Heyman v. Mahin
| Decision Date | 30 September 1971 |
| Docket Number | No. 42544,42544 |
| Citation | 49 Ill.2d 284,275 N.E.2d 421 |
| Parties | Glenn R. HEYMAN, Trustee, Appellant, v. George E. MAHIN, Director of Revenue, et al., Appellees. |
| Court | Illinois Supreme Court |
Frank O. Wetmore, II, Chicago (Edward J. Wendrow, Ronald Butler and Winston, Strawn, Smith & Patterson, Chicago, of counsel), for appellant.
William J. Scott, Atty. Gen., Springfield , for appellees.
This is an appeal from the circuit court of Cook County which upheld the constitutionality of the graduated discounts allowed to distributors under the Cigarette Tax Act. Ill.Rev.Stat.1969, ch. 120, par. 453.2.
F. W. Koenecke and Son, Inc. filed an amended complaint which seeks a declaration that the 1963, 1965, 1967 and 1968 amendments to section 2(b) of the Cigarette Tax Act are unconstitutional as violating the uniformity provision of section 1 of article IX of the Illinois constitution, S.H.A. and the equal protection clause of the fourteenth amendment of the Federal constitution. The plaintiff seeks to recover sums of money paid to the State under protest. The defendants, the Director of the Department of Revenue, the State Treasurer and the Attorney General filed a motion to dismiss. Glenn R. Heyman, as trustee in bankruptcy of plaintiff, was permitted to intervene in the cause on behalf of the plaintiff and to adopt the amended complaint as his pleading. The circuit court found each of the amendatory acts to be constitutional and dismissed the amended complaint. This appeal is from that judgment, pursuant to Rule 302(a)(2), Ill.Rev.Stat.1969, c. 110A, § 302(a)(2) then in effect.
The Cigarette Tax Act as originally enacted in 1941 levied a tax on persons engaged in business as distributors of cigarettes in the State measured by the number of cigarettes sold or otherwise disposed of in this State in the course of such business and allowed each distributor a 5% Discount on the amount of tax paid to the State. (Ill.Rev.Stat.1941, ch. 120, par. 453.2.) In Johnson v. Daley, 403 Ill. 338, 86 N.E.2d 350, this court held the Cigarette Tax Act to be an occupation tax and in Mutual Tobacco Co. v. Halpin, 414 Ill. 226, 111 N.E.2d 155, this court stated that the Cigarette Tax Act was a tax imposed on persons engaged in business as distributors of cigarettes in this State.
In 1963 the Act was amended and declared that the impact or incidence of the tax is on the retailer; however, under the amended Act the distributor continues to have the responsibility of affixing the tax stamps to the cigarette packages and is required to add the tax to the price of the cigarettes sold. Under the amendment any distributor who fails to properly collect and pay the tax imposed is liable for the tax. Ill.Rev.Stat.1965, ch. 120, par. 453.2.
Under the 1963 amendment the flat 5% Discount rate granted the cigarette distributors under the 1941 Act as amended was discontinued and replaced with a graduated declining discount rate measured by the dollar amount of the taxes paid by the distributor in any year commencing July 1 and ending June 30 of the following year. (Ill.Rev.Stat.1963, ch. 120, par. 453.2(b).) The discount rate schedule adopted in 1963 and its revisions in 1965 and 1967 are as follows:
1963 Amendment
First $700,000 of tax paid--5% Discount
Second $700,000 of tax paid--4% Discount
Third $700,000 of tax paid--3% Discount
All additional tax paid--2% Discount
1965 Amendment
First $700,000 of tax paid--2 6/7% Discount
Second $700,000 of tax paid--2 2/7% Discount
Third $700,000 of tax paid--1 5/7% Discount
All additional tax paid--1 1/7% Discount
1967 Amendment
First $700,000 of tax paid--2 2/9% Discount
Second $700,000 of tax paid--1 7/9% Discount
Third $700,000 of tax paid--1 1/3% Discount
All additional tax paid--8/9% Of 1% Discount
The 1968 amendment continued the discount rate of the 1967 amendment. Section 2(b) of the Act in regard to the schedule of discounts states: '(b) The distributor shall be required to collect the taxes provided under paragraph (a) hereof, and, to cover the costs of such collection, shall be allowed a discount during any year * * * in accordance with the schedule set out * * *.'
