People ex rel. Murphy v. Chicago Waste & Textile Co.

Decision Date17 September 1945
Docket NumberNos. 28474,28490.,s. 28474
Citation62 N.E.2d 537,391 Ill. 29
PartiesPEOPLE, for Use of MURPHY, Director of Labor, v. CHICAGO WASTE & TEXTILE CO. et al. SAME v. ADVERTISING REVIEW PUB. CO. et al.
CourtIllinois Supreme Court

OPINION TEXT STARTS HERE

Appeal from Circuit Court, Cook County; Harry M. Fisher, Judge.

Suit by the People for the use of Francis B. Murphy, Director of Labor, against Chicago Waste & Textile Company and others to foreclose a tax lien for unpaid unemployment compensation contributions and for other relief, in which Carter H. Harrison, Collector of Internal Revenue, intervened. Interpleader suit by William Fisher, trustee, under a general assignment of assets and property of Advertising Review Publishing Company, against Francis B. Murphy, Director of Labor, and others, for instructions as to distribution of funds. In the case last mentioned, the United States of America was substituted as a party to the suit in lieu of the Collector of Internal Revenue who was named as a defendant. From the judgment in the first case, the intervener appeals, and, from the decree in the second case, the United States appeals.

Judgment in first case reversed and cause remanded with directions. Decree in second case reversed and cause remanded with directions.J. Albert Woll, U. S. Dist. Atty., of Chicago, Samuel O. Clark, Jr., Sewall Key, A. F. Prescott, Paul R. Russell, C. Stanley Titus, and John B. Stephan, all of Washington, D. C., for appellants.

George F. Barrett, Atty. Gen. (William C. Wines, of Chicago, of counsel), for appellee

SMITH, Justice.

These cases have been consolidated for opinion in this court. The issues involved are such that each case must be considered separately in this opinion. We will first consider cause No. 28474. That case is an appeal by Carter H. Harrison, Collector of Internal Revenue, from an order of the circuit court of Cook county, denying his claim for priority of payment. The claim for which priority of payment is sought is the amount of Federal insurance contribution taxes and Federal unemployment taxes due the Federal government from an insolvent employer. Appellee's claim as Director of Labor of the State of Illinois, against the same fund, is for unemployment compensation contribution, plus penalties, interests and costs due the State of Illinois. The amounts due both appellant and appellee accrued against Chicago Waste & Textile Company. A judgment was entered against that company in favor of one of its creditors in the municipal court of Chicago. An execution was issued and placed in the hands of the bailiff of the municipal court, whereupon appellee, as Director of Labor of the State of Illinois, on June 29, 1942, filed this suit in the circuit court of Cook county.

The purpose of the suit was to foreclose the tax lieu for the unpaid unemployment compensation contributions due the State, for appointment of a receiver and for an injunction restraining the sale of the property under the execution. Upon the filing of the complaint, a receiver was appointed, as prayed. Thereafter, the property was liquidated by the receiver. The net amount arising from the liquidation of the property was $677.81, which the court ordered deposited with the clerk of the circuit court, subject to the further order of the court. The claim of appellant and the claim of appellee were each in an amount in excess of the amount of the funds on deposit.

On November 16, 1942, appellant filed his intervening petition. In this intervening petition, after reciting the filing of the claim in the cause on October 9, 1942, he alleged that by virtue of section 3466 of the Revised Statutes of the United States, his claim was entitled to priority of payment to the extent of the funds on deposit with the clerk. To this intervening petition, appellee filed his answer in which he denied that the claim of appellant was entitled to priority of payment. He alleged that there was due the State of Illinois from the insolvent employer for unemployment compensation contributions, the sum of $738.49, plus penalties; that said contributions were a lien on the property of the insolvent employer; that notice of the lien had been filed in the office of the recorder, as required by statute; that the lien for contributions due the State of Illinois was entitled to priority of payment over the claim of appellant and all other creditors.

Upon a hearing it was adjudged that appellee was entitled to priority to the extent of 90 per cent of the funds on deposit with the clerk, and that appellant was entitled to priority as to the remaining 10 per cent of such funds. To review that order, appellant as Collector of Internal Revenue, perfected an appeal to the Appellate Court for the First District. On motion of appellee, the cause was transferred to this court on jurisdictional grounds.

Appellant's claim is, in part, for taxes due under section 1600 of the Federal Unemployment Tax Act, 26 U.S.C.A. Int.Rev.Code, s 1600, and, in part, for Federal insurance contributions under section 801 of title VIII of the Social Security Act, 26 U.S.C.A. Int.Rev.Code, s 1400. We will consider first that part of the claim arising under the Federal Unemployment Tax Act.

