Griffith v. Department of Revenue

• Decision Date: 19 September 1994
• Docket Number: No. 1-92-2518,1-92-2518
• Citation: 266 Ill.App.3d 838,640 N.E.2d 1262,203 Ill.Dec. 889
• Parties: , 203 Ill.Dec. 889 Rosetta GRIFFITH, Plaintiff-Appellee, v. The DEPARTMENT OF REVENUE et al., Defendants-Appellants.
• Court: United States Appellate Court of Illinois

Page 1262

640 N.E.2d 1262

266 Ill.App.3d 838, 203 Ill.Dec. 889

Rosetta GRIFFITH, Plaintiff-Appellee, v. The DEPARTMENT OF REVENUE et al., Defendants-Appellants.

No. 1-92-2518.

Appellate Court of Illinois First District, First Division.

Sept. 19, 1994.

Department of Revenue appealed from order of the Circuit Court, Cook County Randye A. Kogan, J., which determined that individual was not liable for taxes owed by corporation of which she was president. The Appellate Court, Buckley, J., held that: (1) evidence of willful failure to pay taxes is required when to impose personal liability, and (2) proof that tax was owed by the corporation was insufficient to show willful failure to pay.

Affirmed.

Roland W. Burris, Atty. Gen., and Rosalyn B. Kaplan, Sol. Gen., Chicago (Jan E. Hughes, Asst. Atty. Gen., of counsel), for appellants.

Jenner & Block, Chicago (Robert L. Graham, Laura A. Kaster, Robert L. Denby, of counsel), for appellee.

Justice BUCKLEY delivered the opinion of the court:

The Department of Revenue of the State of Illinois ("the Department") appeals the Cook County Circuit Court's determination that Rosetta Griffith ("plaintiff") is not liable for taxes owed by Timothy, Inc. under the Retailers' Occupation Tax Act ("ROTA"). (Ill.Rev.Stat.1991, ch. 120, par. 452 1/2) (now, 35 ILCS 120/13.5 (West 1992)).) The court's ruling reversed the Department's finding that plaintiff is personally liable for the corporation's taxes. The issues revolve around the interpretation of section 13 1/2 of ROTA, which imposes personal liability for a wilful failure to pay corporate taxes.

The circuit court adopted the plaintiff's reading of section 13 1/2 by holding that the Department's showing of corporate tax liability does not, by itself, establish a prima facie case of personal liability. Specifically, the Department must also show a wilful failure to pay the tax. The court also found that even if the Department had met its burden, plaintiff successfully rebutted the presumption of wilfulness through her sworn answers to interrogatories and tax bills.

The Department believes it established its prima facie case of plaintiff's tax liability under section 13 1/2 simply by submitting the Notice of Tax Liability sent to Timothy, Inc. and the corporation's tax returns signed by plaintiff. Further, the Department argues that plaintiff has failed to rebut the presumption of tax liability arising from the Department's prima facie case because plaintiff admitted no evidence and only referred to evidence admitted by the Department.

The Department issued Timothy, Inc., which operated as a small grocery store, a "Notice Of Tax Liability" on June 18, 1985. This notice represented unpaid taxes, penalties, and interest due under ROTA and was never protested. On April 9, 1987, the Department issued plaintiff, the president of Timothy, Inc. a "Notice of Penalty Liability" ("NPL") in the amount of $405,805.63 for unpaid taxes, penalties and interest for the period from January 1982 through October 1985. Although plaintiff was president of Timothy, Inc. from January 1982 through July 1985, she did not receive any compensation, dividends or salary from the corporation. A full-time employee and an accountant managed the corporation. The employee maintained and had control of the corporate books and records. The accountant prepared and filed the Retailers' Occupation Tax returns and prepared the check for payment with each return. Plaintiff signed the returns and checks but played no role in their preparation and claims she was unfamiliar with the ROTA prior to this lawsuit.

There is no dispute that Timothy, Inc. filed returns and paid the amounts reflected on these returns. The alleged deficiency reflected in the NPL is the result of disallowed deductions taken by Timothy, Inc. Plaintiff protested the NPL and on June 20, 1988, the Department held a hearing.

At the hearing the Department introduced into evidence a copy of the NPL, copies of Timothy, Inc.'s sales tax and corporate tax returns, and plaintiff's answers to written interrogatories. The Department rested its case after asserting that plaintiff was an officer and responsible party of Timothy, Inc. Plaintiff offered no evidence but argued that the Department had failed to meet its burden of showing control and wilfulness on the part of plaintiff. The Department's Administrative Law Judge ("ALJ") found that the Department met its burden of proof "simply by introducing the Notice of Penalty Liability and the copies of signed tax returns," and recommended that the NPL be finalized as plaintiff offered no evidence to rebut the Department's case.

