Kraft, Inc. v. Edgar

• Decision Date: 26 September 1990
• Docket Number: No. 69308,69308
• Citation: 138 Ill.2d 178,561 N.E.2d 656,149 Ill.Dec. 286
• Court: Illinois Supreme Court
• Parties: , 149 Ill.Dec. 286 KRAFT, INC., formerly known as Dart & Kraft, Inc., Appellant, v. Jim EDGAR, Secretary of State, et al., Appellees.

Page 656

561 N.E.2d 656

138 Ill.2d 178, 149 Ill.Dec. 286

KRAFT, INC., formerly known as Dart & Kraft, Inc., Appellant, v. Jim EDGAR, Secretary of State, et al., Appellees.

No. 69308.

Supreme Court of Illinois.

Sept. 26, 1990.

Don S. Harnack, McDermott, Will & Emery, Chicago (David J. Duez and Richard A. Hanson, of counsel), for appellant.

Neil F. Hartigan, Atty. Gen., Springfield (Robert J. Ruiz, Sol. Gen., and Jan E. Hughes, Asst. Atty. Gen., Chicago, of counsel), for appellees.

Justice RYAN delivered the opinion of the court:

This appeal involves a dispute over a 1985 assessment of additional franchise taxes, license fees and penalties against plaintiff, Kraft, Inc., for the year 1980. Plaintiff asserts that it mistakenly inserted incorrect monetary figures in its 1980 "Application for Certificate of Authority of Foreign Corporation" to transact business in Illinois, and that the Secretary of State relied upon those figures in calculating the allocation factor on which the 1985 assessment was based. Plaintiff seeks an adjustment of the Secretary's assessment pursuant to section 1.17 of the Business Corporation Act of 1983 (Ill.Rev.Stat.1985, ch. 32, par. 1.17) (1983 Act). The Secretary responds that plaintiff is not entitled to rely on section 1.17 of the 1983 Act because plaintiff failed to file its petition for review and refund within the three-year statute of limitations contained in the 1983 Act (Ill.Rev.Stat., 1984 Supp., ch. 32, par. 1.17(a)(2)), in effect at the time plaintiff filed its report in 1985. Plaintiff counters that the Secretary's action deprives plaintiff of its right to a fair apportionment of its franchise taxes and license fees secured by the commerce clause of the Federal Constitution (U.S. Const., art. I, § 8). Plaintiff further argues that the Secretary's refusal to allow plaintiff to challenge the assessment has deprived plaintiff due process (U.S. Const., amend. XIV, § 1). Finally, the Secretary contends that plaintiff waived its commerce clause and due process rights with respect to the assessment by "electing" to complete the application for a certificate of authority as it did. The circuit court of Sangamon County, on administrative review, set aside the Secretary's refusal to grant an adjustment and reduced the assessment of taxes and fees for 1980 from $1,331,119.84 to $166.66. The appellate court, however, agreed with the Secretary and reversed the judgment of the circuit court. (188 Ill.App.3d 46, 135 Ill.Dec. 569, 543 N.E.2d 1316.) We granted plaintiff's petition for leave to appeal (107 Ill.2d R. 315). We hold that plaintiff's petition for an adjustment of the assessment was timely filed, pursuant to section 1.17 of the 1983 Act. Accordingly, we reverse the judgment of the appellate court, affirm the judgment of the circuit court, and remand for further proceedings.

The essential facts of this case are not disputed. In 1980 Kraft, Inc., and Dart Industries, Inc., were planning to merge. To this end they created plaintiff Dart & Kraft, Inc. (now known as Kraft, Inc.), to serve as a jointly owned subsidiary for the purpose of owning all the stock of Kraft, Inc., and Dart Industries, Inc. Plaintiff was incorporated under the laws of Delaware in June 1980. On August 29, 1980, plaintiff filed with the Secretary of State an original application for a certificate of authority to transact business in Illinois as a foreign corporation. The application form required plaintiff to estimate the total value of property of the corporation for the following year both in Illinois and everywhere. The form further required plaintiff to estimate the total business to be transacted by plaintiff for the following year both in Illinois and everywhere. These figures are used by the Secretary of State to calculate the percentage of the corporation capital and paid-in surplus subject to Illinois franchise tax and license fees. A foreign corporation may, however, elect to be taxed on its entire capital and paid-in surplus. The employee of plaintiff who completed the application, instead of giving estimates, stated the then current value of property owned in Illinois and everywhere, together with the business activity which had been transacted in Illinois and everywhere as of the date of filing. Consequently, the application listed $1,000 as the value of plaintiff's property in Illinois and $4,000 as the value of all its property. The estimate of business to be transacted in the first year was stated as zero.

