Bachrach v. Nelson, 21470.

CourtSupreme Court of Illinois
Citation182 N.E. 909,349 Ill. 579
Docket NumberNo. 21470.,21470.
PartiesBACHRACH et al. v. NELSON, Auditor of Public Accounts, et al.
Decision Date22 October 1932

349 Ill. 579
182 N.E. 909

NELSON, Auditor of Public Accounts, et al.

No. 21470.

Supreme Court of Illinois.

Oct. 22, 1932.

Suit by Walter Bachrach, for himself and all other taxpayers similarly situated, was consolidated by order of court with a suit by David H. McMaster, against Oscar Nelson, Auditor of Public Accounts, and others. Decree for complainants, and defendants appeal.


[349 Ill. 579]Appeal from Circuit Court, Sangamon County; Jesse R. Brown, judge.

[349 Ill. 580]Oscar E. Carlstrom, Atty. Gen., and Montgomery S. Winning and David J. Kadyk, both of Springfield, for appellants.

Moses, Kennedy, Stein & Bachrach and Wilson & McIlvaine, all of Chicago, Graham & Graham, of Springfield, Foreman, Bluford, Krinsley & Schultz and Fyffe & Clarke, all of Chicago, and Hugh J. Dobbs, of Springfield (Walter Bachrach, William B. McIlvaine, J. F. Dammann, Albert Langelutting, Raymond Schultz, Victor J. Voorheis, Raymond Harkrider, David R. Clarke, and John Harrington, all of Chicago, of counsel), for appellees.

[182 N.E. 910]

Winston, Strawn & Shaw, of Chicago, for Chicago Ass'n of Commerce.

Donald Kirkpatrick, of Chicago, amicus curiae.


The constitutionality of ‘An Act in relation to a tax upon persons and fiduciaries based upon income,’ commonly known as the Income Tax Law, is the sole question presented by this appeal. This law was enacted at the first special session of the Fifty-Seventh General Assembly and approved by the Governor on February 22, 1932 (Laws 1931-32, 1st Sp. Sess. p. 91). At the same time ‘An Act making an appropriation [of $5,000] to the Department of Finance for carrying into effect and administering’ its provisions was also passed and approved (Laws 1931-32, 1st Sp. Sess., p. 1). Thereafter suit was filed in the circuit court of Sangamon county by Walter Bachrach, as a resident, citizen, and taxpayer of Illinois, for himself and all other taxpayers similarly situated, for the purpose of testing the constitutionality of the Income Tax Law and to enjoin the appellants from incurring any expenses or making any disbursements from the state treasury under the second act above mentioned. Subsequently, for the same purpose and by leave of court, Michael Cullinan, as a resident, citizen, and taxpayer of this state, filed an intervening bill of complaint, and David H. McMaster, of like qualifications and as an [349 Ill. 581]owner of real estate and personal property subject to taxation, filed an independent suit, which by order of court was consolidated with the Bachrach suit. The appellants filed a general demurrer to the several bills of complaint, and thereafter McMaster by leave of court filed an amended bill and the demurrer was refiled to the amended bill. Following a hearing on the bills and demurrer the circuit court determined that the Income Tax Law was unconstitutional and that any expenditure made under the appropriation act to carry it into effect would be an illegal diversion of public funds, and the decree appealed from was then entered in accordance with the prayer of the bill.

By its terms the Income Tax Law, although not effective until July 1, 1932, subjects incomes received subsequent to January 1, 1932, to taxation. It imposes a graduated tax upon every resident of the state with respect to his entire net income at the following rates: One per cent. on the first $1,000, 2 per cent. on the next $3,000, 3 per cent. on the next $5,000, 4 per cent. on the next $7,000, 5 per cent. on the next $9,000, and 6 per cent. on all net income over $25,000. A like tax is imposed upon every nonresident with respect to his net income from all property owned and from every business, trade, profession, and occupation carried on in this state by such nonresident, and upon either the fiduciaries or beneficiaries of estates and trusts respecting such estate or trust incomes. The following exemptions are allowed taxpayers: (1) In the case of a single person, or a married person not living with or supporting a husband or wife or family, an exemption of $1,000; (2) in the case of the head of a family or a married person living with husband or wife, an exemption of $2,500; (3) $300 for each person (other than husband or wife) dependent upon and receiving his chief support from the taxpayer, if such dependent is under eighteen years of age or is incapable of self-support because mentally or physically defective.

