Branson v. Department of Revenue

• Decision Date: 06 December 1994
• Docket Number: No. 4-93-0826,4-93-0826
• Citation: 644 N.E.2d 1193,268 Ill.App.3d 818
• Parties: , 206 Ill.Dec. 140 Carl E. BRANSON, Plaintiff-Appellee, v. The DEPARTMENT OF REVENUE, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 1193

644 N.E.2d 1193

268 Ill.App.3d 818, 206 Ill.Dec. 140

Carl E. BRANSON, Plaintiff-Appellee, v. The DEPARTMENT OF REVENUE, Defendant-Appellant.

No. 4-93-0826.

Appellate Court of Illinois Fourth District.

Argued June 21, 1994.

Decided Dec. 6, 1994.

Roland W. Burris, Atty. Gen., Rosalyn B. Kaplan, Sol. Gen., Jan E. Hughes (argued), Asst. Atty. Gen., for appellant.

William P. Gavin (argued), Brown & Gavin, Belleville, for appellee.

Justice STEIGMANN delivered the opinion of the court:

In July 1989, the Illinois Department of Revenue (Department) issued notices of penalty liability (NPLs) to plaintiff, Carl E. Branson, and his wife, Bonnie Branson, as responsible parties pursuant to section 13 1/2 of the Retailers' Occupation Tax Act (Act) (Ill.Rev.Stat.1991, ch. 120, par. 452 1/2). The penalties assessed related to unpaid taxes, interest, and penalties owed by Carbon, Inc. (Carbon), which operated Branson's Family Restaurant, from June 1986 through the restaurant's closing in January 1987. An administrative law judge (ALJ) recommended upholding the penalty assessment against plaintiff and recommended dismissing the assessment against Bonnie. The Department accepted both of the ALJ's recommendations.

On appeal to the circuit court, the court ruled that plaintiff had the responsibility for filing corporate tax returns and paying the taxes due, but because the Department failed to prove plaintiff wilfully failed to pay the taxes, the court reversed the Department's determination of plaintiff's liability. The Department appeals, arguing that it established a prima facie case of plaintiff's wilfulness in failing to pay the sales taxes, and that plaintiff failed to negate that proof.

We affirm in part and reverse in part.

I. BACKGROUND

At the hearing before the ALJ, the Department offered into evidence its group exhibit No. 1 under the certification of records signed by the Department's Director. The exhibit consisted of (1) NPL No. 1881 issued July 31, 1989, to Bonnie showing a total liability of $26,372.11; (2) NPL No. 1880 issued on July 31, 1989, to plaintiff showing a total liability of $26,372.11; (3) United States Post Office return receipt cards signed by plaintiff; (4) a protest letter dated August 10, 1989, signed by William P. Gavin for both plaintiff and Bonnie; (5) notice of hearing dated February 15, 1989, setting the matters for hearing; (6) a discontinuation of tax form signed by plaintiff in his capacity as president of Carbon dated March 30, 1987, and received by the Department on April 12, 1987; and (7) an Illinois business taxpayers' application for registration naming plaintiff as president and Bonnie as secretary, signed by plaintiff.

Plaintiff and Bonnie objected to the admission of this group exhibit because the certification of records did not specifically identify the documents within the exhibit purportedly being certified. The ALJ overruled their objection and admitted the exhibit into evidence in its entirety. Plaintiff then moved to dismiss the Department's case on the ground that the Department did not prove the essential elements of a prima facie case, but the ALJ denied the motion.

In 1986 and 1987, plaintiff worked at both the Carbon restaurant and another restaurant owned by a separate corporation. Until February 1986, he was shareholder, officer, and director of both corporations and kept the corporate records. After February 1986, he became sole shareholder, officer, and director of Carbon.

Plaintiff was in charge of quality control of the food, quality of help, managers, and overseeing the operation of the Carbon restaurant, which was open 24 hours a day. He hired Marion Comp as bookkeeper for Carbon just prior to the incorporation of Carbon in late 1985. Comp's duties consisted of paying bills, making bank deposits, and tallying daily receipts.

In order to pay the retailers' occupation tax (sales tax), the restaurant kept a daily log, which totaled all receipts. These daily logs were forwarded to the TACS Company (TACS), an accounting firm, to prepare tax forms, and then returned to Comp, who in turn presented them to plaintiff for his signature. Comp wrote the checks to pay the taxes, and plaintiff introduced a photocopy of a check to the Department for such taxes signed by Marion Comp, dated in December 1985.

