Goldberg v. Johnson
| Decision Date | 27 July 1987 |
| Docket Number | No. 64355,64355 |
| Citation | 111 Ill.Dec. 625,117 Ill.2d 493,512 N.E.2d 1262 |
| Parties | , 111 Ill.Dec. 625 Jerome F. GOLDBERG, et al., Appellees, v. J. Thomas JOHNSON, Director of Revenue, et al. (J. Thomas Johnson, Appellant). |
| Court | Illinois Supreme Court |
Thomas W. Kelty, Michael J. Luke, Pfeifer & Kelty, P.C., Springfield, for amicus curiae, Illinois Municipal League.
Neil F. Hartigan, Atty. Gen., Roma Jones Stewart, Sol. Gen., Terry F. Moritz, Sp. Asst. Atty. Gen., Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd., Chicago (Alan P. Solow, Gerald L. Jenkins, Mindy Block Gordon, Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd., Chicago, of counsel), for appellant J. Thomas Johnson.
William C. Lane, William A. Strauss, Marbury Foundation for Law and Fiscal Responsibility, McLean, Va., for amicus curiae National Taxpayers Union in Support of appellees.
William G. Clark, Jr. & Associates, Ltd., Plotkin & Jacobs, Ltd., Chicago (William G. Clark, Jr., John G. Jacobs, Jonah J. Orlofsky, Ilene Davidson Johnson, of counsel), for appellees Jerome F. Goldberg and Robert McTigue.
Robert F. Ward, Laura Di Giantonio, Chadwell & Kayser, Ltd., Chicago (Richard N. Wiley, Burlingame, Cal., of counsel), for appellee GTE Sprint Communications Corp.
Plaintiffs, Jerome F. Goldberg and Robert McTigue, filed a class action complaint in the circuit court of Cook County against defendant J. Thomas Johnson, Director of the Department of Revenue for the State of Illinois (hereinafter, the Director), and various long-distance telephone carriers, seeking a declaration that section 4 of the Telecommunications Excise Tax Act (hereinafter, section 4) (Ill.Rev.Stat.1985, ch. 120, par. 2004) is unconstitutional. The complaint further requested an injunction against continued collection of the tax, an accounting and a refund of all taxes already collected. One of the defendant long-distance carriers, GTE Sprint Communications Corporation (GTE), answered and filed a counterclaim against the Director and James H. Donnewald, then Treasurer of the State of Illinois (hereinafter, the Treasurer). GTE's counterclaim sought a preliminary injunction, under section 2a of the State Officers and Employees Money Disposition Act (Money Disposition Act) (Ill.Rev.Stat.1985, ch. 127, par. 172), ordering that all monies paid under protest pursuant to section 4 be retained in a protest fund until disposition of plaintiffs' action. In addition, GTE sought a declaration that section 4 is unconstitutional under the commerce clause of the United States Constitution (U.S. Const., art. I, sec. 8). Defendant MCI Telecommunications Corporation (MCI), joined by defendants Republic Telecom Corporation (Republic) and U.S. Telecom Communications Services Company, also moved for a preliminary injunction under the Money Disposition Act. In addition, MCI filed its counterclaim seeking a declaration that section 4 is invalid under the commerce clause. Defendants Satellite Business Systems (SBS) and American Telephone and Telegraph Company (AT & T) also filed motions for a preliminary injunction and for a declaration finding section 4 unconstitutional. The court granted the motions for a preliminary injunction as provided by the Money Disposition Act. The other long-distance carriers named as defendants, Allnet Communications Services, Inc., Electronic Office Centers of America, Inc., Lexitel Corporation, Illinois Bell Telephone Company, International Telephone and Telegraph Corporation, TDX Systems, Inc., TMC Long Distance, and Western Union, did not file motions pursuant to the Money Disposition Act.
Plaintiffs then filed their emergency motion for a preliminary injunction and creation of a special escrow fund or, in the alternative, for an order that payments be made under protest. The court granted the motion and directed that all long-distance telecommunications carriers remit all monies collected pursuant to section 4 and ordered the Director and Treasurer to preserve these monies in a segregated protest fund until final disposition of plaintiffs' suit.
Plaintiffs also filed their motion for class certification as provided by section 2-801 of the Code of Civil Procedure (Ill.Rev.Stat.1985, ch. 110, par. 2-801). The court denied this motion. In denying the motion, the court found that a class action was not necessary because all monies in dispute were segregated in a protest fund under the court's jurisdiction and control and, therefore, available for distribution to taxpayers in the event section 4 should be declared unconstitutional. The court also expressed doubts as to the adequacy of the named plaintiffs as representatives of the class.
