JASON S. MARKS еt al., Appellees, v. MARY ELLEN VANDERVENTER et al., Appellants.
Docket Nos. 116226, 116825 cons.
Supreme Court of Illinois
May 21, 2015
September 28, 2015
2015 IL 116226
Judgment: Reversed and remanded.
Counsel on Appeal: Lisa Madigan, Attorney General, of Springfield, and Michael Nerheim, State‘s Attorney, of Waukegan (Carolyn E. Shapiro, Solicitor General, and Brett E. Legner, Deputy Solicitor General, of Chicago, and Daniel L. Jasica and Victoria Gray, Assistant State‘s Attorneys, of counsel), for aрpellants.
Anita M. Alvarez, State‘s Attorney, of Chicago (Daniel Gallagher, Paul A. Castiglione, Jeffrey S. McCutchan and Margaret S. Zilligen, Assistant State‘s Attorneys, of counsel), for intervenor-appellant Karen A. Yarbrough and as amicus.
Robert Markoff, of Chicago, and Michael K. Noonan, of Noonan Perillo Ltd., and David A. Novoselsky, of Waukegan, for appellees.
JUSTICE BURKE delivered the judgment of the court, with opinion. Chief Justice Garman and Justices Freeman, Thomas, Kilbride, Karmeier, and Theis concurred in the judgment and opinion.
OPINION
¶ 1 At issue is the constitutionality of a $10 Rental Housing Support Program surcharge collected by the recorder of deeds for the recordation of any real estate-related document in a county.
BACKGROUND
¶ 2 ¶ 3 Plaintiffs, Jason Marks and Lauren Marks, filed their complaint against Mary Ellen Vanderventer, recorder of deeds of Lake County, and Lake County itself, alleging that the preamended version of the $10 Rental Housing Support Progrаm state surcharge was unconstitutional. They asserted that the statute created an unconstitutional fee office in violation of article VII, section 9(a), of the Illinois Constitution of 1970 (
¶ 4 As enacted in 2005, section 3-5018 required the recorder to collect a $10 surcharge, or fee, from an individual for the recordation of any real estate-related document. The statute provided that $9 of the surcharge was to be submitted to the State for purposes of the Rental Housing Support Program. The remaining $1 was to be retained by the county in which it was
¶ 5 Plaintiffs filed a motion for partial summary judgment. The trial court granted the motion and held that the statute, as written, created an impermissible fee office in violation of article VII, section 9(a), of the Illinois Constitution, and, thus, was unconstitutional on its face.
¶ 6 Section 3-5018 was amended by the legislature, effective March 22, 2013.
¶ 7 Defendants appealed both rulings directly to this court, and the appeals were consolidated. Karen Yarbrough, Cook County recorder of deeds, was given leave to intervene in this appeal.
ANALYSIS
I. Fee Office
¶ 8 ¶ 9 ¶ 10 Plaintiffs claimed in the circuit court that the $1 portion of the $10 surcharge to be retainеd by the county pursuant to the preamended version of section 3-5018 violated the constitutional proscription against fee offices. They alleged in their complaint that, “[b]y permitting a portion of these fees to be taken and kept by each Recorder of Deeds as part of the collection process, this taking or ‘skimming off’ as it has been termed by the Illinois Supreme Court violates the prohibition against creation of a fee office prohibited by Article VII Section 9(a).” The circuit court struck down the preamended statute as unconstitutional solely on the basis that the $1 fee retained by the counties created an unconstitutional fee office.
¶ 11 Article VII, section 9(a), of the Illinois Constitution of 1970 provides:
“(a) Compensation of officers and employees and the office expenses of units of local government shall not be paid from fees collected. Fees may be collectеd as provided by law and by ordinance and shall be deposited upon receipt with the treasurer of the unit. Fees shall not be based upon funds disbursed or collected, nor upon the levy or extension of taxes.”
Ill. Const. 1970, art. VII, § 9(a) .
¶ 12 Section 9(a) of article VII thus prohibits a “fee office,” whereby the compensation of officers and employees, and office expenses, are paid from the fees collected. For example, in DeBruyn v. Elrod, 84 Ill. 2d 128, 133-36 (1981), this court held that the constitutional prohibition on fee offices prohibited the sheriff‘s office from retaining fees pursuant to section 1 of “An Act to provide for the fees of the sheriff ***” (Ill. Rev. Stat. 1977, ch. 53,
¶ 13 The fee office provision in article VII, section 9(a), also is intended to prevent a local governmental unit from retaining, or “skimming off,” a portion of taxes cоllected for another taxing body as a fee for the service of collecting those taxes. City of Joliet v. Bosworth, 64 Ill. 2d 516, 521-24 (1976). See also Schlessinger v. Olsen, 102 Ill. 2d 497, 502-03 (1984) (a statute imposing a tax is in violation of the fee office provision where “the taxes were properly imposed but a government entity other than the taxing body collected the tax and retained a percentage for itself“); Saltiel v. Olsen, 77 Ill. 2d 23, 27 (1979) (“the collection by one governmental entity of a tax due to a different entity has been regarded as a fee imposed by the former, rather than as a distribution of tax revenues after they have been collected“); Goldstein v. Rosewell, 65 Ill. 2d 325, 327-29 (1976). In these so-called “skimming” or “diversion” cases, this court has held that the remedy for the constitutional violation is that the unlawfully diverted revenues must be returned to the governmental entity which imposed the tax. Schlessinger, 102 Ill. 2d at 502.