In early December 1986, plaintiff discovered problems with Carbon's corporate finances. Comp was on vacation, and plaintiff attempted to pay the daily bills. Although the corporate checkbook showed a positive cash amount, the bank informed him of an overdraft. Carbon continued to function as a corporation 30 to 40 days thereafter until January 25, 1987.

The Department does not dispute that plaintiff did not know, prior to January 25, 1987, that Illinois sales tax had not been paid nor returns filed. Plaintiff testified that he never chose one creditor to pay before the State. He discovered sales tax was owed to the State when confronted by a revenue agent after the Carbon restaurant ceased operations. Carbon had no funds in its account on January 25, 1987, and plaintiff used personal funds to pay Carbon's employees.

On cross-examination, plaintiff admitted he was the sole shareholder and director of Carbon. He spoke to Comp daily and saw daily receipts on a pinup board. He was also aware of overhead costs and cash flow problems during the summer of 1986. When Comp returned from vacation in December 1986, plaintiff became aware that the bank was correct and Comp's bookkeeping was incorrect. Also, suppliers began complaining of insufficient funds checks and were subsequently paid in cash. While Comp was away, plaintiff found a drawer full of unpaid bills, but he did not examine them to see whether any were obligations owed to the State of Illinois.

The restaurant's checks were given to TACS for reconciliation on a monthly basis. Comp dealt with TACS, but plaintiff reviewed the TACS monthly statement. When he decided to close the business in January 1987, he did not contact the Department to see if the corporation owed any outstanding assessments as a result of sales tax returns. As treasurer of Carbon, plaintiff admitted that he was the officer in charge of Carbon's financial affairs and was obligated to collect sales tax from its customers and remit the funds to the State. He signed the discontinued business form dated January 14, 1987, but actually closed the restaurant on January 25, 1987. He assumed tax returns were mailed for October, November, and December 1986. He spoke to Comp, but she "did not know a lot herself." Prior to the closing, he learned the corporation was three months delinquent in rent. During December 1986 and January 1987, he drew a weekly salary.

Based upon this evidence, the ALJ found that plaintiff was a responsible party and had wilfully failed to pay the taxes at issue. The ALJ recommended the penalty assessment be finalized in its entirety. The Department accepted the ALJ's decision, and plaintiff filed this action for administrative review.

The circuit court held that the Department failed to prove plaintiff acted wilfully and remanded the case to the Department for further evidence on the issue of plaintiff's wilfulness. The parties filed a joint motion to modify that order because neither had any additional evidence on the issue of wilfulness to present, and they wished to proceed to appeal to the appellate court on the basis of the existing record. The circuit court then reversed the Department's determination and ruled that because the record contained no evidence of plaintiff's wilfulness, the Department's determination of plaintiff's liability was against the manifest weight of the evidence. This appeal followed.

II. ANALYSIS

A. Admissibility of the Department's Documents

Plaintiff contends that the circuit court was correct in reversing the Department's determination that he was liable for the penalty assessed because documents introduced by the Department were inadmissible and, in any case, did not constitute prima facie evidence of wilfulness. The circuit court did not rule that the documents introduced by the Department were inadmissible but did rule that they failed to prove plaintiff acted in a wilful manner.

At the time of the occurrences at issue here, section 13 1/2 of the Act provided in relevant part as follows:

"The Department shall determine a penalty due under this Section according to its best judgment and information, and such determination shall be prima facie correct and shall be prima facie evidence of a penalty due under this Section. Proof of such determination by the Department shall be made at any hearing before it or in any legal proceeding by reproduced copy of the Department's record relating thereto in the name of the Department under the certificate of the Director of Revenue. Such reproduced copy shall, without further proof, be admitted into evidence before the Department or any legal proceeding and shall be prima facie proof of the correctness of the penalty due, as shown thereon." (Ill.Rev.Stat.1991, ch. 120, par. 452 1/2.)

This language was added by Public Act 84-1454 (Pub. Act 84-1454, art. II, § 1, eff. Jan. 6, 1987 (1986 Ill.Laws 4287, 4292-93)). This section was repealed effective January 1, 1993, by Public Act 87-205 (Pub. Act 87-205, art. IV, § 4-15, eff. Jan. 1, 1993 (1991 Ill.Laws 1329, 1471)), but similar language is included in section 3-7(a) of the Uniform Penalty and Interest Act, effective January 1, 1993. 35 ILCS 735/3-7(a) (West 1992) (formerly Ill.Rev.Stat.1991, ch. 120, par. 2603-7(a)).

Plaintiff argues that the Department did not properly certify the documents submitted in the hearing before the ALJ to establish the penalty due. Plaintiff raises two objections to the documents in this regard. First, the certification did not specifically identify each document submitted by name. Second, the Department either failed to submit its entire record or...