Brown v. Zehnder

5th Division
April 17, 1998

1-96-2983

ROBERT W. BROWN, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County.
)
v. )
)
KEN ZEHNDER, Director, Illinois )
Department of Revenue, and JUDY BARR )
TOPINKA, Treasurer, State of Illinois, ) Honorable
) Alexander P. White,
Defendants-Appellees. ) Judge Presiding.

JUSTICE HARTMAN delivered the opinion of the court:
Plaintiff, Robert W. Brown, brought this action to recover a
tax penalty he paid to the Department of Revenue (Department) in
his capacity as an officer of Suzy's Sweets, Inc. (Suzy's), a
former Illinois corporation. The circuit court denied his motion
for summary judgment and granted defendants' motion for judgment on
the pleadings. On appeal, Brown argues that he should not be held
personally liable for the tax deficiency assessed against Suzy's.
The Department issued a notice of penalty liability (Notice)
to Brown on November 3, 1995, asserting that Brown was personally
liable for the tax delinquency pursuant to section 3-7 of the
Uniform Penalty and Interest Act (Act). 35 ILCS 735/3-7 (West
1994) (section 3-7). The Department stated that taxes were owed
for August, October, November, and December 1994. At least one of
the corporation's "Sales and Use" tax returns, on which Brown's
name was listed as the reporting officer, showed that Suzy's
collected those taxes. The Department, charging that those taxes
were not remitted, issued the Notice and assessed a delinquency
against Brown in the amount of $7,432.77.
Brown paid the delinquency under protest, then filed a two-
count complaint in the circuit court against the Department and the
State Treasurer, seeking a refund of his payment and certification
of a class action on behalf of other taxpayers who received a
similar Notice. Brown moved for summary judgment, arguing that as
a matter of law he could not be held liable under section 3-7 for
the corporation's failure to pay its sales taxes. Defendants moved
for judgment on the pleadings. In a written order, the circuit
court denied the summary judgment motion, granted defendants'
motion, and dismissed the portion of the complaint requesting class
action certification. The court also ordered the Treasurer to
place the protest payment in the appropriate fund. The court
subsequently stayed its order pending resolution of this appeal.
Section 2-615(e) of the Code of Civil Procedure provides that
"[a]ny party may seasonably move for judgment on the pleadings."
735 ILCS 5/2-615(e) (West 1994). A motion for judgment on the
pleadings is similar to a motion for summary judgment in that both
motions suggest the absence of any material factual issues as a
matter of law. Metzger v. New Century Oil and Gas Supply Corp.,
230 Ill. App. 3d 679, 688 (1992); citing Baker-Wendell, Inc. v.
Edmond M. Cohon & Associates, Ltd., 100 Ill. App. 3d 924, 927, 427 N.E.2d 317 (1981) (judgment on pleadings); Mobil Oil Corp. v.
Maryland Casualty Co., 288 Ill. App. 3d 743, 751, 681 N.E.2d 552
(1997) (summary judgment). A judgment on the pleadings depends
upon the allegations of the pleadings to establish the absence of
material fact, whereas summary judgment motions may rely on
pleadings, depositions, exhibits, and affidavits on file. 735 ILCS
5/2-1005 (West 1994); Waterfront Estates Development, Inc. v. The
City of Palos Hills, 232 Ill. App. 3d 367, 372, 597 N.E.2d 641
(1992).
Section 3-7 of the Act provides that any corporate officer who
is responsible for "filing returns and making payment of the amount
of any trust tax," and "who wilfully fails to file the return or
make the payment to the Department *** shall be personally liable"
for the delinquency. 35 ILCS 735/3-7(a) (West 1994). Brown does
not dispute that he was responsible for filing the relevant tax
returns, the corporation owed the taxes, and his failure to file
the returns was wilful. He argues, however, that as a matter of
law he is not personally liable for the corporation's tax
delinquency under section 3-7. Brown contends that the Notice
demanding payment of a delinquent "sales tax" could refer only to
taxes collected pursuant to the Retailers' Occupation Tax Act (35
ILCS 120/1 et seq. (West 1994)) (ROTA). He asserts that the Notice
did not authorize the Department to collect any tax from him
pursuant to the Use Tax Act (35 ILCS 105/1 et seq. (West 1994))
(UTA), because UTA applies to use taxes rather than sales taxes.
In support of this assertion, Brown points to the corporation's tax
return, the top of which is labelled by the Department as "Sales
and Use." He argues that if UTA were meant to apply to sales
taxes, the tax return would not differentiate between sales and use
taxes. Brown further argues that ROTA taxes are not "trust taxes"
as defined by section 3-7(f) and, because section 3-7(a) applies
only to trust taxes, he cannot be held personally liable under that
provision.
