Department of Revenue v. Heartland Investments, Inc.

• Decision Date: 22 March 1985
• Docket Number: Nos. 60289,60298,s. 60289
• Citation: Department of Revenue v. Heartland Investments, Inc., 476 N.E.2d 413, 106 Ill.2d 19, 86 Ill.Dec. 912 (Ill. 1985)
• Parties: , 86 Ill.Dec. 912 The DEPARTMENT OF REVENUE, Appellee, v. HEARTLAND INVESTMENTS, INC., et al. (Peter S. Vermeil, Appellant). The DEPARTMENT OF REVENUE, Appellant, v. HARTIGAN'S FINER FOODS, INC., et al., Appellees.
• Court: Illinois Supreme Court

Page 413

476 N.E.2d 413

106 Ill.2d 19, 86 Ill.Dec. 912

The DEPARTMENT OF REVENUE, Appellee, v.HEARTLAND INVESTMENTS, INC., et al. (Peter S. Vermeil, Appellant).

The DEPARTMENT OF REVENUE, Appellant, v.HARTIGAN'S FINER FOODS, INC., et al., Appellees.

Nos. 60289, 60298.

Supreme Court of Illinois.

March 22, 1985.

David B. Radley, Baymiller, Christison & Radley, Peoria, for Peter S. vermeil.

Neil F. Hartigan, Atty. Gen., Jill Wine-Banks, Sol.Gen., Chicago, for Illinois Dept. of Revenue; Edward M. Kay, Asst. Atty. Gen., Chicago, of counsel.

Raymond P. Carroll, Chicago, for Bernard Hartigan and Patrick Hartigan.

THOMAS J. MORAN, Justice:

Plaintiff, the Department of Revenue of the State of Illinois(Department), instituted each of the actions involved in this consolidated appeal, by filing a complaint for the collection of unpaid retailers' occupation taxes (Ill.Rev.Stat.1979, ch. 120, par. 440 et seq.)In cause No. 60289, filed in the circuit court of Peoria County, the Department sought recovery of unpaid retailers' occupation taxes from Heartland Investments, Inc., d/b/a The Poison Apple.In a second count, the Department sought recovery, in the alternative, from defendantPeter S. Vermeil, the corporation's president, pursuant to section 13 1/2 of the Retailers' Occupation Tax Act (Act), under which personal liability of a corporate officer can be imposed for wilful failure to pay such taxes (Ill.Rev.Stat.1979, ch. 120, par. 452 1/2).A two-count complaint was also filed in the circuit court of Cook County, in cause No. 60298, to recover unpaid retailers' occupation taxes from Hartigan's Finer Foods, Inc., or, alternatively, from defendantsBernard W. Hartigan and Patrick J. Hartigan, the corporation's president and vice-president, pursuant to section 13 1/2 of the Act.

In cause No. 60289, the circuit court of Peoria County entered a default judgment against the corporate defendant for $7,641.67 plus statutory interest and costs.Following cross-motions for summary judgment on count II, regarding individual liability, the court granted defendant Vermeil's motion and accordingly entered judgment in his favor.The circuit court of Cook County, in cause No. 60298, entered judgment on the pleadings as to count I against the corporation for $97,705.09 and in favor of the individual defendants, after a bench trial, on count II.The Department appealed the decisions in both cases, regarding the personal liability of the corporate officers.

In cause No. 60289, the third district appellate court reversed the decision of the circuit court, finding the defendantPeter S. Vermeil personally liable for the unpaid 1980 retailers' occupation taxes.Further, the court remanded the cause for a hearing relative to Vermeil's liability for the 1981 retailers' occupation taxes.(124 Ill.App.3d 28, 79 Ill.Dec. 525, 463 N.E.2d 1079.)The first district appellate court, in cause No. 60298, on the other hand, affirmed the circuit court decision in favor of individual defendants, Bernard W. Hartigan and Patrick J. Hartigan, finding no personal liability for the unpaid retailers' occupation taxes.123 Ill.App.3d 63, 78 Ill.Dec. 569, 462 N.E.2d 688.

We granted defendantPeter S. Vermeil's petition for leave to appeal(No. 60289).The Department's petition for leave to appeal(No. 60298) was also granted, and the causes have been consolidated for purposes of review.

Three issues are raised on appeal: (1) whether the actions of the individual defendants constitute wilful failure to make tax payments within the meaning of section 13 1/2 of the Act; (2) whether a genuine issue of material fact exists in cause No. 60289, relative to the defendant's personal liability for 1981 retailers' occupation taxes; and (3) whether the Department must reprove the amount of corporate tax liability in its suit against an individual defendant, under section 13 1/2 of the Act.