On October 17, 1988, plaintiff appealed the ALJ's decision to the circuit court of Cook County. ^* The circuit court found for plaintiff and reversed the ALJ's finding that a prima facie case under section 13 1/2 is established by simply admitting the NPL into evidence. Judge Kogan found that the NPL is only prima facie proof of the amount of the penalty due, and wilfulness must also be proved in order to impose liability under section 13 1/2.

This court agrees with the circuit court holding that evidence of a wilful failure to pay taxes is required to impose personal liability under section 13 1/2. The Department raises several unconvincing arguments for the proposition that a showing of corporate tax liability is prima facie proof of personal tax liability under section 13 1/2. The Department is attempting to read the statutory language in a way that would undermine the intent of the legislature and destroy a well established line of case law. The statutory language is unambiguous and clearly states that personal tax liability will be imposed only against those who "wilfully" fail to file returns or pay taxes:

"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 or willfully attempts in any other manner to evade or defeat the tax shall be personally liable for a penalty equal to the total amount of tax unpaid by the corporation, including interest and penalties thereon; The Department shall determine a penalty due under this Section according to its best judgment and information, and such determination shall be prima facie correct and shall be prima facie evidence of a penalty due under this Section. Proof of such determination by the Department shall be made at any hearing before it or in any legal proceeding by reproduced copy of the Department's record relating thereto in the name of the Department under the certificate of the Director of Revenue. Such reproduced copy shall, without further proof, be admitted into evidence before the Department or any legal proceeding and shall be prima facie proof of the correctness of the penalty due, as shown thereon * * *." (Emphasis added.) Ill.Rev.Stat.1991, ch. 120, par. 452 1/2 (now, 35 ILCS 120/13.5 (West 1992)).

A statute will be construed by an appellate court independent of the trial court's determination. (Eck v. McHenry County Public Building Comm'n (1992), 237 Ill.App.3d 755, 759, 178 Ill.Dec. 586, 590, 604 N.E.2d 1109, 1113.) A court is to ascertain and give effect to the true intent and meaning of the legislature, with the best evidence of intent being the language of the statute itself. (Puss N Boots, Inc. v. Mayor's License Comm'n (1992), 232 Ill.App.3d 984, 986, 173 Ill.Dec. 676, 678, 597 N.E.2d 650, 652.) A statute must be enforced as written if it is unambiguous. (Haist v. Wei Wu (1992), 235 Ill.App.3d 799, 813, 176 Ill.Dec. 229, 238, 601 N.E.2d 927, 936.) Courts should give substantial weight and deference to the interpretation of a statute by the agency charged with its administration and enforcement. County of Cook v. Illinois Local Labor Relations Board (1991), 214 Ill.App.3d 979, 987, 158 Ill.Dec. 641, 646, 574 N.E.2d 754, 759.

The Department reads the plain meaning of the statute to mean that a "prima facie case is met simply by admitting into evidence the reproduced copy of the Department's records, i.e., the NPL and the Corporate tax returns." However, the language of the statute states that the Department's records shall be only prima facie evidence of a penalty due and prima facie proof of the correctness of the penalty due. The Department would like this court to equate the meaning of "prima facie case" with the phrases "prima facie evidence of a penalty due" and "prima facie proof of the correctness of the penalty due." As the circuit court correctly noted, evidence is only a medium of proof and does not equal a prima facie case.

The meanings of these phrases are not the same. To hold otherwise would require this court to assume a person acted wilfully every time the Department's records showed corporate tax liability. This reading would in effect merge the element of wilfulness into the element of corporate liability and would render the wilful language superfluous. However, statutes should be construed so that no word or phrase is rendered superfluous or meaningless. (Jones v. Municipal Officers Electoral Board (1983), 112 Ill.App.3d 926, 930, 68 Ill.Dec. 522, 525, 446 N.E.2d 256, 259.) Therefore, section 13 1/2 must require the Department to make a showing of wilfulness independent of the showing of corporate tax liability.

The Illinois Supreme Court has interpreted the term "wilful" in section 13 1/2 to mean a "voluntary, conscious and intentional failure" to make a tax payment. (Department of Revenue v. Joseph Bublick & Sons, Inc. (1977), 68 Ill.2d 568, 577, 12 Ill.Dec. 265, 269, 369 N.E.2d 1279, 1283.) Plaintiff has cited several cases directly on point, which illustrate that the Department did not prove plaintiff acted wilfully as interpreted under section 13...