Find Legal Information

McLean v. Dept. of Rev. (Ill. S.Ct.)

Docket Nos. 84435, 84451 cons.-Agenda 38-May 1998.

SUSAN McLEAN, Adm'r of the Estate of Leonard C. Pace, Appellee and Cross-Appellant, v.

THE DEPARTMENT OF REVENUE OF THE STATE OF ILLINOIS, Appellant and Cross-Appellee.

Opinion filed October 22, 1998.

CHIEF JUSTICE FREEMAN delivered the opinion of the court:

The Department of Revenue of the State of Illinois (Department) directly appeals, pursuant to Supreme Court Rule 302(a) (134 Ill. 2d R. 302(a)), from a final judgment order of the circuit court of Madison County, which set aside in part and confirmed in part a final administrative decision of the Department. In its final decision, the Department found that Leonard C. Pace (plaintiff)⁽¹⁾, d/b/a 270 Auction Barn, was liable for $110,110.92 in taxes, penalties, and interest pursuant to the Retailers' Occupation Tax Act (Act) (35 ILCS 120/1 et seq. (West 1996)) for the tax years 1990 through 1992. Upon administrative review, the circuit court confirmed the Department's assessment only to the extent of $11,111 in taxes under the Act and set aside the Department's assessment in all other respects. The circuit court also struck down as unconstitutional three statutory provisions and invalidated one administrative regulation pertaining to the Act.

The Department now appeals to this court. The appeal lies directly to this court. We affirm in part and reverse in part and remand with directions.

BACKGROUND

Plaintiff operated an auction business engaged in the sale of household goods on consignment and personal property obtained primarily from estates, storage lockers, and buildings. In 1993, the Department performed a tax audit of plaintiff's business for the period beginning January 1, 1990, and ending December 31, 1992. The Department's auditor subsequently prepared a "corrected return" assessing plaintiff's tax liability at approximately $65,000 in unpaid tax. The auditor also assessed a 30% penalty equaling approximately $19,500 for plaintiff's failure to file a return. Following the Department's issuance of its notice of tax liability to plaintiff, both parties stipulated that the correct amount of unpaid taxes, if any, was $56,424. This amount was based upon $20,000 in unpaid tax due to the sale of goods that plaintiff had owned and $36,424 in unpaid tax due to the sale of goods on consignment. Based on that stipulated total, the Department calculated a 30% "failure to file" penalty in the amount of $16,927 in addition to $36,759.92 in interest as of April 15, 1997.

Plaintiff subsequently filed a protest for an administrative hearing in order to contest the Department's assessment. In September 1996, an administrative hearing was held, at which the following evidence was adduced. The Department introduced its certified corrected return resulting from the audit of plaintiff's business and stipulated once again that its assessment was based on a total of $56,424 in unpaid taxes. Plaintiff testified at the hearing that he was unable to produce his business' books and records for the audit period due to their destruction caused by the Metro East floods of 1993. Nevertheless, plaintiff acknowledged that he did not file tax returns during the tax years in dispute. Plaintiff also testified that, despite the loss of his sales documentation, he knew the identities of all the consignors with whom he had dealt. He also stated that, although he did not announce to prospective bidders the names and addresses of his consignors, he did announce that such information was available to bidders at his front desk.

The administrative law judge's findings of fact included the conclusion that plaintiff hired independent contractors to act as auctioneers on plaintiff's behalf. Additionally, neither plaintiff nor his auctioneers orally announced to prospective purchasers the identities or addresses of the owners of the merchandise sold during the tax years in question. Likewise, plaintiff failed to post any lists or distribute hand bills with the names and addresses of consignors of the property to be sold at auction. The administrative law judge also found that, in determining his tax liability during the relevant tax years, plaintiff relied upon two of the Department's official, explanatory publications-namely a departmental release dated May 1, 1990, and "Informational Bulletin FY 91-49" dated April 1, 1991.

Based on the foregoing, the administrative law judge rendered a recommendation for disposition in March 1997, upholding the Department's stipulated assessment of tax, penalties, and interest totalling $110,110.92. The Department adopted this administrative recommendation and issued a final assessment against plaintiff on April 15, 1997.

Thereafter, plaintiff filed a complaint for administrative review as well as a complaint for declaratory judgment in the circuit court. Count I of plaintiff's second-amended complaint sought a declaration that the "bond or lien" and "payment for record" requirements of section 12 of the Act (35 ILCS 120/12 (West 1996)) violate the Illinois and United States Constitutions (Ill. Const. 1970, art. I,