The record reveals the following facts.In cause No. 60289, the corporation, Heartland Investments, Inc., operated a discotheque and restaurant known as the "Poison Apple."Defendant Vermeil was the president and chief operating officer of the corporation.Further, defendant was responsible for filing returns and making payment of taxes imposed by section 3 of the Act(Ill.Rev.Stat.1979, ch. 120, par. 442).The defendant filed such returns for May, June, July, and August of 1980, showing a total tax liability of $4,086.06.These returns indicate that retail sales were being made and taxes were being collected from customers.Nevertheless, the defendant failed to enclose tax payments with the May 1980 through August 1980 returns.Defendant Vermeil's affidavit filed in support of his motion for summary judgment indicates that funds were available during this period.These funds were insufficient, however, to make payments to both the Department and other suppliers and creditors.Therefore, the defendant stated, the other creditors and suppliers were paid in an effort to keep the business operative.

The defendant executed a "Taxpayer Payment Proposal," with the Department, and on behalf of the corporation, on December 16, 1980.Under the terms of the proposal, the defendant made a down payment of $1,161.72 and agreed to make monthly payments of $500 for the following six months.Only two payments, totaling $202.49, were subsequently made.

Retailers' occupation tax returns were filed by the defendant through April of 1981.Retailers' occupation tax returns were not filed, nor were tax payments made, for May through August of 1981.Thereafter, the Department, pursuant to section 5 of the Act(Ill.Rev.Stat.1979, ch. 120, par. 444), determined, according to its best judgment and information, the amount of retailers' occupation tax due for May through August of 1981.A "Notice of Tax Liability" for $3,982.40 was issued by the Department on February 2, 1982, and was received by the defendant.The liability was neither paid nor protested.

A Department employee was notified by the defendant, in September of 1981, that the business had been discontinued.The corporation was dissolved on December 1, 1981.The defendant maintains, however, that business was permanently discontinued on January 31, 1981.Thus, in his affidavit in support of his motion for summary judgment, the defendant stated that the corporation did not incur retailers' occupation tax liability during the period of May 1981 through August 1981, since no business was conducted at that time.

The factual background of cause No. 60298 manifests circumstances similar to those disclosed in cause No. 60289.The corporation, Hartigan's Finer Foods, Inc., operated a small retail grocery store.DefendantsBernard W. Hartigan and Patrick J. Hartigan maintained the sole control of the business and made all the decisions regarding the corporation.Both were responsible for the control, supervision and duty of filing returns and paying the taxes imposed on the corporation pursuant to the Retailers' Occupation Tax Act.The defendants did prepare and file retailers' occupation tax returns on behalf of the corporation from September 1977 through May 1980, showing a tax liability of $70,816.34 for this period.Only $4,561.11 in taxes was actually paid.

A trial was conducted as to the allegations of count II of the complaint, regarding the defendants' personal liability.The two defendants were called by the Department as adverse witnesses.Their testimony indicates that, during the relevant period, the corporation was making retail sales as well as collecting taxes on these sales, from customers.Both defendants admitted that all of these funds were not paid over to the State.Rather, the tax monies were utilized to pay suppliers in an attempt to stay in business.At the same time, the defendants acknowledged awareness of their responsibility to make monthly tax payments to the State.Business was discontinued on May 13, 1980, and the corporation was dissolved in December of 1980.The corporation did not have sufficient assets to pay the taxes due the State.

The Department seeks to impose personal liability on the defendants in each of these cases, pursuant to section 13 1/2 of the 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 wilfully 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."(Emphasis added.)(Ill.Rev.Stat.1979, ch. 120, par. 452 1/2.)

In Department of Revenue v. Joseph Bublick & Sons, Inc.(1977), 68 Ill.2d 568, 576, 12 Ill.Dec. 265, 369 N.E.2d 1279, the court determined that the purpose of section 13 1/2 is to provide "responsibility for the stewardship of the funds collected from the public for the State."In fact, the court posited the exact factual situation we are confronted with in the instant cases as the "obvious" reason for imposing individual tax liability on responsible officers.Specifically, the court stated:

"The corporate officers could employ the funds collected for the State to pay corporate obligations as well as salaries and bonuses to employees, and thus make recovery of the funds from a defunct corporation an impossibility."(68 Ill.2d 568, 575-76, 12 Ill.Dec. 265, 369 N.E.2d 1279.)

To suggest, as do the defendants in the instant cases, that the financial condition of a business and the demands of creditors are proper factors to consider in determining "wilfulness"...