Department of Revenue v. Roman S. Dombrowski Enterprises, Inc., 1-88-3537

• Court: Appellate Court of Illinois
• Writing for the Court: SCARIANO
• Citation: Department of Revenue v. Roman S. Dombrowski Enterprises, Inc., 560 N.E.2d 881, 202 Ill.App.3d 1050, 148 Ill.Dec. 284 (Ill. App. 1990)
• Decision Date: 16 January 1990
• Docket Number: No. 1-88-3537,1-88-3537
• Parties: , 148 Ill.Dec. 284 DEPARTMENT OF REVENUE, Plaintiff-Appellee, v. ROMAN S. DOMBROWSKI ENTERPRISES, INC., an Illinois corporation; Shell Oil Co., purchaser; Roman S. Dombrowski, and Mary S. Dombrowski, Defendants-Appellants.

Page 881

560 N.E.2d 881

202 Ill.App.3d 1050, 148 Ill.Dec. 284

DEPARTMENT OF REVENUE, Plaintiff-Appellee, v. ROMAN S. DOMBROWSKI ENTERPRISES, INC., an Illinois corporation; Shell Oil Co., purchaser; Roman S Dombrowski, and Mary S. Dombrowski Defendants-Appellants.

No. 1-88-3537.

Appellate Court of Illinois First District, Second Division.

Jan. 16, 1990.

Rehearing Denied May 1, 1990.

William J. Gerard, William J. Gerard, Ltd., Chicago, for defendants-appellants.

Neil F. Hartigan, Atty. Gen., Chicago (Valerie J. Peiler, Asst. Atty. Gen., of counsel), for plaintiff-appellee.

Justice SCARIANO delivered the opinion of the court:

This action was filed by the Department of Revenue (Department) in 1975 to collect a deficiency in Retailer's Occupation Tax (ROT) payments owed by Roman S. Dombrowski Enterprises, Inc., from the corporation and its two stockholders and officers, Roman and Mary Dombrowski. After a default judgment entered against the corporation proved to be uncollectible, a trial was held in 1988 to determine whether Roman Dombrowski and his wife were personally liable for the deficiency. The trial judge found that Roman Dombrowski (defendant) was personally liable pursuant to Ill.Rev.Stat.1973 ch. 120, par. 452 1/2, and defendant appeals.

In 1968, defendant, desiring to form a corporation for the purpose of operating a service station leased from Shell Oil Company, hired an accountant to effect the incorporation, review the lease, and assist in starting up the business. In late 1971, however, he discovered that his business had not been properly incorporated. Prior to this time, ROT returns filed with the State had been completed on the incorrect assumption that the corporation had been properly formed. Defendant properly incorporated on January 18, 1972, under the name of "Roman S. Dombrowski Enterprises, Inc."

On April 1, 1975, the Department filed its two-count complaint seeking to recover a ROT liability of $47,944.91 for the period January 1970 through August 1972. As indicated on an attached Final Tax Assessment issued October 7, 1974, this figure represented a tax liability of $31,247.33; the remainder consisted of statutory penalties and interest. The first count sought recovery solely against the corporation; the second count sought recovery against Roman and Mary Dombrowski on the ground that the corporation was their alter-ego, and on the ground that derivative liability existed based on section 13 1/2 of the Retailers' Occupation Tax Act, which provides:

"Any officer or employee of any corporation subject to the provisions of this Act who has the control, supervision, or responsibility of filing returns and making payment of the amount of tax herein imposed in accordance with Section 3 of this Act and who willfully fails to file such return or to make such payment to the Department shall be personally liable for such amounts, including interest and penalties thereon, in the event that after proper proceedings for the collection of such amounts, as provided in said Act, such corporation is unable to pay such amounts to the Department; and the personal liability of such officer or employee as provided herein shall survive the dissolution of the corporation." (Ill.Rev.Stat.1973 ch. 120, par. 452 1/2.)

On May 7, 1975, the Dombrowskis filed a motion in lieu of an answer stating that a previous lawsuit had been filed against them by the Department based on the same tax liability, and that since judgment had been entered in favor of the Department in the amount of $2,198.43 in that action, the instant suit should be barred.

