Continental Illinois Nat. Bank and Trust Co. of Chicago v. Zagel

• Decision Date: 21 November 1979
• Docket Number: 52366,Nos. 52339,s. 52339
• Citation: 78 Ill.2d 387,36 Ill.Dec. 650,401 N.E.2d 491
• Parties: , 36 Ill.Dec. 650 CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO et al., Petitioners, v. James B. ZAGEL, Director of Revenue et al., Respondents. Paul W. SWANSON et al. d/b/a Chapel Hill Properties, Petitioners, v. James B. ZAGEL, Director of Revenue, et al., Respondents.
• Court: Illinois Supreme Court

Page 491

401 N.E.2d 491

78 Ill.2d 387, 36 Ill.Dec. 650

CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF

CHICAGO et al., Petitioners, v. James B. ZAGEL, Director of Revenue et al., Respondents.

Paul W. SWANSON et al. d/b/a Chapel Hill Properties, Petitioners, v. James B. ZAGEL, Director of Revenue, et al., Respondents.

Nos. 52339, 52366.

Supreme Court of Illinois.

Nov. 21, 1979.

William I. Goldberg and Donald Page Moore, of Antonow & Fink, Chicago, for petitioners Paul W. Swanson et al.

Wayne W. Whalen, Scott J. Davis, and James K. Genden, of Mayer, Brown & Platt, Chicago, for petitioners Continental Illinois Nat. Bank and Trust Co. of Chicago and Central Illinois Light Co.

William J. Scott, Atty. Gen., Springfield (Herbert L. Caplan, First Asst. Atty. Gen., and Jeremiah Marsh, Sp. Asst. Atty. Gen., of counsel), for respondents.

Bernard Carey, State's Atty., Chicago (Paul P. Biebel, Jr., Deputy State's Atty., Chicago, of counsel), for amicus curiae the County of Cook. Thomas D. Nyhan, Robert C. Bonges, and James J. Brennan, Chicago (Pope, Ballard, Shepard & Fowle, Chicago, of counsel), for amicus curiae Illinois State Chamber of Commerce.

Joseph A. Power, Chicago (William J. Harte, Chicago, of counsel), for amicus curiae Chicago Park District.

Michael J. Murray, Chicago (William J. Harte, Chicago, of counsel), for amicus curiae Bd. of Ed. of the City of Chicago.

William R. Quinlan, Corp. Counsel, Chicago (Robert Retke, Asst. Corp. Counsel, and Lee J. Schwartz, Special Asst. Corp. Counsel, Chicago, of counsel), for amicus curiae City of Chicago.

DeJong, Poltrock & Giampietro, Chicago (Lawrence A. Poltrock, Wayne B. Giampietro, Chicago, and Gregory N. Freerksen, Chicago, of counsel), for amicus curiae Illinois Federation of Teachers.

R. Garrett Phillips, Springfield, for amicus curiae Illinois Ass'n of School Bds.

UNDERWOOD, Justice:

Two original taxpayers' actions (Ill.Const.1970, art. VI, sec. 4(a)) relating to revenue (see, e. g., People ex rel. Klinger v. Howlett (1972), 50 Ill.2d 242, 278 N.E.2d 84; People ex rel. Ogilvie v. Lewis (1971), 49 Ill.2d 476, 274 N.E.2d 87; Thorpe v. Mahin (1969), 43 Ill.2d 36, 250 N.E.2d 633) were filed pursuant to leave of this court (58 Ill.2d R. 381) and consolidated for argument and opinion. Both complaints seek a declaratory judgment that the Illinois replacement tax act (Pub. Act 81-1SS-1, effective August 14, 1979, hereinafter referred to as the Act) is invalid.

Cause No. 52339 was filed on the effective date of the Act by Continental Illinois National Bank and Trust Company of Chicago and Central Illinois Light Company. That petition seeks invalidation of the Act on several constitutional grounds, primarily attributable to article IX, section 5(c), of the Illinois Constitution of 1970. On August 20, 1979, we ordered cause No. 52366, a related action filed by a partnership entitled Chapel Hill Properties, to be consolidated with cause No. 52339. Relying primarily on article IX, section 3(a), of the Constitution, cause No. 52339 seeks invalidation of that portion of the Act which would impose an income tax on partnerships. On the basis of these constitutional claims, the petitioners in both causes seek an injunction to restrain the appropriate State officials from enforcing the Act. Because of the importance and urgency of the issue we expedited briefing and argument.

Appreciation of the constitutional challenges requires an examination of the Act's origin and purpose. Entitled "An Act in relation to the abolition of ad valorem personal property tax and the replacement of revenues lost thereby * * *," it was enacted pursuant to article IX, section 5(c), of the 1970 Illinois Constitution, which provides:

"On or before January 1, 1979, the General Assembly by law shall abolish all ad valorem personal property taxes and concurrently therewith and thereafter shall replace all revenue lost by units of local government and school districts as a result of the abolition of ad valorem personal property taxes subsequent to January 2, 1971. Such revenue shall be replaced by imposing statewide taxes, other than ad valorem taxes on real estate, solely on those classes relieved of the burden of paying ad valorem personal property taxes because of the abolition of such taxes subsequent to January 2, 1971. If any taxes imposed for such replacement purposes are taxes on or measured by income, such replacement taxes shall not be considered for purposes of the limitations of one tax and the ratio of 8 to 5 set forth in Section 3(a) of this Article."