When construing a statute, courts must "ascertain and give
effect to the true intent and meaning of the legislature." Hernon
v. E.W. Corrigan Construction Co., 149 Ill. 2d 190, 194, 595 N.E.2d 561 (1992). In determining legislative intent, courts first
examine the plain language of the statute; unambiguous terms, when
not specifically defined, must be given their plain and ordinary
meaning. Hernon, 149 Ill. 2d at 194-95. When interpreting its
scope, "the entire statute must be considered." City of Decatur v.
American Federation of State, County, and Municipal Employees,
Local 268, 122 Ill. 2d 353, 364, 522 N.E.2d 1219 (1988). Where
possible, statutes should be construed so that no term is rendered
superfluous or meaningless. Niven v. Siqueira, 109 Ill. 2d 357,
365, 487 N.E.2d 937 (1985).
The taxation scheme popularly known as the "sales tax" is
comprised of two complementary statutes, ROTA and UTA. Hagerty v.
General Motors Corp., 59 Ill. 2d 52, 54-55, 319 N.E.2d 5 (1974);
Department of Revenue v. Steinkopf, 160 Ill. App. 3d 1008, 1013,
513 N.E.2d 1016 (1987) (Steinkopf). See also In re Groetken, 843 F.2d 1007, 1010 (7th Cir. 1988) (Groetken). ROTA imposes an
occupational tax "upon persons engaged in the business of selling
at retail tangible personal property." 35 ILCS 120/2 (West 1994).
UTA imposes a tax "upon the privilege of using in this state
tangible personal property purchased at retail from a retailer."
35 ILCS 105/3 (West 1994). If personal property is not taxable
under ROTA, then it may not be taxed under UTA. 35 ILCS 105/3-65
(West 1994). Both statutes impose a tax of 6.25 percent: ROTA
taxes the gross receipts from sales from personal property, whereas
UTA taxes the selling price of the property or its fair market
value. 35 ILCS 105/3-10, 120/2-10 (West 1994).
UTA requires retailers to state separately the use tax and add
it to the selling price at the time of sale. 35 ILCS 105/3a (West
1994). The retailer must remit all taxes it collects under UTA to
the Department. 35 ILCS 105/3-45 (West 1994). Because UTA was
enacted in part to prevent retailers from evading ROTA (Groetken,
843 F.2d at 1010-11, citing Klein Town Builders, Inc. v.
Department of Revenue, 36 Ill. 2d 301, 222 N.E.2d 482 (1966), and
Turner v. Wright, 11 Ill. 2d 161, 142 N.E.2d 84 (1957)), if the
retailer pays the ROTA tax, it does not have to pay the UTA tax.
35 ILCS 105/8, 9 (West 1994); Hagerty, 59 Ill. 2d at 55. As a
result, when a single purchase and sale occurs, two taxes are
assessed, but "only one of the two payments is remitted to the
State, and the single payment satisfies both taxes." Steinkopf,
160 Ill. App. 3d at 1014; Groetken, 843 F.2d at 1011. In fact,
the Department of Revenue determined that a retailer may "reimburse
himself for his [ROTA] liability by collecting the Use Tax from his
customers." 86 Ill. Admin. Code. sec. 130.101(d) (1996).
As the foregoing analysis of ROTA and UTA demonstrates, the
term "sales tax" commonly refers to taxes collected under either
statute. Both ROTA and UTA explicitly use the terms "sales" and
"selling." For instance, ROTA imposes a tax "upon persons engaged
in the business of selling." (35 ILCS 120/2 (West 1994)), whereas
UTA states that its tax shall be a percentage of "the selling
price," and the "sales tax" must be stated separately from that
price when collected. 35 ILCS 105/3-10, 3a (West 1994). The
Notice's statement of a sales tax delinquency therefore refers to
both statutes.
Additionally, on at least one of the tax returns submitted on
behalf of Suzy's, Brown included a deduction for taxes "collected"
from the corporation's receipts, which would consist of taxes
collected pursuant to UTA. As the Notice indicates, the Department
used the amount deducted on the tax return as the basis for
determining the amount of the delinquency. The October 1994 tax
return, for instance, stated that Brown deducted $1,264 for taxes
collected pursuant to UTA; the Notice contains a statement of
delinquency in the amount of $1,264 for October 1994. The Notice
clarified the nature and amount of taxes owed, and Brown could be
personally liable for the nonpayment of those taxes, whether they
are considered taxes paid pursuant to UTA or ROTA.
Even if the term "sales tax," as used in the Notice, only
referred to ROTA, the plain language of the Uniform Penalty and
Interest Act suggests that the entire Act, including section 3-7,
applies to taxes collected under ROTA. Section 3-1A of the Act
states that:
"Unless otherwise specified in a tax Act, this
Act applies to all taxes administered by the
Department of Revenue ***." 35 ILCS 735/3-1A
(West 1994).
