discussed if such were excluding their intention. This in an actually assumption grounded to the in section of article IX of a analogy exemption income from the 8-to-5-ratio limitation fact, in If, contained section IX. 3(a) were intended to taxation of 3(a) preclude partnership income, a similar would have been in needed exemption section to its taxation. The fact that the permit that section be considered delegates recognized 5(c) might to such and taxation did not act to permit section qualify is that was not to 3(a) intended persuasive preclude taxation of We income. conclude that partnership section of IX not does exclude 3(a) operate partnership income from the tax. that the the of

Petitioners’ claim Act income subjects an to two in of individual taxes violation partner IX of article is of the of this 3(a) disposed opinion court in Lake Shore Auto Parts v. Korzen 54 Co. (1973), 1039, Ill. denied 414 L. cert. U.S. 38 2d (1973), 329, Ed. 94 S. Ct. where it was held that the 2d and, a of distinct from partnership thus, taxable of indi apart v. vidual also 61 Ill. Hanley Kusper partners. (See (1975), Lehnhausen v. Lake Shore Auto 2d 461.) Similarly, L. S. Parts 410 U.S. 35 Ed. 93 Co. 2d (1973), Ct. are of the and Hanley dispositive argument or at of an individual the income partner corporate taxing than who is a rate an individual or not corporation higher of S and income partner, subchapter corpora taxing tions more than that of at a favorable rate other the uniformity the Act. Though invalidates

corporations State’s of this clause and equal protection requirement same result Hanley, raised not also were constitution have since petitioners these obtain under provisions, would the classifications of burden their proof failed carry City Chicago v. Williams unreasonable. and are arbitrary of 423; City Chicago (1973), v. 66 Ill. 2d of Jacobs 36; 43 Ill. 2d Mahin 421; v. Thorpe 2d 289; Doolin Ill. 2d & Co. Stevenson (1969), Grenier v. Korshak (1968),

Petitioners also seek invalidation of the onAct that the tax on the invested grounds capital is a ad valorem utilities fosters double prohibited taxation, and violates the uniformity equal protection of the State Constitution. We with requirements disagree each of these claims. noted,

As we earlier the Act utilities to an subjects annual tax “invested which is defined 0.8% capital,” as an “amount the balances at equal (i) average end each taxable beginning period total stockholder’s and total taxpayer’s equity long-term debt, all less investments in and advances to corporations, as set forth on the balance sheets included in the annual to the Illinois Commerce Com taxpayer’s report mission for the taxable a fraction period; (ii) multiplied 301 and of the ‘Illinois determined under Sections 304(a) income tax Income Tax Act’ and on Illinois reported return for the taxable in or with the taxable period ending 1979, 120, Rev. ch. Stat. period question.” pars. (Ill. 467.1, 467.16, 468, that a tax Petitioners contend 1401.) of invested so defined violates section capital IX, valorem which ad taxes. prohibits Because the amount of invested a capital possessed by bears a one-to-one with the utility allegedly relationship assets, of tax on invested value its the replacement capital

409 to is said rise and fall to the value aof according utility’s maintain, assets. Consequently, petitioners replace tax ment on invested an ad is valorem tax. capital which, Petitioners liken this to a stock tax capital when on the assets of a imposed intangible corporation, has been deemed be a tax on (People personal property. ex rel. v. Louis Little St. Merchants Co. Bridge 291 (1919), 105; 95, Ill. Parsons v. East St. Louis Gas & Coke Light 382-83; 380, Co. 108 Ill. v. Corbin (1884), Cooper (1882), 230; 224, 105 Ill. Belleville Nail v. ex Co. rel. People 399, Weber Thus, (1880), 405-06.) petitioners conclude that the tax on invested is an capital ad valorem tax on personal property.

