Casey's Mktg. Co. v. Hamer

• Citation: 51 N.E.3d 35,2016 IL App (1st) 143485
• Decision Date: 01 March 2016
• Docket Number: No. 1–14–3485.,1–14–3485.
• Parties: CASEY'S MARKETING COMPANY, Plaintiff–Appellant, v. Brian HAMER, in His Official Capacity as Director of the Illinois Department of Revenue, The Illinois Department of Revenue, and Dan Rutherford, in His Capacity as Treasurer of the State of Illinois, Defendants–Appellees.
• Court: United States Appellate Court of Illinois

2016 IL App (1st) 143485
51 N.E.3d 35

CASEY'S MARKETING COMPANY, Plaintiff–Appellant,
v.
Brian HAMER, in His Official Capacity as Director of the Illinois Department of Revenue, The Illinois Department of Revenue, and Dan Rutherford, in His Capacity as Treasurer of the State of Illinois,¹ Defendants–Appellees.

No. 1–14–3485.

Appellate Court of Illinois, First District, Second Division.

March 1, 2016.

51 N.E.3d 37

Michael J. Wynne, Michael D. Rickman, and Adam P. Beckerink, all of Reed Smith LLP, of Chicago, for appellant.

Lisa Madigan, Attorney General, of Chicago (Carolyn E. Shapiro, Solicitor General, and Evan Siegel, Assistant Attorney General, of counsel), for appellees.

OPINION

Justice SIMONdelivered the judgment of the court, with opinion:

¶ 1 This appeal asks us to determine whether the most recent cigarette tax increase is unconstitutional. The appellant argues that it violates the uniformity clause of the Illinois Constitution. We conclude, as the trial court did, that the statute does not violate the constitutional principle that the subjects within a class be taxed uniformly and, therefore, we affirm.

¶ 2 BACKGROUND

¶ 3 Plaintiff Casey's Marketing Company operates several hundred convenience stores in Illinois and over a thousand in the country. The stores sell gasoline, groceries, other small goods and, importantly here, cigarettes. On June 14, 2012, the State enacted a law increasing the cigarette

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tax from 49 mills² per cigarette to 99 mills per cigarette, effective 10 days later. This increase was codified as an amendment to the Cigarette Tax Act (Act) (35 ILCS 130/1 et seq.(West 2012)) and lays out the manner in which the tax is to be imposed.

"Any retailer having cigarettes in his or her possession on June 24, 2012 to which tax stamps have been affixed is not required to pay the additional tax that begins on June 24, 2012 imposed by this amendatory Act of the 97th General Assembly on those stamped cigarettes. Any distributor having cigarettes in his or her possession on June 24, 2012 to which tax stamps have been affixed, and any distributor having stamps in his or her possession on June 24, 2012 that have not been affixed to packages of cigarettes before June 24, 2012, is required to pay the additional tax that begins on June 24, 2012 imposed by this amendatory Act of the 97th General Assembly to the extent the calendar year 2012 average monthly volume of cigarette stamps in the distributor's possession exceeds the average monthly volume of cigarette stamps purchased by the distributor in calendar year 2011. This payment, less the discount provided in subsection (b), is due when the distributor first makes a purchase of cigarette stamps on or after June 24, 2012 or on the first due date of a return under this Act occurring on or after June 24, 2012, whichever occurs first." 35 ILCS 130/2(a)(West 2012).

¶ 4 The State circulated a bulletin to advise all cigarette distributors about the tax. The bulletin refers to the new law as a tax rate increase and advises distributors that their inventory might be subject to a floor tax.³ The State also supplied a form that the distributors were to use to determine if their inventory was subject to the tax and, if so, a method by which they could calculate the amount owed.

¶ 5 To paraphrase, the form directs distributors to: Add the number of affixed and unaffixed tax stamps in your inventory as of December 31, 2011 to the number of tax stamps purchased this year (from January 1, 2012 to June 23, 2012). Divide that result by 5.8. That amount is the average number of stamps in your possession in 2012. Then, take the average monthly tax stamps purchased in 2011 and subtract that amount from the average number of stamps in possession in 2012.⁴ If the result

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of that calculation was zero or negative (meaning the distributor, on average, possessed the same or less stamps in 2012 than it did in 2011), no floor tax was imposed. If the result was positive (meaning, proportionally, more tax stamps were possessed in 2012), the distributor was instructed that it was subject to the tax and directed the distributor as to how the amount owed should be calculated.

¶ 6 Casey's was subject to the tax in the amount of $279,816. It paid the tax under protest and, on July 17, 2012, filed a complaint seeking a declaration that the tax was invalid, demanding that its payment be refunded. The basis of Casey's objection that is relevant to this appeal is that the tax increase violated the "uniformity clause" of the Illinois Constitution.⁵ The uniformity clause states that, "[i]n any law classifying the subjects or objects of non-property taxes or fees, the classes shall be reasonable and the subjects and objects within each class shall be taxed uniformly." Ill. Const.1970, Art. IX, § 2. The gist of Casey's argument on appeal is that the formula used by the State for determining who owed the tax and in what amount resulted in a disparate tax burden among almost every distributor without any lawful justification.