¶ 14 In Goldstein, for instance, the statute provided that the treasurer of each county shall retain and pay into the county treasury 4% of all taxes paid pursuant to the inheritance аnd transfer tax act (a state tax), “in full for all services and expenses rendered, incurred or paid by the county or any of its officers, agents, or employees, in collecting and paying the same.” (Internal quotation marks omitted.) Goldstein, 65 Ill. 2d at 328. In other words, the statute allowed the county treasurers to “skim off” 4% of the taxes due to the State as fees for their collection of the taxes. This court rejected the defendants’ argument that the purpose of the statute was to provide for a legislative method of distributing state revenues to the counties. Rather, the statutory scheme constituted a diversion of state funds, and was “clearly a fee based upon funds collected.” Id. at 329. This court emphasized the intent of the drafters of the 1970 Illinois Constitution to “‘preclude counties from seeking, in any form, reimbursement from the various taxing bodies for county services rendered in the collection of taxes.‘” Id. at 330 (quoting City of Joliet v. Bosworth, 64 Ill. 2d 516, 524 (1976)). The constitutional debates showed “a concеrn of the delegates over the faulty fiscal picture presented by financing county expenses through the use of a ‘skim off’ of revenues from other taxing bodies.” Id.
¶ 15 In contrast to the above examples, section 3-5018 does not run afoul of the prohibition against fee offices in article VII, section 9(a). The statute directs that $1 of the $10 Rental Housing Support Program state surcharge be deposited in the county‘s general revenue fund. This is consistent with the second sentenсe of section 9(a), which provides that fees collected by county officers “shall be deposited upon receipt with the treasurer of the [local governmental] unit.”
¶ 16 Moreover, section 3-5018 does not violate the prohibition in article VII, section 9(a), against the “skimming” of funds belonging to another governmental entity. We first note that plaintiffs concede in their brief that the preamended statute did not skim or divеrt any state funds. Plaintiffs state that “the $1 surcharge retained by the local entities was not intended to be kept, paid to the State, or otherwise ‘skimmed,‘” and that “the disputed $1 fee paid to the local entities under the original statute was not and was never intended to be paid to the State of Illinois to support this Program.” To the extent that the circuit court found the statute unconstitutional based on a skimming or diversion of state funds, however, we reject this proposition. This cоurt noted in Goldstein that article VII, section 9(a), does not bar “the common and accepted practice of sharing of State revenues with local governmental units.” Goldstein, 65 Ill. 2d at 329.
¶ 17 The statutory provision in the case at bar is distinguishable from the provision in Goldstein. In that case, we held that the statute unlawfully allocated to the “counties and not the State *** the fees earned by the county treasurer in the collection of the taxes under the Act.” Id. at 328. The statute thus authorized the treasurer to skim 4% оf the state taxes imposed by the General Assembly elsewhere in the statute. In contrast, section 3-5018 did not authorize county recorders to retain a percentage of the funds they collected under other statutory provisions. Rather, the General Assembly clearly provided for a legislative allocation of $9 to be submitted to the State and a separate allocation of $1 to be retained by the county. This does not constitute a fee for the cоllection of taxes imposed by another governmental body. Accordingly, section 3-5018 does not violate article VII, section 9(a), of the Illinois Constitution.
II. Uniformity Clause
¶ 18 ¶ 19 The circuit court below held that the $9 surcharge for the State‘s Rental Housing Support Program imposed by the amended version of section 3-5018 violates the uniformity clause of the Illinois Constitution. The uniformity clause provides that “[i]n any law classifying the subjects or objects of non-property taxes or fees, the classеs shall be reasonable and the subjects and objects within each class shall be taxed uniformly.”
¶ 20 In 2005, the General Assembly enacted the Rental Housing Support Program Act.
“The General Assembly finds that in many parts of this State, large numbers of citizens are faced with the inability to secure affordable rental housing. Due to either insufficient wages or a shortage of affordable rental housing stock, or both, many families have difficulty securing decent housing, are subjected to overcrowding, pay too large a portion of their total monthly income for housing and consequently suffer the lack of other basic needs, live in substandard or unhealthy housing, or experience chronic housing instability. Instability and inadequacy in housing limits the employability and productivity of many citizens, adversely affects family health and stress levels, and impedes children‘s ability to learn; such instability produces corresponding drains on public resources and contributes to an overall decline in real estate values. Unaffordable rental rates lead to frequent tenant turnover and difficulty filling vacancies, resulting in unstable income streаms for rental property owners, the limited ability of owners to properly maintain their properties, substandard rental housing, and greater rates of foreclosure. High tenant turnover, poorly maintained properties, vacant and abandoned properties, and overcrowded housing negatively impact the safety and health of communities and the real estate values within such communities. Among others, the program created by this Act benefits (i) all individuals who rеcord real estate related documents by helping to stabilize real estate values in the State, (ii) rental property owners by subsidizing the portion of rent that many of their tenants are unable to pay, (iii) those individuals who own real estate in the State by providing an option for affordable rental housing should they one day face foreclosure, and (iv) tenants who participate in the program by providing them with rental assistance and the ability to achieve financial stability so that they are able to become property owners themselves. It is the purpose of this Act to create a State program to help localities address the need for decent, affordable, permanent rental housing.”