In we note that considering petitioners’ allegations, a there is the constitutional presumption favoring validity of a taxation, State’s scheme this “and presumption be overcome ‘may clear that showing ” arbitrary set facts.’ unsupportable by any (Berry v. 345, Costello 342, Ill. 62 2d (1976), ex People citing, rel. Kutner v. 266, Cullerton 58 Ill. 2d (1974), 273.) “ Moreover, we burden is on again emphasize ‘[t]he the one attacking legislative arrangement negative ” conceivable basis which it.’ v. every support might (Berry Costello Ill. 62 Lehnhausen 2d (1976), quoting v. Lake Shore Auto Parts Co. 410 U.S. (1973), 1006; 35 L. Ed. 93 S. Ct. see also 3; v. Williams Ill. City Chicago 2d 42 (1977), Johnson 257; Barrett Ill. Halpin Reif v. Here, we have failed conclude petitioners their burden of since we find the carry proof excise on invested sustainable as an tax. capital its In final the Governor’s Committee to report, Personal Tax described Replace Corporate Property tax on the invested capital particular utilities in the manner: following gas subject

“Telephone, utilities will be electric 410 existing occupational

to an in their excise increase taxes equal (common percent capital to .75 their invested equity, equity long-term debt) allocable to preferred agreed to in order to avoid the Illinois. This increase was major were not shift which would occur if utilities made subject greater corporations to a burden than other since major corporate they presently pay portion a the (Final Report of the property tax.” Governor’s Corporate Replace Property Committee Personal 27, 3 (Apr. 1979).) Tax on was

This utilities unanimously ap- supplemental the assertion that the the committee proved by despite rather than Act’s taxation invested capital gross receipts tax. diminishes tax’s a We note character as privilege avoided a on committee specifically gross that it “would cause drastic shifts receipts by reasoning or incidence on different utilities necessitate differen- rates, tial Final questions Report raising equity.” Personal Governor’s Committee Replace Corporate 27, Tax 1 (Apr. 1979). Property Furthermore, this tax on invested in distinguishing tax, note that the tax is levied a we from capital assessor, it is of an since from any participation apart a the basis of currently on utility’s computed reported value, which values, rather than its market book may vary This tax on invested distinguishable widely. capital was stock which deemed the old Illinois capital taxed assets tax inasmuch as directly intangible basis of fair cash value law assessed by rel. ex v. People Little rather than book value. e.g., (See, 105; 95, Ill. St. Louis Merchants Co. Bridge 291 (1919), & v. Gas Coke Co. Parsons East St. Louis Light (1884), Ill. 382-83; v. Corbin Cooper 230; ex rel. Weber People Nail Co. Belleville Even if we were to 405-06.) regard however, it is not as directly invested capital property, under the Act The scheme the Act. taxed under taxing have a or who in” on those utilities falls instead “engaged Rev. in” activities. Stat. “right engage specified (Ill. 467.2a.l, 467.17a.l, 469a.l, ch. pars. the tax measured a invested That is utility’s capital tax, it a it is in all not render since signi does property a tax on the of ficant engaging respects imposed privilege like Other have in specified occupations. jurisdictions that tax schemes amount wise determined similar v.Co. taxes. In Scott-Rice than rather property privilege 208, it was 503 P.2d Tax Com. 1972), Oklahoma (Okla. used, invested of a tax on “the amount capital argued 208, business or 210) specified P.2d (503 employed” violated a State constitu the State within organizations ad valorem tax for State tional any prohibiting provision However, of because kind any purposes upon property. a on held not to be tax tax invested on capital of assets, of or from the assets or on the transfer income court found the business the specified organizations, than a tax. See also to be a rather tax privilege property v. Cir. 65 Southern McCallum Realty Corp. (5th 1933), 692, 935-36, U.S. 78 934, cert. denied 290 F.2d (1933), 127; United North & South L. Ed. 54 S. Ct. Heath Civ. v. 1934), Co. Development App. (Tex. tax as in same McCal S.W.2d 652 (construing lum). that the arguendo,

Even assuming, are unconvinced that a we is invested capital property Petitioners would have us tax. ad valorem it is an under the Act as defined that “invested believe capital” with the value of a a direct one-to-one bears relationship However, fail to see how Act’s we assets. utility’s invested cause would of assessment necessarily scheme in the rise or fall relation to in direct any to change capital of the method taxation assets. Since value of utility’s value to a cash utility the Act does not under assign value, and then a tax on that it does not levy ad valorem amount to an mode of taxation.