Pursuant to the plan of merger between Kraft, Inc., and Dart Industries, Inc., plaintiff formed two subsidiaries: K Sub and D Sub. In September 1980, Kraft, Inc., merged with K Sub and Dart Industries, Inc., merged with D Sub. Stockholders of both Kraft, Inc., and Dart Industries, Inc., exchanged their stock for stock in the new parent corporation, plaintiff herein. As a result, plaintiff experienced an enormous increase in its capital and paid-in surplus. On September 25, 1980, this increase stood at $2,567,186,647. In December 1980, plaintiff issued additional shares of common stock, further increasing its capital and paid-in surplus by $509,027. Section 117 of the Business Corporation Act (Ill.Rev.Stat.1979, ch. 32, par. 157.117) (1933 Act) required plaintiff to report these increases to the Secretary of State within 60 days of their occurrence. Plaintiff did not report these increases to the Secretary until August 15, 1985, nearly five years later. These increases were, however, reflected on each of plaintiff's annual reports filed with the Secretary for 1981 through 1985. In response to the August 15, 1985, report, which reported the 1980 increase in capital and paid-in surplus, the Secretary issued plaintiff, on September 12, 1985, a notice of assessment of additional franchise taxes, license fees and penalties for the year 1980.

Section 136 of the 1933 Act governed the computation of the basis for license fees of foreign corporations. That section provided in part:

"For the purpose of determining the amount represented in this State of the sum of the stated capital and paid-in surplus of a foreign corporation, the amount represented in this State shall be that proportion of the sum of its stated capital and paid-in surplus which the sum of (1) the value of its property located in this State and (2) the gross amount of business transacted by it at or from places of business in this State bears to the sum of (1) the value of all of its property, wherever located, and (2) the gross amount of its business, wherever transacted." (Ill.Rev.Stat.1979, ch. 32, par. 157.136.)

Section 139 of the 1933 Act provided for computation of the basis for franchise taxes in the same manner. (Ill.Rev.Stat.1979, ch. 32, par. 157.139. See also Ill.Rev.Stat.1985, ch. 32, pars. 15.55, 15.70.) This ratio of total capital, surplus and business to that located in Illinois is called the allocation factor. Because plaintiff's employee had mistakenly filled in the blanks on the original application showing actual values at the time the application was filed, instead of estimates for the year, the application stated that the value of plaintiff's property in Illinois was $1,000 and that the total value of all plaintiff's property was $4,000. The application also stated that the amount of business to be transacted the following year was zero and the amount of business to be transacted in Illinois was zero. Thus, using the $1,000 to $4,000 ratio, the allocation factor was determined by the Secretary to be 0.25. The basis on which corporate franchise taxes and license fees are calculated is determined by multiplying the allocation factor by the total amount of paid-in surplus and capital.

The Business Corporation Act of 1983 became effective on July 1, 1984. Section 1.60 of the 1983 Act provides that the 1983 Act does not affect any rights accrued or established, or any penalty incurred, prior to the 1983 Act effective date, but that computation and adjustments of franchise taxes and penalties past due from a corporation shall be made on the basis of the 1983 Act. Ill.Rev.Stat.1985, ch. 32, par. 1.60.

Section 15.50 of the 1983 Act, which is virtually identical to its predecessor, section 135 of the 1933 Act, provides, in pertinent part, that the Secretary of State shall:

"charge and collect from each foreign corporation:

(a) An initial license fee at the time of filing * * *.

(b) An additional license fee at the time of filing (1) a report of the issuance of additional shares, or (2) a report of an increase in paid-in capital without the issuance of shares, or (3) a report of an exchange or reclassification of shares * * *." (Ill.Rev.Stat.1985, ch. 32, par. 15.50; Ill.Rev.Stat.1979, ch. 32, par. 157.135.)

Section 15.65 of the 1983 Act, like its predecessor, section 138 of the 1993 Act, similarly provides, in relevant part, that each foreign corporation "shall pay to the Secretary of State" an initial franchise tax at the time of filing its application for a certificate of authority to transact business, and an additional franchise tax at the time of filing a report of the issuance of additional shares, or a report of an increase in stated capital or paid-in surplus, or a report of an exchange or reclassification of shares. (Ill.Rev.Stat.1985, ch. 32, par. 15.65; Ill.Rev.Stat.1979, ch. 32, par. 157.139.) Section 15.55 of the 1983 Act provides that the basis for an additional license fee payable by a foreign corporation shall be the increased amount of paid-in capital without issuance of additional shares, or of an exchange or reclassification of shares. Section 15.70 of the 1983 Act provides for the calculation of the basis for additional franchise taxes in a similar manner. Section 15.55 also provides that the proportion of paid-in capital attributable to Illinois is the amount stated in the last annual report on file or, if no annual report is on file on the date of increase, from the...