The supreme court recently discussed the construction of the
precursor to section 3-7, section 13 1/2 of ROTA (Ill. Rev. Stat.
1991, ch. 120, par. 452 1/2, recodified at 35 ILCS 120/13.5
(repealed effective January 1, 1994)). Branson v. Department of
Revenue, 168 Ill. 2d 247, 659 N.E.2d 961 (1995). In Branson, the
court explained that a corporate officer who is legally obligated
to file the corporation's tax returns and pay the taxes could be
personally liable under ROTA for wilful failure to comply with the
Act. Branson, 168 Ill. 2d at 257.
Brown claims that Branson is not relevant to an interpretation
of section 3-7, because that provision contains significant changes
from its predecessor and no longer applies exclusively to ROTA
taxes. Two specific changes were made when section 3-7 was
enacted. First, the provision was taken out of ROTA and made part
of the Uniform Penalty and Interest Act. This change does not
preclude the application of section 3-7 to ROTA taxes. When
construing statutes relating to the collection of taxes, courts
must give them a common sense meaning in order to avoid making
collection difficult or impossible. Branson, 168 Ill. 2d at 258.
Here, section 3-1A of the Act provides that the Act is intended to
apply to all taxing statutes unless otherwise stated. The removal
of section 3-7 from ROTA allows the Department to enforce the
penalty provision for the violation of multiple taxing statutes in
addition to ROTA, and was not intended to prevent the Department
from imposing a penalty for a ROTA violation.
The second change made to section 3-7 was the type of tax to
which the penalty provision was applicable. Previously, the
statute provided that a responsible corporate officer could be
personally liable for the failure to pay the corporation's ROTA
taxes. 35 ILCS 120/13.5 (West 1992). When enacting section 3-7,
the legislature inserted the phrase "trust tax," which is defined
in section 3-7(f) as "any tax for which an amount is collected or
withheld by a taxpayer from another person ***." 35 ILCS 735/3-7
(West 1994).
Although ROTA taxes constitute a legal obligation of the
retailer, the taxes themselves are collected or withheld from the
purchaser and held by the retailer for payment to the Department.
The supreme court, considering the operation of ROTA, has
repeatedly observed this custom, noting that "the corporation
collects the [ROTA] tax from its customers at the time of its sale.
The retailer corporation having collected the money, the customary
procedure would be to account for and make payment to the
Department of Revenue." Branson, 168 Ill. 2d at 258, quoting
Department of Revenue v. Joseph Bublick & Sons, Inc., 68 Ill. 2d 568, 575-76, 369 N.E.2d 1279 (1977) (Bublick). This fact is
especially true in light of ROTA's relationship with UTA, which
Brown does not dispute is subject to section 3-7, and which
requires a retailer to withhold the exact same amount of tax from
the consumer that the retailer is required to pay the Department
under ROTA.
In Bublick, the court explained the policy for holding
responsible corporate officers liable for failure to pay ROTA
taxes:
"The corporate officers could employ the funds
collected for the State to pay corporate
obligations as well as salaries and bonuses to
employees, and thus make recovery of the funds
from a defunct corporation an impossibility.
There, of course, has to be some
responsibility for the stewardship of the
funds collected from the public for the
State." Bublick, 68 Ill. 2d at 575-76.
The plain language of ROTA and the Uniform Penalty and Interest
Act, the common application and payment of ROTA taxes, and the
policy behind applying section 3-7 to ROTA, undermine Brown's
argument that a corporate officer may not be personally liable
under section 3-7 for the wilful failure to pay a corporation's
ROTA taxes. In addition, Groetken, the case cited by Brown in
support of his argument that ROTA and UTA should be treated
differently for purposes of section 3-7, is distinguishable. The
Groetken decision involved the interpretation of ROTA and UTA in
the context of the Bankruptcy Code. The Groetken court, following
Steinkopf, held that ROTA could not be considered a "trust fund
tax" within the meaning of the Code. Groetken, 843 F.2d at 1013.
Groetken and Steinkopf were decided before the enactment of section
3-7 and the remaining provisions of the Uniform Penalty and
Interest Act, which defined the term "trust tax" and the scope of
the Act's application. The fact that a ROTA tax was not a "trust
fund tax" under the Code is irrelevant to the question of whether
it is a "trust tax" as defined by the language of the Act.
For the foregoing reasons, the circuit court's order granting
the Department's motion for judgment on the pleadings, and denying
Brown's summary judgment motion, is affirmed.
Affirmed.
HOFFMAN, P.J., and THEIS, J., concur.