We find claim double taxation to be petitioners’ without merit. That claim is based on the fact to the tax on invested taxpayers subject would taxes of real on the value estate twice in capital pay the same to the extent that their invested is year capital However, in the held form real estate. since we have found the tax on invested to be a tax on the capital business privilege specified engaging occupations, there is no double taxation because is there another simply See, on the v. City directly e.g., Chicago property. 314; Bardon Willett Co. v. Nudelman 217-18; Rock Oil Deep 369 Ill. People 394-95. Corp. (1931), Petitioners also that the Act constitutionally allege one insofar as it addresses more than subject. defective IV, of the 1970 Constitution Article section provides 8(d), “Bills, for bills in except appropriations pertinent part: laws, codification, or of for the revision and rearrangement bills shall to one shall be confined subject. Appropriations In be limited to the of subject applying appropriations.” IV, 13, of in article section this section and its predecessor 1870, of this court has this the Constitution interpreted in a bill must be to mean that matters covered requirement those matters must be to a and subject germane general with each other. connected and (People naturally logically 487; 476, 49 Ill. ex rel. v. Lewis 2d Ogilvie Jordan 369, District 15 Ill. Metropolitan Sanitary 375; ex rel. Gutknecht v. City People Chicago (1953), of we find Under this 607-08.) interpretation, connected with and of this act directly provisions the ad valorem of to the subject replacing germane tax, and an appropriate legislative personal property forth in mandate set to the comprehensive response Act’s allocation of IX. Nor is the section of article 5(c) other counties Cook and revenue between throughout section of article IV of State violative 8(d) provision confined to the bills to be subject requiring appropriations the entire act Rather than transforming appropriations. for the bill, the allocation an specified into appropriations Rev. fund Stat. tax replacement (Ill. personal property to insure ch. propor simply attempts par. 616) tionate bodies lost revenue taxing the State as section of article throughout required by 5(c) IX. Petitioners contend that this allocation specified revenues from unfairly apportions

since, it fails to revenue lost in some they argue, replace areas of the State but distributes a to Cook surplus and violates section mandate to County, 5(c)’s replace revenues lost units of local and school government contentions, however, districts. Those are based on a of the Act’s allocation formula to actual comparison collections 1977. No con personal property or to immediately delinquencies given sideration for which the distribution of preceding years receipts tax collections to the correspond closely Moreover, Act’s allocation. the Act for minimum provides lost guarantees revenues to districts taxing State. Rev. throughout Stat. ch. (Ill. par. The Act’s allocation formula not violate does of article IX. contend that the General Additionally, petitioners has exceeded its Assembly restrict- legislative authority by the classification real ing personal property by section 18.1 to the Revenue Act of adding 1939: property “No lawfully assessed taxed as under prior January this Act shall be subject classified as real to assessment and 1, taxation under January this Act after 1979. No property lawfully property assessed and taxed as real prior under this Act to January shall be classified personal property subject as to assessment and taxation 1, January (Ill. under Act after 1979.” Rev. this Stat. 1979, 120, par. ch. 499.1.) maintain that this restriction on Specifically, petitioners classification encroaches on the to powers judiciary

determine what constitutes real for property purposes IX, 4, article section and what is IX, case, of article section Such is not the purposes 5(c). however, for the classification restriction is premised the word which to defers “lawfully,” judicial authority. v. East St. Louis & Suburban Smiley Co. e.g., Ry. (See, We also note that 4(b) IX conditions its classification specifically framework of real on “such limitations as the property General hereafter law.” Assembly may prescribe by

The debates reveal that the legislative primary purpose of this restriction on classification to property prevent the new tax from its function. As exceeding of this reasoned: sponsor provision “This was meant and not as a new tax. as

And, therefore, lawfully any property assessed as not property prior January under the Act 1st could be not, any property as real or property reclassified and also any lawfully property assessed and taxed as real prior January then be reclassified 1st could not as personal property. We don’t want a wholesale switch back may and forth. There be some isolated circumstances piece unlawfully where indeed a classi- could, fied. In that case it the classification could be challenged I would be in court and changed, but think it they prior would have to show that to the reclassification Gen. unlawfully (81st that it was indeed classified.” Assem., Sp. (Aug. 1979).) 1st Sess.