[349 Ill. 582]Under this act capital gains are not taxable, capital losses are not deductible, and provision is made for a large number of non-taxable items and deductions from incomes and credits against the tax. No tax is imposed upon corporations unless acting in a fiduciary capacity, and then not upon the income of the corporation but upon the income of the trust estate which it administers.

Paragraph 2 of section 9a of the act provides that property taxes paid on residence property to an amount taxes paid on residence annum may be allowed as a credit against the income tax of the residence owner but does not provide that a reasonable rental value of residence property shall be considered in de termining the net income. Section 11 of the act provides that a nonresident who pays an income tax in another state from sources in Illinois may be allowed such payment as a credit on his tax, provided the other state allows a similar reciprocal right to nonresidents of that state upon which the foreign state levies an income tax. Nonresidents, however, who pay a tax upon income derived from sources in Illinois, are allowed the same deductions as are residents of Illinois and are subject to like penalties for failure to file returns and pay taxes. By section 15 of the act a nonresident of Illinois is subject to an additional penalty to which a resident of Illinois is not subjected, namely, that the failure of a nonresident to file a complete return of his gross income, both within and without the state of Illinois, subjects him to the penalty of disallowance of all deductions for interest, taxes, and losses, etc., allowed under section 8 of the act, and there is no requirement that this failure should be deliberate or willful.

It is admitted by the Attorney General, in behalf of appellants, that if any one of three fundamental objections raised by appellees against the constitutionality of the present law is sound, then no satisfactory income tax legislation can be passed under our present Constitution.

[349 Ill. 583]The objection first raised and argued at greatest length by appellees is that the Income

[182 N.E. 911]

Tax Law of 1932 is invalid because it is contrary to sections 1 and 2 of article 9 of the Constitution of Illinois. These sections provide as follows:

Ԥ 1. The general assembly shall provide such revenue as may be needful by levying a tax, by valuation, so that every person and corporation shall pay a tax in proportion to the value of his, her or its property-such value to be ascertained by some person or persons, to be elected or appointed in such manner as the general assembly shall direct, and not otherwise; but the general assembly shall have power to tax peddlers, auctioneers, brokers, hawkers, merchants, commission merchants, showmen, jugglers, innkeepers, grocery keepers, liquor dealers, toll bridges, ferries, insurance, telegraph and express interests or business, vendors of patents, and persons or corporations owning or using franchises and privileges, in such manner as it shall from time to time direct by general law, uniform as to the class upon which it operates.

‘§ 2. The specification of the objects and subjects of taxation shall not deprive the general assembly of the power to require other subjects or objects to be taxed in such manner as may be consistent with the principles of taxation fixed in this constitution.’

Appellees contend that both of the foregoing sections of the Constitution confine the power of the General Assembly in the imposition of taxes to (1) property by valuation, and (2) occupations, franchises, and privileges. On the other hand, the appellants contend that whatever may be the limitations of section 1, they are sufficiently removed by section 2 to permit the Legislature to tax, as ‘subjects or objects' mentioned in section 2, the right to rpoduce, create, receive, and enjoy an income. The power of the Legislature to levy the proposed income tax is therefore dependent upon the true meaning of the above-quoted revenue provisions of the Constitution.

[349 Ill. 584]Considered first from an historical standpoint, it appears that for over a century Illinois has been definitely committed to the policy of raising its needed revenue by a general property tax, with the burden apportioned according to valuation. Such a provision appears in article 8 of our Constitution of 1818, declaring, in section 20, ‘that the mode of levying a tax shall be by valuation, so that every person shall pay a tax in proportion to the value of the property he or she has in his or her possession.’ Following the adoption of our first Constitution, the general property tax was gradually extended to include intangibles. Bank stock was added to the taxable list in 1819, and taxes for county purposes were authorized on carriages, distilleries, stock in trade, and such other personal property as was thought proper (Laws of 1819, p. 313). In 1827 the law specifically named horses, mares, mules, asses, neat cattle above three years of age, and watches and their appendages (Laws of 1827, p. 325). Ferries were added in 1829 (Laws of 1828-29, p. 123). In 1839 an act was passed which abolished former arbitrary land classifications and substituted a provision that both land and personal property should ‘be valued according to the true value thereof‘ (Laws of 1838-39, p. 3). This law broadened the definition of taxable property to include ‘money actually loaned’ and ‘all other description of personal property’ and restricted the exemptions. The law of 1845...

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