Dow Chemical Co. v. Department of Revenue

Decision Date27 December 1991
Docket NumberNo. 1-89-2367,1-89-2367
Citation224 Ill.App.3d 263,166 Ill.Dec. 558,586 N.E.2d 516
Parties, 166 Ill.Dec. 558 The DOW CHEMICAL COMPANY, Plaintiff-Appellant, v. DEPARTMENT OF REVENUE, Defendant-Appellee.
CourtUnited States Appellate Court of Illinois

Martin, Craig, Chester & Sonnenschein, Chicago (Charles L. Michod, Jr., and William A. Kummerer, of counsel), for plaintiff-appellant.

Roland Burris, Chicago (Jan E. Hughes, of counsel), for defendant-appellee.

Justice McNULTY delivered the opinion of the court.

Dow Chemical Company appeals the decision of the circuit court affirming the Illinois Department of Revenue's (the Department's) determination that it was barred by the statute of limitations from filing for a $401,237 overpayment which first came to light following the Department's reaudit of Dow's tax returns for 1975 through 1978. We affirm the decision of the circuit court.

Appellant, Dow Chemical Company is a corporation doing business in Illinois and organized under the laws of the State of Delaware. The Department conducted an audit of Dow's tax returns for the years 1975 through 1978 and issued a notice of deficiency in the amount of $241,153 to Dow on December 4, 1979. (Both Dow and the Department employed the separate entity method in computing Dow's income.)

On January 17, 1980, Dow filed a timely notice of protest to the notice of deficiency. Several meetings between Dow and the Department were held and it was agreed that certain errors in the audit would be corrected by the Department. In March 1982, the Department forwarded the matter to one of its examiners for reaudit and for determination of whether Dow and its subsidiaries were a unitary group for purposes of tax computations. 1

On December 7, 1983, the reaudit was completed employing the unitary method of tax computation and revealed an overpayment of Illinois taxes by Dow and the other members of its unitary group for tax years 1975 through 1978 in the amount of $401,237. On December 20, 1983, Dow filed its amended and restated protest, requesting the return of the overpayment. The Department notified Dow that a refund for the overpayment would not be allowed because Dow's request was filed after the statute of limitations had expired. (Ill.Rev.Stat.1983, ch. 120, par. 9-911 requires that claims for income tax refunds be filed not later than three years after the date the return was filed.)

Thereafter, on September 13, 1985, when Dow filed its return for the tax year ending December 31, 1984, it claimed $76,243 of the $401,237 overpayment as a credit against its 1984 tax liability. The Department held a hearing in June 1986 to resolve the issues regarding Dow's overpayment. In its decision, issued one month later, it determined that the original notice of deficiency was void, but that Dow was not entitled to a refund or a set off of any part of the existing overpayment. Dow's request for a rehearing was denied, and the decision of the Department was upheld upon administrative review by the circuit court.

On appeal Dow argues that the circuit court erred in applying an improper standard of review to the decision of the Department. While review of administrative decisions extends to all questions of fact and law presented by the entire record before the court (Ill.Rev.Stat.1983, ch. 110, par. 3-110), a reviewing court is not bound to give the same degree of deference to an agency's conclusions of law as it gives conclusions of fact. (Flex v. Illinois Department of Labor (1984), 125 Ill.App.3d 1021, 81 Ill.Dec. 248, 466 N.E.2d 1050.) Thus, while a reviewing court need only determine whether an agency's findings of fact are supported by substantial evidence, and are not against the "manifest weight of the evidence," it must exercise independent review of questions of law. Flex, 125 Ill.App.3d 1021, 1024, 81 Ill.Dec. 248, 251, 466 N.E.2d 1050, 1053.

In the case at bar, the parties had stipulated to the essential facts during the administrative proceeding. Therefore, the central issue upon review of the Department's decision was a legal one: whether the Department was statutorily prohibited from crediting or refunding Dow's overpayment due to the expiration of the limitations period on claims for refund. Although the case involved an issue of statutory construction, the trial judge stated that the administrative decision could not be overturned unless it was shown to be "against the manifest weight of the evidence and contrary to the law." Nevertheless, in his opinion, the trial judge completed a detailed statutory analysis in which he interpreted the applicable sections of the Illinois Income Tax Act (Ill.Rev.Stat.1983, ch. 120, par. 1-101 et seq.) and their relationship to each other. Therefore, the correct standard of review was actually applied to the decision of the Department of Revenue, despite the trial judge's reference to the manifest weight of the evidence standard.

Dow next contends that a proper construction of the Illinois Income Tax Act (the Act) requires the Department to refund known overpayments where the Department has made errors in calculating the taxpayer's liability, even in the absence of a timely refund claim. In support of this argument, Dow relies on sections 904 and 909 of the Act (Ill.Rev.Stat.1983, ch. 120, para. 9-904(a) and 9-909(a)). Section 904(a) of the Act provides as follows:

"As soon as practicable after a return is filed, the Department shall examine it to determine the correct amount of the tax * * *. If the Department finds that the tax paid is more than the correct amount, it shall credit or refund the overpayment as provided by Section 909." (Ill.Rev.Stat.1983, ch. 120, par. 9-904(a)).

Section 909 refers to credits and refunds and provides as follows:

"(a) In general. In the case of any overpayment, the Department may credit the amount of such overpayment, including any interest allowed theron, against any liability in respect of the tax imposed by this Act, regardless of whether other collection remedies are closed to the Department on the part of the person who made the overpayment and shall refund any balance to such person." (Ill.Rev.Stat.1983, ch. 120, par. 9-909).

Dow maintains that these sections impose an affirmative duty on the Department to refund a taxpayer's overpayments, or at least to apply the overpayment to any existing tax liability. As viewed in isolation, the relied on statutory authority does just that. However, as the Department contends, each part of a statute should be interpreted in light of every other provision, and the entire statute should be construed to produce a harmonious whole. (See Stelzer v. Matthews Roofing Co. Inc. (1986), 140 Ill.App.3d 383, 94 Ill.Dec. 900, 488 N.E.2d 1293.) Dow's interpretation of sections 904 and 909 of the Act ignores the provisions of section 911 (Ill.Rev.Stat.1983, ch. 120, par. 9-911) which imposes an affirmative duty on the taxpayer to file for a refund of overpaid taxes and provides in pertinent part:

"(a) Limitations on claims for refunds.

(1) A claim for refund shall be filed not later than three years after the date the return was filed * * * or one year after the date the tax was paid, whichever is the later.

(2) No credit or refund shall be allowed or made with respect to the year for which the claim was filed unless such claim is filed within such period.

* * * * * *

(c) Extension by agreement.

Where, before the expiration of the time prescribed in this section for the filing of a claim for refund, both the Department and the claimant shall have consented in writing to its filing after such time, such claim may be filed at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon."

The plain meaning of section 911 is that the taxpayer has an affirmative duty to file for a tax refund within a prescribed period of time. Furthermore, this time may be extended by agreement with the Department. When section 911 is read in conjunction with sections 904 and 909 it indicates, as determined by the trial judge, that although there is no limitation...

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    ...of the statute together and not in isolation, so as to "produce a harmonious whole." Dow Chemical Co. v. Department of Revenue , 224 Ill. App. 3d 263, 266, 166 Ill.Dec. 558, 586 N.E.2d 516 (1991). ¶ 32 In addition, "[s]tatutes that exempt property or an entity from taxation must be strictly......
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