We in this which find restriction judicial nothing usurps or otherwise exceeds the bounds of authority legislative authority. that Act violates due

Petitioners contend process retro- taxes the extent apply did not become effective until the Act actively. Though a tax for the period beginning August imposes a retroactive tax is not per 1979. After holding July unconstitutional, se United States Court Supreme “ to consider the stated that n each case it is necessary [i] in which it is laid nature of the tax and the circumstances

415 is so that retroactive be said its before can application the constitutional as to harsh oppressive transgress 305 U.S. v. Henry limitation.” (Welch There, the tax was S. Ct. 126.) 83 L. Ed. 59 it was even offend due given held not to though process Since for months. period retroactive 27 application are the classes taxed is here days, retroactivity tax, and notice of the abolished relieved at by least provided replacement constructively IX of the of section article tax provision decisions, hold that the earlier we Constitution our is not Act’s constitutionally retroactivity impermissible. that Public Act 81—1SS—1 For reasons we hold these that its enforcement be is constitutional. The prayers denied. are enjoined denied.

Injunction CLARK, MR. in and dis- concurring part JUSTICE senting part:

I concur in and dissent in It part is belief that part. my IX, section of the 1970 Constitution 3(a), (Ill. IX, Const. art. sec. taxation, double 3(a)) proscribes and that because it authorizes double taxation as to income, contravenes that partnership consti tutional provision. IX,

Article states: 3(a), “Section LIMITATIONS ON INCOME TAXATION (a) A tax on or by measured income shall be aat non-graduated any rate. At may one time there be no more than one imposed such tax State State purposes on individuals and one imposed such tax so corporations. any In upon such imposed corporations the rate shall not exceed imposed the rate on individuals by more than a ratio of 8 to 5.” The second sentence of section 3 undeniably addressed to of more prohibiting than one imposition tax on the income of an individual or a corporation. Double taxation has been defined this court to mean twice, in the same for the same year,

“taxing purpose, in which the of the in the tax is some territory laid, without all of it a second time.” ex rel. taxing (People Toman v. Advance Co. Heating Close income as it scrutiny applies it falls within the reveals foursquare partnerships definition. foregoing

The majority asserts opinion income tax does not income twice based partnership on Lake Shore Auto Parts Co. v. Korzen 54 Ill. 2d (1973), cert, denied 414 U.S. 38 L. Ed. (1973), 2d 329, 94 S. case, Ct. 539. That however, distinguished between taxes on and on partnership individual It be partner’s personal may property. clearly seen that those two are different. The types property of a would personal property partnership presumably consist of the articles needed to operate partnership’s business, vehicles, furniture, such as office inventory, That would be different equipment. property quite each individual owned partner’s personal privately proper of the fact that the two ty. Recognition types property are is in the in that case that ad separable implicit holding valorem be taxes levied personal may upon property but not partnership property upon personal personal owned a natural Ill. by person. (54 239.) But that distinction does not hold true as to income. income earned is Clearly, by partnership precisely Thus, same income which is distributed to the partners. same, is irrefutable herein if the income is the it is taxed twice: once when the realizes the being partnership means income income and a by it, when the receive in the form second time partners the State income tax. personal met,

The “same as demon- purpose” requirement income tax strated the fact that both the tax have the and the income general purpose and its revenue for the State various generating operating

417 is a subdivisions. The fact that one tax does not alter its the two taxes are purpose. Certainly levied and collected in the same being year.

The last element is also satisfied since it is only which is income derived from doubly partnerships being taxed, and not or individual income. It has been corporate if established all were taxed twice in a taxpayers manner, taxation, uniform such a tax would not be double but the same as twice as a tax on merely levying large in the first School every taxpayer place. (Independent District v. Iowa Security Com. Employment Iowa It is when N.W.2d the two taxes are not to all applied uniformly that double taxation results. That is the case here as clearly to income derived from partnerships.