310 ILCS 105/5 (West 2012) (amended by Pub. Act 98-5, § 10 (eff. Mar. 22, 2012)).
¶ 21 Based on these legislative findings, we find that there is a reasonable relationship between the individuals subjected to the Rental Housing Support Program surcharge and the object of the lеgislation. The surcharge applies to parties who record real estate-related documents. It is reasonable to conclude that parties who have a legal interest in real estate will benefit from the stable and improved property values created by the program, in ways that the general public may not. In addition, owners of rental property may stand to benefit from a reduction in vacancies and a more certain revenue stream.
¶ 22 The circuit court below found, however, that the claimed benefit of the general improvement of real estate values bears no relation to the limited class of persons who are forced to bear the burden of the fee. The court held that funding the program “more properly belongs on the backs of the entire population and not this class who does not cause or contribute to the ‘evil’ which the State intends to remedy.” The circuit cоurt misconstrues the standard by which courts evaluate uniformity challenges. As this court recently held:
“this court has never required perfect reciprocity between the payment of a tax and the receipt of a benefit from that tax. On the contrary, ‘“[n]othing is more familiar in taxation than the imposition of a tax upon a class or upon individuals who enjoy no direct benefit from its expenditure, and who are not responsible for the condition to be remedied.“’ [Citation.] And because of this, this court has ‘repeatedly held that a tax may be imposed upon a class even though the class enjoys no benefit from the tax.’ [Citation.] Again, the operative inquiry in uniformity cases is not whether there is perfect reciprocity between payment of the tax and distribution of the tax, but rather only whether the taxing classification bears ‘some reasonable relationship’ to the object or purpose of the tax. (Internal quotation marks omittеd.) [Citation.]” (Emphasis in original.) Grand Chapter, Order of the Eastern Star of the State of Illinois v. Topinka, 2015 IL 117083, ¶ 15.
Thus, even if the burden caused by imposition of the surcharge falls on a group who neither benefits from the surcharge nor caused the problems to be remedied by the surcharge, the surcharge may be constitutionally valid so long as there is a rational relationship between the object of the legislation and the classification at issue.
¶ 23 The circuit court also found that sеction 3-5018 violates the uniformity clause because there was no evidence that ownership of real property contributed to the high cost of rental housing or that providing rental assistance would specifically benefit those who acquire title to real property. However, the General Assembly has no evidentiary burden and is not required to produce facts in support of its justification for the statute. Wirtz v. Quinn, 2011 IL 111903, ¶ 83. Instead, once the governmental entity 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. Plaintiffs have failed to do so. Accordingly, we reverse the circuit court‘s order finding that section 3-5018 is unconstitutional under the uniformity clause in article IX, section 2.
III. Due Process Clause
¶ 24 ¶ 25 The circuit court below held the statute unconstitutional for the additional reason that it violated the due process clause in our state constitution.
¶ 26 Plaintiffs initially contend that the statutory surcharge implicates a fundamental right because property interests are involved and, therefore, strict scrutiny is required. However, the plaintiffs cite no authority for this proposition and the case law is to the contrary. See, e.g., Estate of Cowser v. Commissioner, 736 F.2d 1168, 1173 n.3 (7th Cir. 1984) (“Many laws have indirect but nonеtheless potentially significant effects on property. Such indirect effects do not subject them to strict scrutiny.“). We will therefore apply rational basis review.
¶ 27 Plaintiffs maintain that the surcharge is “unsupported and unsupportable and irrational.” We disagree. By helping provide affordable housing to low-income Illinois families throughout the State, the statute provides needed housing security to Illinois residents. In addition, by providing financial stability to vulnerable residents, lowering tenаnt turnover by subsidizing rents, and providing a more stable income stream to landlords, the statute decreases the number of vacant and abandoned buildings and increases the opportunities for building owners to maintain their property. This improves property values. The statute thus bears a rational relationship to the legitimate goals of providing affordable rental housing and the maintenance and improvement of property values. Accordingly, we conclude thаt the surcharge is reasonably related to legitimate government interests and, therefore, survives rational basis review.
IV. Equal Protection
¶ 28 ¶ 29 Although the circuit court did not reach the issue, the plaintiffs also challenged the constitutionality of the statute based on a violation of the equal protection clause.
CONCLUSION
¶ 30 ¶ 31 For the foregoing reasons, the judgments of the circuit court are reversed and the cause is remanded for further proceedings consistent with this opinion.
¶ 32 Reversed and remanded.
JUSTICE BURKE
SUPREME COURT OF ILLINOIS