Baumgardt v. Isaacs

• Decision Date: 27 September 1963
• Docket Number: No. 37776,37776
• Citation: 29 Ill.2d 29,193 N.E.2d 31
• Court: Illinois Supreme Court
• Parties: Ray BAUMGARDT, d/b/a A & B Machine Shop, et al., Appellees, v. Theodore J. ISAACS, Director of Revenue, et al., Appellants.

Page 31

193 N.E.2d 31

29 Ill.2d 29

Ray BAUMGARDT, d/b/a A & B Machine Shop, et al., Appellees, v. Theodore J. ISAACS, Director of Revenue, et al., Appellants.

No. 37776.

Supreme Court of Illinois.

Sept. 27, 1963.

William G. Clark, Atty. Gen., Springfield (William W. Wines, Raymond S. Sarnow, A. Zola Groves, and Edward A. Berman, Asst. Attys. Gen., of counsel), for appellants.

Thomas D. Simmons and Ralph S. Zahm, Rockford, for appellees.

HERSHEY, Justice.

The plaintiffs, thirty-seven machine tool manufacturers operating in the Rockford area, filed a complaint in the circuit court of Winnebago County for a declaratory judgment and injunction against Theodore J. Isaacs as Director of the Department of Revenue and Francis Lorenz as Treasurer of the State of Illinois, seeking to restrain them from taking any steps toward assessing plaintiffs for any taxes under the Retailers' Occupation Tax Act for that business done by plaintiffs described in the complaint.

This complaint involves the question of whether the plaintiffs are engaged in selling tangible personal property at retail, under the Retailers' Occupation Tax Act, or are engaged in service occupations which are not subject to that statute. The acts alleged in the complaint arose prior to the adoption of the Service Occupation Tax Act (Ill.Rev.Stat.1961, chap. 120, par. 439.101 et seq.) and no question as to their taxability under that act is here presented.

The complaint alleges, among other things, that (1) all plaintiffs are engaged in the business of making tools, dies, fixtures, gauges and special machinery for others; (2) that these items are designed, developed and constructed through the use of special skill and engineering on special order for particular customers to conform to their special methods of manufacture; (3) that the material in this machinery is of inconsequential value when compared with the services of plaintiffs and such raw material varies from one-half per cent of the amount paid by the customer to approximately twenty per cent thereof; (4) that all items so made by plaintiffs have use or value, other than salvage value, only to the purchaser; (5) that all sales of such items by plaintiffs are a mere incident in and to the performance of services requiring engineering, artistic designing, developing and constructing skill and ability; (6) that, therefore, plaintiffs are not subject to the Retailers' Occupation Tax Act and are specifically made exempt therefrom by the Department of Revenue's own rules and regulations; (7) that in 1950 the Department of Revenue adopted a regulation known as Rule 3 which provides that the 'sellers of machinery, tools, dies, jigs, patterns, gauges and the like to users or consumers incur Retailers' Occupation Tax liability except as specified in paragraph 2 hereof.' Paragraph 2 of this Rule provides that where 'the purchaser employs the seller primarily for his engineering or other scientific skill to design, develop, construct and produce a special machine, tool, die, jig, pattern, gauge, or other similar item on special order for and to meet the particular needs of the purchaser, and in such a way that the items, when so produced, had use or value (other than salvage value) only to the purchaser and has use or value only for the specific purpose for which such item is produced by the seller for the purchaser, the seller is engaged primarily in a service occupation * * * and does not incur Retailers' Occupation Tax Liability * * *.'; (8) that notwithstanding the foregoing, the Department of Revenue sent auditors into the offices of certain of the plaintiffs for the purpose of assessing and collecting this tax, and has indicated that it plans to audit all plaintiffs and to assess a tax based upon the gross sales of the aforementioned items; (9) that representatives of the Department of Revenue have stated that said audits and assessments are to be made in disregard of the Department's own rules exempting plaintiffs' activities from taxation, which rules said representatives have stated they are incapable of understanding and applying; and (10) that the imposition of a retailers' occupation tax upon plaintiffs measured by their gross receipts constitutes the assessment and attempt to collect an invalid and illegal tax from the plaintiffs and would, therefore, deprive plaintiffs of their property without due process of law and will deny them equal protection of the law, all in violation of the State and Federal constitutions.