The General Assembly failed to provide a replacement for the ad valorem personal property tax prior to January 1, 1979. In Client Follow-Up Co. v. Hynes (1979), 75 Ill.2d 208, 230, 28 Ill.Dec. 488, 390 N.E.2d 847, we held that section 5(c) of article IX rendered the existing ad valorem personal property tax invalid after January 1, 1979, and constituted a continuing mandate to the General Assembly to enact a replacement tax. On June 30, 1979, the General Assembly passed House Bill 2569, which was an earlier version of the Act. Subsequently, the Governor exercised an amendatory veto over House Bill 2569 and the General Assembly in a special session approved his recommendations on August 6, 1979. Upon the Governor's certification of the General Assembly's actions, the Act became law on August 14, 1979.

The Act imposes two taxes. One is the replacement income tax, which increases the yearly corporate income tax rate from 4% to 6.85% until January 1, 1981, and to 6.5% thereafter. This tax subjects partnerships, trusts and corporations for which there is in effect for the taxable year an election under section 1372 of the Internal Revenue Code (subchapter S) to additional income taxes at an annual rate of 1.5%. The other tax is the invested capital tax, which subjects various public utilities to a yearly tax of 0.8% on invested capital. The Act further establishes the Personal Property Tax Replacement Fund, into which proceeds from both taxes will be placed.

The petitioners assert that the Act is unconstitutional on several grounds. First, petitioners maintain that the Governor's exercise of his amendatory veto power exceeded the bounds of section 9(e) of article IV of the 1970 Illinois Constitution, which provides:

"The Governor may return a bill together with specific recommendations for change to the house in which it originated. The bill shall be considered in the same manner as a vetoed bill but the specific recommendations may be accepted by a record vote of a majority of the members elected to each house. Such bills shall be presented again to the Governor and if he certifies that such acceptance conforms to his specific recommendations, the bill shall become law. If he does not so certify, he shall return it as a vetoed bill to the house in which it originated."

The Governor employed the amendatory veto to make the following recommendations: (1) reduction of the increase in the yearly corporate income tax from the 2.85% provided in House Bill 2569 to 2.5% for the period following January 1, 1981; (2) special provisions for taxpayers' returns affected by the rate change in the middle of a tax year; and (3) consistent treatment in the computation of base income and filing of returns for partnerships and subchapter S corporations. Only the first recommendation is challenged. Arguing that this recommendation involved more than a minor or technical change of House Bill 2569, petitioners maintain that the Governor's use of the veto power was unconstitutional. We disagree.

The extent of the Governor's amendatory veto power under section 9(e) of article IV was examined by this court in People ex rel. Klinger v. Howlett (1972), 50 Ill.2d 242, 249, 278 N.E.2d 84. There, it was concluded that section 9(c)'s authorization of "specific recommendations for change" did not include the substitution of a completely new bill through the exercise of the amendatory veto power. While noting the existence of such words of limitation in the records of the constitutional convention as "corrections" and "precise corrections," a significant exchange in the debates was also noted. In response to Delegate Netsch's question: "Then was it the Committee's thought that the conditional veto would be available only to correct technical errors?", a committee member answered, "No Ma'am." (50 Ill.2d 242, 249, 278 N.E.2d 84, 88.) The absence of further clarification, of course, leaves unclear the drafter's intent as to the precise scope of the amendatory veto power.

While recognizing that constitutional debates often assist in comprehending the purpose of unclear constitutional provisions, we have emphasized that "the true inquiry concerns the understanding of its provisions by the voters who, by their vote, have given life to the product of the convention." (Client Follow-Up Co. v. Hynes (1979), 75 Ill.2d 208, 222, 28 Ill.Dec. 488, 494, 390 N.E.2d 847, 853, citing People ex rel. Keenan v. McGuane (1958), 13 Ill.2d 520, 527, 150 N.E.2d 168; Wolfson v. Avery (1955), 6 Ill.2d 78, 88, 126 N.E.2d 701; Burke v Snively (1904), 208 Ill. 328, 344, 70 N.E. 327; see also Hoogasian v. Regional Transportation Authority (1974), 58 Ill.2d 117, 126, 317 N.E.2d 534.) In Client Follow-Up Co. v. Hynes, we relied to a significant extent on public comprehension of section 5(c) of article IX of the 1970 Constitution to determine that it abolished ad valorem taxes on personal property as of January 1, 1979. We inferred public understanding in part from views expressed in the press by persons who played significant roles in framing the 1970 Constitution and whose opinions would presumably carry great weight with voters. (75 Ill.2d 208, 224-26, 28 Ill.Dec. 488, 390 N.E.2d 847.) Even less by way of inference is required to ferret out public understanding of section 9(e) of article IV, since the voters themselves have addressed the very question we now...