¶ 7 An understanding of some of the mechanics of the cigarette taxation process will be helpful going forward. Generally, the taxes are imposed entirely on the "retailer," the one that sells the product to the end user. 35 ILCS 130/1; 2(a) (West 2012). The "distributor," the manufacturer or wholesaler, prepays the tax to the State, receiving a tax stamp, and then collects the tax from the retailer. Id.The distributors are said to be "agent [s] for the State" for the purpose of collecting cigarette taxes. Heyman v. Mahin,49 Ill.2d 284, 289, 275 N.E.2d 421 (1971). Casey's is a distributor under the Act and its hundreds of convenience stores are retailers.

¶ 8 Section 2 of the statute, which imposes the tax, is rather lengthy. Instead of using a new statutory section or replacing the section for each tax increase, the General Assembly has opted to just add to the existing section by amendment. So the statute begins with the initial cigarette tax of 5 1/2 mills per cigarette imposed in 1941 and is followed by several clauses that state something to the effect of "after this date of this year, there is an additional mill tax in this amount." Beginning in 1989, the General Assembly began to delve into taxing cigarettes in a distributor's possession based on whether the cigarettes had tax stamps affixed at the time the tax became effective; a type of floor tax. It was in the 1989 amendment that the General Assembly first began to refer to the distributor as the payer of the tax.⁶ In 1993, for the first time, the General Assembly went forward with assessing what is considered to be a floor tax. The 1993 amendment states that "[a]ny distributor having cigarettes to which stamps have been affixed in his or her possession for sale at 12:01 a.m. on the effective date of this amendatory Act of 1993, is required to

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pay the additional tax imposed by this amendatory Act of 1993 on such stamped cigarettes." 35 ILCS 130/2(a)(West 2012). In the 1997 and 2002 tax increases, distributors were expressly not required to pay a tax on their stamped inventory. Since 1989, the floor tax has always been explicitly contemplated. In its 2012 tax increase, the General Assembly again imposed a floor tax. Instead of using the formula used in 1993, the General Assembly opted for the mathematic formula set forth above that based taxes upon the increase of the distributor's stamps in possession from the previous year. The outcome of the formula is what Casey's argues failed to produce uniform taxation.

¶ 9 The parties filed cross-motions for summary judgment. The State argued that the tax was valid. Casey's argued that the tax was invalid because the formula, based on the number of stamps possessed, resulted in a different tax on each distributor (or perhaps retailer) without any constitutionally permissible classification or justification for the classification. The trial court entered summary judgment in favor of the State. The trial court found that the distributor is the "intended taxpayer" of the floor tax and that it was "not th[e] court's duty to redraw the lines for a 'better' tax." The court explained that the temporary difference in tax rates paid "appear[s] to be an unavoidable necessity."

¶ 10 ANALYSIS

¶ 11 We review the grant of summary judgment de novo. Illinois Tool Works Inc. v. Travelers Casualty & Surety Co.,2015 IL App (1st) 132350, ¶ 8, 389 Ill.Dec. 331, 26 N.E.3d 421. Summary judgment is appropriate when the pleadings, depositions, admissions, and affidavits, viewed in a light most favorable to the nonmovant, fail to establish a genuine issue of material fact, thereby entitling the moving party to judgment as a matter of law. 735 ILCS 5/2–1005 (West 2012); Progressive Universal Insurance Co. of Illinois v. Liberty Mutual Fire Insurance Co.,215 Ill.2d 121, 127–28, 293 Ill.Dec. 677, 828 N.E.2d 1175 (2005). If disputes as to material facts exist or if reasonable minds may differ with respect to the inferences drawn from the evidence, summary judgment may not be granted. Associated Underwriters of America Agency, Inc. v. McCarthy,356 Ill.App.3d 1010, 1016–17, 292 Ill.Dec. 724, 826 N.E.2d 1160 (2005). However, when parties file cross-motions for summary judgment, they agree that no genuine issues of material fact exist and that the dispute involves only questions of law, which the court may decide based on the record. Illinois Tool Works,2015 IL App (1st) 132350, ¶ 8, 389 Ill.Dec. 331, 26 N.E.3d 421. We also review the constitutionality of a statute de novo. Empress Casino Joliet Corp. v. Giannoulias,231 Ill.2d 62, 69, 324 Ill.Dec. 491, 896 N.E.2d 277 (2008). We are to uphold a statute as constitutional whenever reasonably possible. Arangold Corp. v. Zehnder,204 Ill.2d 142, 146, 272 Ill.Dec. 600, 787 N.E.2d 786 (2003).

¶ 12 Casey's argues that the trial court erred by finding that the distributor was the "intended taxpayer" of the 2012 tax increase. To support...