The defendants filed a motion to strike the complaint and dismiss the suit. The lower court, after hearing arguments of counsel denied defendants' motion to dismiss, upon which defendants elected to stand. The trial court subsequently entered a final decree and injunction against the defendants restraining them 'from assessing or attempting to collect from plaintiffs, or any of them, any Retailers' Occupation Tax based upon the gross receipts from their business as described in the complaint in this case.' This decree was appealed by defendants directly to this court since the revenue is involved.

In urging reversal of the decree, appellants contend: (1) that the technique employed by several taxpayers seeking a declaratory judgment of nontaxability in a single action involving transactions covering all the business of all the plaintiffs is not authorized by the section 23 of the Civil Practice Act; (2) that plaintiffs are not entitled to injunctive relief where they have an adequate remedy at law under the Administrative Review Act; (3) that plaintiffs have not properly raised any constitutional objection to the tax in question; and (4) that the complaint, because it involves the determination of the taxability of several plaintiffs based upon similar but not identical factual situations, seeks to frustrate orderly administrative and judicial procedure. (This appears to be basically the same point as number two above and will be so treated in this opinion.)

There is considerable doubt as to whether appellants' first contention regarding the joinder of plaintiffs has been preserved on this appeal. In the motion to dismiss the complaint filed below it was asserted: (1) that plaintiffs could not bring any suit until a final assessment had been issued by the Department of Revenue and that they then had to proceed under the Administrative Review Act; (2) that plaintiffs suit constituted a suit against the State of Illinois prohibited by the Constitution (a point that was not urged on this appeal); and (3) that plaintiffs' complaint did not properly raise any constitutional question. No question as to the misjoinder of parties was raised and appellant did not ask in this or any other motion that designated misjoined parties be dismissed as is specifically required by section 45 of the Civil Practice Act (Ill.Rev.Stat.1961, chap. 110, par. 45). Ordinarily, therefore, this point could not be raised for the first time on appeal. It does, however, appear that in the oral argument before the trial court this question was considered and that the trial judge denied defendants' motion not only because of his rejection of the points specifically raised therein, but also because he felt that the complaint did present common questions of law and fact as to the taxability of several plaintiffs engaged in similar manufacturing activities and also because in his opinion said action would prevent a multiplicity of suits. We will therefore consider this point as to the propriety of the joinder of the plaintiffs as having been raised, without objection, orally after the filing of defendants' written motion to dismiss.

Section 23 of the Civil Practice Act provides that 'Subject to rules, all persons may join in one action as plaintiffs, in whom any right to relief in respect of or arising out of the same transaction or series of transactions is alleged to exist, whether jointly, severally or in the alternative, whenever if those persons had brought separate actions any common question of law or fact would arise * * *.' (Ill.Rev.Stat.1961, chap. 110, par. 23.) The complaint in this case, appellants argue, presents nothing more than separate factual issues of whether the business activities of each plaintiff constitute sales at retail, or on the other hand, whether these activities involve the rendition of services. In such cases we have stated that, although the general principles are well-settled, 'the facts and situations in each case are different, making it difficult to apply in the way of a general group.' (Sterling Steel Casting Co. v. Department of Revenue, 7 Ill.2d 244, 130 N.E.2d 262.) Therefore, appellants further argue, there could exist no common question of fact or law, such as would authorize the joinder of the plaintiffs' separate causes of action in one suit.

The Sterling Steel case, however, involved only one plaintiff and consequently no question of joinder of parties was there presented. It has long been the practice in this State, both before and after the enactment of section 23 of the Civil Practice Act, for taxpayers engaged in similar businesses to join together in a single equitable action to restrain the imposition of illegal taxes, (See, e. g., Beatrice Foods Co. v. Lyons, 12 Ill.2d 274, 146 N.E.2d 68; Western Photo & Supply Co. v. Lyons, 15 Ill.2d 318, 155 N.E.2d 1; Mount Carbon Coal & Railroad Co. v. Blanchard, 54 Ill. 240), including taxes allegedly due under the Retailers' Occupation Tax Act where, as in this case, the issue to be decided was whether or not the taxpayers were engaged in service occupations. (See, e. g. Benson v. Isaacs, 22 Ill.2d 606, 177...