On November 3, 1975, the trial judge remanded the case to the Department for a hearing to determine the period covered by the earlier judgment. After a number of continuances, the Department held the court-ordered rehearing on August 10, 1976, and July 14, 1978. The resulting report and disposition issued by the Department indicates that defendant had submitted additional documents during the course of the rehearing which he claimed proved that he had not been given full credit for taxes paid. On reviewing these documents, the Department determined that the original assessment should be upheld, but the reason the documents were not taken into consideration was not given. Similarly, no mention was made of the prior lawsuit. A Revised Final Assessment was issued based on the same amount of tax liability previously determined ($31,247.33), with an additional $32,634.09 assessed for penalties and interest, bringing the total amount claimed to $63,881.42.

On January 10, 1980, the trial judge entered an order based on the Department's findings. A default judgment was entered against the corporation on count I of the complaint in the amount of $68,568.52 because additional interest had accrued. The order contained nothing regarding defendant's claim that an earlier suit barred further recovery.

After another series of lengthy continuances, a trial was held on September 28, 1988 on count II of the complaint, which sought to impose personal liability on the Dombrowskis. The judge ruled that he could not consider defendant's documents contradicting the amount of the deficiency determined by the Department on the ground that he did not have jurisdiction to review the agency action. In an order entered November 3, 1988, he held that Mary Dombrowski had no personal liability for the taxes owed, while Roman Dombrowski was held primarily liable for that period of the assessment when no corporate entity was in existence, and that he was also derivatively liable under section 13 1/2 for the period when the corporation was in existence. A judgment in the amount of $31,247.33, the amount of tax owed exclusive of penalties and interest, was entered against defendant, which ruling was not contested by the Department. ¹ A notice of appeal was filed by defendant on December 1, 1988.

I.

Defendant first argues that the circuit court erred in failing to consider documents he submitted at trial which, he claims, demonstrate that the Department did not give him full credit for taxes paid. He also claims that these documents, apparently the same as those he submitted to the Department during the administrative rehearing, establish that neither he nor the corporation owe more than an insignificant amount ($31.77) of ROT taxes. We find this argument untenable; therefore we affirm the decision of the trial court.

Under the terms of the ROT Act, anyone who becomes obligated for due and unpaid taxes is initially sent a Notice of Tax Liability. (Ill.Rev.Stat.1973, ch. 120, par. 444). If no protest is received within 20 days, the assessment becomes final; if a timely protest is made, the Department holds a hearing and subsequently issues a Final Assessment. (Id.) Once an assessment becomes final, the taxpayer may obtain judicial review of the agency determination only if he or she complies with the provisions of the Illinois Administrative Review Act (ARA), Ill.Rev.Stat.1973, ch. 110, par. 264 et seq. (Id.) Paragraph 267 of the ARA, now codified as Ill.Rev.Stat.1987 ch. 110, par. 3-103, provides that a person seeking judicial review of a final agency action must file an action in the circuit court within 35 days after service of the final agency determination. The Illinois Supreme Court has held:

"[I]f a proceeding is not brought under the Administrative Review Act for judicial review of the Department's final assessment the assessment will be conclusive as to all questions affecting its merits. A defense as to the merits of the case must be raised through administrative review or will be considered waived." (Calderwood Corp. v. Mahin (1974), 57 Ill.2d 216, 220, 311 N.E.2d 691, 693.)

See also Department of Revenue v. Jones (1986), 141 Ill.App.3d 968, 96 Ill.Dec. 303, 491 N.E.2d 117. Defendant now asks us to reverse the trial court's decision that judicial review of the Department's determination of tax liability would be improper. We find the trial court's ruling to have been properly taken under both the ROT Act and the ARA. The Department issued a Final Assessment on October 7, 1974, and defendant does not contend that the Department failed to serve him with notice thereof; consequently, defendant had 35 days from the date of service of the Final Assessment to file an action seeking judicial review of the agency determination. Having failed to file such an action, he has instead improperly sought judicial review of the Department's action as part of his defense to the instant lawsuit; but because of defendant's failure to comply with the ARA, we are not empowered to review the merits of the Final Assessment or the Revised Final Assessment. J...