Appellant claims the right of priority of payment of the taxes due the Federal governmentunder section 1600 of the Federal Unemployment Tax Act, 26 U.S.C. s 1600, 26 U.S.C.A. Int.Rev.Code, s 1600; formerly title IX of the Social Security Act, under section 3466 of the Revised Statutes of the United States, 31 U.S.C. s 191, 31 U.S.C.A. s 191, which provides that whenever any person indebted to the United States is insolvent, or his estate is insufficient to pay all his debts, the debts due to the United States shall be first satisfied.

Appellee claims that taxes due the Federal government under the Federal Unemployment Tax Act are not such debts as are comprehended within the provisions of said section 3466 of the Revised Statutes. Appellee further contends that even though the taxes due the Federal government in this case are debts due the United States within the purview of said section 3466, the State of Illinois has a prior lien on the assets of the taxpayer for the amount due the State under section 26(a) of the Unemployment Compensation Act of Illinois. Ill.Rev.Stat.1943, chap. 48, per. 243.

In the view we take, it will not be necessary to decide either of the above questions in connection with appellant's claim for priority as to the taxes due under the Federal Unemployment Tax Act. Section 1600 of the Federal Unemployment Tax Act, 26 U.S.C. s 1600, 26 U.S.C.A. Int.Rev.Code, s 1600, imposes an excise tax equal to 3 per cent of the total wages paid during each calendar year upon all employers having eight or more employees. Section 1601(a), 26 U.S.C. s 1601(a), 26 U.S.C.A. Int.Rev.Code, s 1601(a), of said act provides that the taxpayer may credit against the taxes imposed by section 1600, the amount of contributions paid by him into an unemployment fund maintained during the taxable year under the unemployment compensation law of a State, which is certified for the taxable year as provided in section 1603. The Illinois Unemployment Compensation Act was approved and certified by the Federal Social Security Board as provided in said section 1603. Section 1601(c) provides that the total amount of credits allowed ‘shall not exceed 90 per centum of the tax against which such credits are allowable.’ Section 1601(a)(3) provides that such credit shall be permitted only for contributions paid on or before the last day upon which the taxpayer is required by section 1604 to file a return for such year ‘except that credit shall be permitted for contributions paid after such last day but before July 1 next folllowing such last day, but such credit shall not exceed 90 per centum of the amount which would have been allowable as credit on account of such contributions had they been paid on or before such last date.’ Section 1604, 26 U.S.C. s 1604, 26 U.S.C.A. Int.Rev.Code, s 1604, fixes January 31, as the last day on which returns for the preceding calendar year shall be filed.

The claim of appellant is for taxes due the Federal government accruing in the years 1941 and 1942. The last due date of the return for the year 1941, under section 1604, was January 31, 1942. The last due date, of the return for the year 1942 was January 31, 1943.

Section 602(b) of the Revenue Act of 1943, 26 U.S.C.A. s 1601 note, provides: ‘Against the tax imposed by the Federal Unemployment Tax Act for the calendar year 1939, 1940, 1941, or 1942, any taxpayer shall be allowed credit for the amount of contributions paid by him into an unemployment fund under a State law, without regard to the date of payment, if the assets of the taxpayer were, at any time during the period from the last day upon which the taxpayer was required under section 1604 of the Federal Unemployment Tax Act to file a return of the tax against which credit is claimed to June 30 next following such last day, inclusive * * * in the custody or control of a receiver, trustee, or other fiduciary appointed by, or under the control of, a court of competent jurisdiction * * *.’

The record in this case shows that the receiver was appointed on June 29, 1942. The receiver qualified on June 30, 1942. This was prior to the expiration of the last day on which the taxpayer was entitled to a credit on the Federal taxes for the year 1941, for payments made to the State. The assets were, therefore, in the custody and under the control of a receiver during the period from the last day upon which the taxpayer was required to file a return of the tax against which credit is claimed and June 30 next following such last day, inclusive. Such assets were also in the hands of the receiver during all the time subsequent to that period. Under section 602(b) of the Revenue Act of 1943, all limitations as to the time of payment, when the...

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6 cases
  • Commonwealth of Massachusetts v. United States
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    ......Chicago, Ill., for the State of Illinois, as amicus ... recently here in State of Illinois ex rel. v. United States, 328 U.S. 8, 66 S.Ct. 841, and the companion case of People of State of Illinois ex rel. Gordon v. Campbell, ...People v. Waste & Tx tile Co., 391 Ill. 29, 34, 62 N.E.2d 537, ......
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