It is the graduated feature of the rate of dicount which plaintiff claims discriminates against it as hereinafter indicated. F. W. Koenecke and Sons, Inc. is a licensed distributor of cigarettes in Illinois. Its business is the import purchasing of cigarettes from the manufacturer and the selling of cigarettes to wholesalers and retailers, both inside and outside of this State. It is the largest distributor of cigarettes in the midwest. As a distributor, the statute imposes upon it the obligation of affixing to each package of cigarettes a revenue tax stamp before delivering them in this State to a purchaser.
Cigarettes purchased by plaintiff are shipped to its plant in standard cases. Each case contains 60 cartons with 10 packages of 20 cigarettes in each carton or a total of 600 packages of cigarettes in each case. Each case is opened, all 60 cartons are removed and opened, a tax stamp is affixed to each of the 600 packages, and the cartons are then resealed and replaced in the case. Plaintiff has special machinery, equipment and personnel to perform this operation. The amended complaint alleges that plaintiff purchases approximately $700,000 of tax stamps a week which has the effect of placing plaintiff in the lowest discount bracket within the first month of the year's operation.
Although, since the amendment to the Act in 1963 the statute has specifically provided that the tax imposed thereunder is a tax imposed upon 'any person engaged in business as a Retailer of cigarettes' (emphasis added), plaintiff as a premise of its constitutional argument insists that the Act still imposes an occupation tax upon distributors of cigarettes. The Mutual Tobacco Co. case which so held and which plaintiff cites in support of its position was decided prior to the 1963 amendment, at a time when the Act specifically provided that the tax imposed thereunder was a tax imposed upon any person engaged in the business as a Distributor of cigarettes. Although the Act since the 1963 amendment has continued to look to the distributor for the collection of the tax, it has likewise provided since that date: 'The impact of the tax levied by this Act is hereby declared to be imposed upon the retailer and shall be prepaid or pre-collected by the distributor for the purpose of convenience and facility only, and the amount of the tax shall be added to the price of the cigarettes sold by such distributor.' (Ill.Rev.Stat.1967, ch. 120, par. 453.2.) We think the language of the Act is clear. The tax is no longer an occupation tax imposed upon distributors of cigarettes but is an occupation tax imposed upon those engaged in business as retailers of cigarettes in this State. Since the statute specifically requires that the distributor pass the tax on to the retailer, no incidence of the tax falls upon the distributor and we are concerned not with the effect of the tax upon the distributor but with the effect of the discount which, as specifically stated in the Act, is in the nature of compensation to the distributor to cover the costs of collecting the tax from the retailer.
Plaintiff contends that the graduated discount, decreasing as the amount of tax remitted by the distributor to the Department increases, has the same effect as a graduated tax on the distributors which increases with the volume of sales. Plaintiff then asserts that under the holding in Stewart Dry Goods Co. v. Lewis, 294 U.S. 550, 55 S.Ct. 525, 79 L.Ed. 1054 and Valentine v. Great Atlantic & Pacific Tea Co., 299 U.S. 32, 57 S.Ct. 56, 81 L.Ed. 22, such a graduated tax must be held violative of the equal-protection clause of the fourteenth amendment. In these two cases the tax was based on a graduated percentage of the gross receipts or gross sales.
We do not consider either the Stewart case or the Great Atlantic & Pacific Tea Co. case to be helpful or in any way controlling in deciding the case now before us. Since the 1963 amendment to the Act as above stated the incidence of the tax is clearly on the retailer and not on the distributor. As Mr. Justice Roberts stated in Monamotor Oil Co. v. Johnson, 292 U.S. 86, at page 95, 94 S.Ct. 575, at page 579, 78 L.Ed. 1141, at page 1148: 'The short answer to the contention is that the statutes properly construed lay no tax whatever upon distributors, but make of them mere collectors,' and 292 U.S. at 93, 54 S.Ct. at 578, 78 L.Ed. at 1147, See also Pierce Oil Corp. v. Hopkins, 264 U.S. 137, 44 S.Ct. 251, 68 L.Ed....
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