The Director then filed a motion for summary judgment against defendants and counterplaintiffs GTE, MCI, and SBS on the ground that section 4 was constitutional. GTE responded with its cross-motion for partial summary judgment against the Director while plaintiffs filed their cross-motion for summary judgment against all defendants. Both cross-motions were directed at the constitutionality of section 4. After briefing as well as a hearing, the court declared section 4 unconstitutional.
The court found that the taxable event under section 4 was an interstate telephone call and that "it is the phone call which is taxed and not the sale or purchase of that call." The court concluded that the tax violates the equal protection clause in that "[t]he Act does not treat all Illinois residents the same because it taxes only those who pay for the call and not those whose calls are paid for by others." The court also concluded that the tax violates the commerce clause because the "tax by its own terms is not fairly apportioned[;] [i]t discriminates against interstate commerce and it is not fairly related to services provided in Illinois."
The court granted plaintiffs' motion for summary judgment and GTE's motion for partial summary judgment. The court then entered its order that there was no just reason to delay an appeal (107 Ill.2d R. 304(a)) and stayed its judgment, declaring section 4 unconstitutional, pending appeal. The court also allowed its prior order to stand that all monies collected pursuant to section 4 be paid under protest and maintained in a protest fund until exhaustion of appeals. Finally, the court denied plaintiffs' renewed motion for class certification. In doing so, the court changed its original position as to the adequacy of the plaintiffs as representatives of the proposed class but adhered to its prior view that class action status was neither appropriate nor necessary to the efficient resolution of the issues.
The cause comes before this court on the appeal of the Director pursuant to Supreme Court Rule 302(a) (107 Ill.2d R. 302(a)) to consider the constitutionality of section 4 under the commerce clause and the equal protection clause. For reasons later discussed, we find it unnecessary to address the merits of plaintiffs' cross- appeal on the denial of their motions for class certification.
We also accepted two amicus curiae briefs. The National Taxpayers Union filed a brief on behalf of the plaintiffs. The Illinois Municipal League filed a brief on behalf of the Director.
The Director initially attacks the court's characterization of section 4. He contends that the court erred in finding that section 4 taxes the interstate telecommunication itself. According to the Director, the interstate telecommunications tax is a retail tax on the purchase of an interstate telecommunication either originating in or received in Illinois. However, under either characterization of the tax, the Director argues that the tax is valid under the four-part test set forth by the Supreme Court in Complete Auto Transit, Inc. v. Brady (1977), 430 U.S. 274, 287, 97 S.Ct. 1076, 1083, 51 L.Ed.2d 326, 336.
Plaintiffs and defendant GTE contend that the circuit court accurately found that the interstate telecommunications tax is a tax directly on telecommunications originating or received in Illinois. Agreeing that Complete Auto establishes the proper test, they argue that the tax violates the commerce clause because, as the circuit court concluded, it is not fairly apportioned, it discriminates against interstate commerce, and it is not fairly related to services provided by Illinois. Under Complete Auto, a tax which bears on interstate commerce is valid if: (1) there is a substantial nexus between the activity taxed and the taxing State; (2) it is fairly apportioned so that it is limited to that portion of the interstate activity occurring within the taxing State; (3) it does not discriminate against interstate commerce; and (4) it is fairly related to services provided by the taxing State. 430 U.S. 274, 287, 97 S.Ct. 1076, 1083, 51 L.Ed.2d 326, 336.
Section 4, in part, provides that "[a] tax is imposed upon the act or privilege of originating or receiving interstate telecommunications by a person in this State at the rate of 5% of the gross charge for such telecommunications purchased at retail from a retailer by such person." (Emphasis added.) (Ill.Rev.Stat.1985, ch. 120, par. 2004.) Under this provision, the taxable event is the while the amount of the tax is determined by applying a 5% multiplier to the retail purchase price, defined as the "gross charge for such telecommunications" as charged to the retail purchaser in Illinois. Relying on this statutory language, the Director has applied various designations to the tax in issue. For example, the tax has been denominated as a "purchase tax," "a use tax, i.e. use of [a] privilege," "a tax on the privilege or act of using telecommunications within this State," "a consumption tax," and a tax on the However, for purposes of ascertaining whether or not commerce clause analysis applies,...
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