Liberty Nat. Bank of Chicago v. Collins

• Decision Date: 16 January 1945
• Docket Number: No. 27970.,27970.
• Citation: 388 Ill. 549,58 N.E.2d 610
• Parties: LIBERTY NAT. BANK OF CHICAGO v. COLLINS, Director of Revenue, et al.
• Court: Illinois Supreme Court

388 Ill. 549

58 N.E.2d 610

LIBERTY NAT. BANK OF CHICAGO

v.COLLINS, Director of Revenue, et al.

No. 27970.

Supreme Court of Illinois.

Nov. 22, 1944.

As Modified on Denial of Rehearing Jan. 16, 1945.

Appeal from Superior Court, Cook County; Ulysses S. Schwartz, judge.

Suit by the Liberty National Bank of Chicago, as trustee, against Philip W. Collins, Director of Revenue, and others, to enjoin the defendant from enforcing the collection of taxes from complainant. From a decree dismissing the suit, complainant appeals.

Affirmed.

Michael M. Phillips, of Chicago, for appellant.

George F. Barrett, Atty. Gen. (William C. Wines, of Chicago, of counsel), for appellees.

SMITH, Justice.

Appellant, Liberty National Bank of Chicago, as trustee, filed a complaint in the superior court of Cook county, against Philip W. Collins, as Director of Revenue, the State Treasurer and the Attorney General. The purpose of the suit was to enjoin the State officers from enforcing the collection of taxes from appellant under an act passed by the General Assembly in 1937 entitled ‘An Act in relation to a tax upon persons engaged in the business of transmitting telegraph or telephone messages or of distributing, supplying, furnishing or selling gas or electricity for use or consumption.’ Ill.Rev.Stat.1943, chap. 120, par. 468 et seq.

It was alleged in the amended and supplemental complaint that appellant, as trustee, was the owner and engaged in the operation of a building located in the city of Chicago; that in the operation of said building, it furnished electricity to all tenants in the premises; that in rendering this service, it purchased electricity from a public utility company which it in turn sold to its tenants under the lease agreements made with such tenants; that it was not a public utility and was not engaged in the business of transmitting or selling electricity to customers or persons outside of its own building; that the sale of electricity to its tenants under the leasing arrangements with them was a necessary incident to the operation and conduct of its main occupation of owning and operating said building and renting space therein to tenants; that it does not hold itself out as a seller of electricity or solicit such business, nor is it equipped to handle such business; that in rendering such service it merely performs a necessary incident in the conduct of its management and ownership of the building in the same manner that if furnishes heat, water and elevator service to its tenants.

The complaint alleged that the Director, acting under the statute, had promulgated certain rules, article 14 of which was as follows:

‘Persons owning, operating or leasing buildings, who purchase gas or electrical services and rebill the same as such tenants, make the final sale or distribution of such services, and become liable for tax measured by their gross receipts from the distributing, supplying, furnishing or selling of the services in question. Such persons are required, under the terms of the act, to file returns and pay tax in the same manner as any other taxpayer.

‘Such persons shall show receipts from such services separately upon their books and records.

‘In order to enable persons selling gas or electricity to owners, operators or lessees of buildings to report accurately to the Department the amount of gas or electrical services sold for resale and the amount sold for use or consumption, such owners, operators or lessees of buildings should, at the end of each of their billing periods, report to the supplier the amount of gas or electricity (kilowatt hours, cubic feet or therms as the case may be) consumed by the owner or building operator and not resold by him as such to tenants. The owners, operators or lessees of buildings need not report to the Department the amount so reported to the supplier.

‘The sale of such services to persons owning, operating or leasing buildings constitutes the sale of services for the purpose of resale, if such person bill the same as such to tenants and the gross receipts from this particular type of sale may be deducted from receipts by which the seller measures his tax under the act.

‘Sales by taxpayers to hotels and like businesses for use or consumption are sales within the act.’

The prayer of the complaint was that the act be held unconstitutional; that said rule be declared invalid; that the State officers who were made defendants, be restrained and enjoined from collecting or attempting to collect a tax from appellant under said act in accordance with said rule.