A similar situation was to this court presented ex People rel. Abt v. Ferry Co. Wiggins The owner of a tract of land in St. Clair County leased it to a The railway company. railway company assessed the State Board of for its Equalization for the 1911 and right-of-way taxes year paid accruing thereon. Later the assessor made an county assessment the entire tract. The owner of the land to the objected assessment on that of the used the portion premises by as a that it resulted in a railway right-of-way, claiming “double contention was assessment.” The owner’s upheld, the court that the had been subjected stating right-of-way to a double 1911. assessment for the The owner had year the to to the of taxes levied object any right payment virtue an the same against by upon property assessment the local assessor. Ill. 458. by 257 District v. To the same effect is Sanitary Young tax was Ill. There a 285 423. levied the district its transmission against sanitary upon lines, which and steel towers set consisted wooden poles bases, in concrete which wires were stretched. The upon real district that since these facilities were sanitary argued taxes were a for which real estate paid, personal property, would result in double tax assessed them against that the facilities taxation. After the conclusion reaching such, and, to real were indeed real as subject district’s taxes, court with the estate the sanitary agreed that of the bill of and reinstated equity argument portion chancellor. which had been dismissed the R.R. New York Central Co. Stevenson in Finally, court held that where two taxes Ill. this issuance of stock to were on the capital pursuant imposed acts, act would be considered to two different the later The rule was invoked that have the earlier act. superseded and before that “double taxation will never be presumed, a statute it must effect will be unmistakably appear given so intended it.” Ill. that the (277 481.) legislature The court stated that to hold that “payment required also under section 31 the Fee act and under Incorporation ***.” taxation Ill. Utilities act is double (277 of the Public the intent of the that Instead the court decided to to that the tax be paid pursuant require legislature “that section 31 of the Public the Public Utilities Act and Fee act to Utilities act repeal Incorporation operated character as applied corporations appellee.” have been

The same construction could employed not this case. We should presume legislature earned double tax on income intended a impose tax, as but rather partnerships, the section repeals applied partnerships, income. tax act which taxes income partner’s personal be in result which would conformity That would be the As IX, of the 1970 Constitution. with article 3(a), it, the income has majority interpreted it authorizes because tax act contravenes section 3(a) on income derived double taxation partnerships. in the I concur majority opinion. other In all respects in concurrence RYAN this MR. joins partial JUSTICE dissent. and partial MORAN,

MR. dissenting: JUSTICE I Clark’s dissent in While concur with Mr. Justice to the of income in double taxation respect partnership IX, of the 1970 contravention of article section 3(a), IX, I Const. art. sec. Constitution 3(a)), (Ill. dissent on the broader basis of the additionally authority this to of court entertain in this case. jurisdiction original

It is well established that this court assert may original in cases to the issues revenue if jurisdiction only relating involved are in nature Ill. R. purely legal 2d 381), (73 ex are us. if actual facts before and then only (People 555; People rel. v. Robinson 409 Ill. (1951), Jones In the ex rel. Moran Ward 557.) 2d case, that the replacement present parties stipulate as in 1980 will raise million revenue opposed $520 have collected under million which would been $468 only it remained in had the former personal property this court that the existence. It not parties binding upon of law issues have to facts and agree stipulated the determination of factual If the court finds that remain. refuse to assert relief, issues is it will original necessary Elections v. State Board jurisdiction. (Touhy amount Clearly, projection is, as “of of revenue admitted by majority opinion, future or no value” due to the uncertainty little for 1980 Until the of revenue economic events. amount claims be can with accuracy, plaintiff’s computed bars this factual issue which involve an unsubstantiated court’s assert ability original jurisdiction.

Furthermore, an action declaratory to bring This there must be an actual controversy. judgment, on mere be “to court cannot pass judgment required law, abstract render an advisory opinion, propositions or advice as to future events.” legal give (Underground v. Contractors Association City 66 Ill. Chicago (1977), 371, 375; Dean Milk v.Co. Aurora City 2d (1949), If an event which the issue is based upon 334.) or not occur, there is no may may and a controversy, decision such would amount regarding hypothetical to an v. Korzen Inc. advisory opinion. Garage, (Dee-El 11; Bank National Exchange 2d County Here, Cook Ill.6 because the amount of revenue to be under the future gained is unknown, and is therein based upon and, action is filed pure conjecture, prematurely fact, no actual exists. controversy

(No. 51894. MENKE, Adm’r., ERVIN v. COUNTRY MU Appellant, COMPANY, TUAL INSURANCE Appellee. Opinion February filed

Case Details

Case Name: Continental Illinois National Bank & Trust Co. v. Zagel

Court Name: Illinois Supreme Court

Date Published: Nov 21, 1979

Citation: 401 N.E.2d 491

Docket Number: 52339, 52366 cons

Court Abbreviation: Ill.