It was further alleged in the complaint that the act, when properly construed, applies only to public utilities; that appellant was not a public utility and was not subject to the payment of the tax provided for in the act. A further averment was that the act is discriminatory and denies to appellant due process and equal protection of the law, and violates section 1 of article IX of the Constitution of this State, Smith-Hurd Stats. and the Fourteenth Amendment to the Constitution of the United States.

On motion of the defendants, the court held that the amended and supplemental complaint did not state a cause of action. The motion to dismiss was sustained and the complaint was stricken and the suit dismissed. Appellant has perfected an appeal direct to this court on the grounds that the suit relates to the revenue and involves constitutional questions.

It is appellant's first contention that the act, when properly construed, does not apply to the sales of electricity made by it to its tenants in the building which it operates. The second contention is that the act is discriminatory in that it fails to include within the taxable class those who are engaged in the business of transmitting messages by means of radio and known as radiograms. We will take up these contentions in the order above stated. If it should be determined that the act does not apply to appellant, then it will be unnecessary to consider the constitutional questions raised.

In the consideration of appellant's contention that the act applies only to public utilities and cannot be construed as applicable to the owners of buildings engaged in the sale of electricity to tenants occupying such buildings, a reference to the history of the legislation will be helpful. The first act by which the Legislature attempted to impose a tax upon those engaged in the sale of electricity, supplied or furnished for the use of others, was passed in 1935. Laws of 1935, p. 1195. Smith-Hurd Rev.St.1935, c. 120, s 454 et seq. That act was entitled, ‘An Act in relation to a tax upon persons engaged in the business of transmitting telegraph or telephone messages or of distributing, supplying, furnishing or selling water, gas or electricity.’ Section 2 of the act imposed a tax based upon the gross receipts, as defined in the act. By section 1, ‘gross receipts' were defined as ‘the consideration received for the transmission of telegraph or telephone messages, or for water, gas or electricity supplied or furnished to persons for domestic or commercial consumption and not for resale, * * *.’

In City of Chicago v. Ames, 365 Ill. 529, 7 N.E.2d 294, 109 A.L.R. 1509, we held the 1935 act violated the uniformity clause of section 1 of article IX of the Constitution in that it imposed a tax on those engaged in making sales of water, gas or electricity for domestic or commercial use, only, and not on those engaged in making such sales for industrial use. It was held that there was no just or reasonable distinction between those engaged in the business of making sales for ‘domestic or commercial use,’ who were included within the act, and those engaged in the business of making sales for ‘industrial use,’ who were excluded from the act. This was held to be an improper classification of the subjects on which the tax was imposed, in violation of section 1 of article IX of the Constitution. The opinion in that case was filed on February 12, 1937.

The Legislature, at its 1937 session, passed the act in question. Laws of 1937, p. 1052. The title of this act is, ‘An Act in relation to a tax upon persons engaged in the business of transmitting telegraph or telephone messages or of distributing, supplying, furnishing or selling gas or electricity for use or consumption.’ Ill.Rev.Stat.1943, chap. 120, par. 468 et seq.

The only difference in the titles of the two acts was, the word ‘water’ was included in the title of the first act, which was omitted from the title of the second act, and at the end of the title in the second act, the words ‘for use or consumption’ were added.

In 1943, the Legislature made certain amendments to various sections of the act, which are not material to be noticed in this connection. It also added section 14a to the act, which provided that the act should be known as ‘The Public Utilities Revenue Act.’ Laws of 1943, p. 1114, Ill.Rev.Stat.1943, c. 120, s 481a.

Appellant contends that the 1935 act imposed a tax only upon public utilities. Appellees do not contend that appellant is a public utility. Appellant argues that the purpose of the 1937 act was to reinstate the scheme of taxation provided in the 1935 act by eliminating therefrom the unlawful classification, condemned by this court in City of Chicago v. Ames, 365 Ill. 529, 7 N.E.2d 294, 109 A.L.R. 1509. It is contended that by the use in the 1937 act of substantially the same language found in both the title and the body of the 1935 act, the 1937 act must be construed as a revival or re-enactment of the 1935 act with the objectionable classification provision eliminated. While it is true that, aside from the unconstitutional classification, the Legislature couched the 1937 act in practically the same language as that found in the 1935 act, yet, such changes in the language as were made are quite decisive of the legislative intent.

Assuming, without deciding, that the 1935 act imposed a tax only upon...