Rockford Life Ins. Co. v. Department of Revenue

• Decision Date: 26 October 1984
• Docket Number: Nos. 83-626,83-627,s. 83-626
• Parties: , 83 Ill.Dec. 470 ROCKFORD LIFE INSURANCE COMPANY, an Illinois Corporation, Plaintiff-Appellant, v. DEPARTMENT OF REVENUE of the State of Illinois and James B. Zagel, Its Director, Defendants-Appellees. PEOPLE of the State of Illinois ex rel. Douglas R. AURAND, Treasurer and Ex- Officio County Collector of Winnebago County, Illinois, Plaintiff-Appellee, v. ROCKFORD LIFE INSURANCE COMPANY, an Illinois Corporation, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 596

470 N.E.2d 596

128 Ill.App.3d 302, 83 Ill.Dec. 470

ROCKFORD LIFE INSURANCE COMPANY, an Illinois Corporation, Plaintiff-Appellant, v. DEPARTMENT OF REVENUE of the State of Illinois and James B.

Zagel, Its Director, Defendants-Appellees.

PEOPLE of the State of Illinois ex rel. Douglas R. AURAND,

Treasurer and Ex- Officio County Collector of

Winnebago County, Illinois, Plaintiff-Appellee, v. ROCKFORD LIFE INSURANCE COMPANY, an Illinois Corporation,

Defendant-Appellant.

Nos. 83-626, 83-627.

Appellate Court of Illinois Second District.

Oct. 26, 1984.

Williams & McCarthy, Russell D. Anderson and John C. McCarthy, Rockford, for plaintiff-appellant.

Neil F. Hartigan, Atty. Gen., Patricia Rosen, Fredric D. Tannenbaum, Georgene M. Wilson, Asst. Attys. Gen., Chicago, Daniel D. Doyle, State's Atty., Winnebago Co., James J. Rees, Asst. States Atty., Rockford, for defendants-appellees.

LINDBERG, Justice.

Plaintiff, Rockford Life Insurance Company (Rockford) appeals from an order of the circuit court of Winnebago County affirming the 1978 assessment of its capital stock by defendant-appellee, Department of Revenue (Department). Rockford also appeals from the order in the case consolidated with the instant appeal entering judgment against Rockford in the amount of $723,053.70 and costs. Rockford argues that certain of its securities (mortgage-backed securities of the Government National Mortgage Association (GNMA), and obligations issued pursuant to the New Communities Act (NCA), the New Community Development Act (NCDA), and the Merchant Marine Act (MMA)) improperly were included in the capital stock assessment because they are direct obligations of the United States immune from state taxation. Because we conclude the obligations at issue are not direct obligations issued by the Federal government, we affirm.

On December 21, 1978, the Illinois Department of Local Government Affairs assessed the capital stock of Rockford for the year 1978 at a value of $6,937,000. Review of the assessment was requested by Rockford, and on May 2, 1979, the Illinois Department of Local Government Affairs, by letter, confirmed the assessment. Rockford thereupon filed a complaint in the circuit court of Winnebago County, Illinois, pursuant to the Administrative Review Law (Ill.Rev.Stat.1979, ch. 110, par. 264 et seq.). Following hearings on motions, the court ordered that the case be remanded to the Department of Local Government Affairs with instructions to formally notify Rockford of its decision in accordance with its rules. On October 29, 1979, the Department of Local Government Affairs served notice of its decision confirming the assessment. Pursuant to Rockford's request, the Department of Revenue (as successor to the Department of Local Government Affairs) held a hearing on December 21, 1979. Following the hearing, the director of the Department affirmed the assessment.

The company thereafter filed its complaint seeking judicial review of the decision of the Department affirming the 1978 assessment and the Department filed the administrative record as its answer to the complaint. In the trial court, Rockford argued that: (1) since the three types of securities were exempt as U.S. obligations under the Constitution and statutes of the United States, their value could not be included in computing the capital stock assessment; and (2) the Department was estopped because of its exclusion of the securities in 1974 through 1978 from including these securities in the 1978 capital stock assessment. In a memorandum decision, the trial court affirmed the Department's ruling and entered the following findings: (1) the securities in question were not "obligations of the United States" under 31 U.S.C. § 742 (1976) and therefore were not constitutionally immune from state taxation; (2) the Department's erroneous inclusion of non-exempt property as exempt property in its property tax manual did not preclude subsequent correction of the error and taxation of the property; and (3) the necessary fraud or injustice required for the application of the doctrine of estoppel was not demonstrated by the erroneous ruling of the Department or its failure to assess taxable property in prior years. Rockford filed a timely appeal from the trial court order entered on June 10, 1983, affirming the Department assessment. This appeal solely concerns the capital stock assessment against Rockford for 1978 because the capital stock tax was abolished on January 1, 1979 by Article IX, section 5 of the Constitution of Illinois of 1970. Ill. Const.1970, art. IX, section 5.

Rockford asserts that the Department is estopped from assessing the securities in question because of its previous administrative determinations that the securities were exempt from state taxation. The doctrine of equitable estoppel is "the effect of the voluntary conduct of a party whereby he is precluded from asserting his rights which might otherwise have existed as against another party who has relied in good faith upon such conduct and has been led thereby to change his position for the worse." (Tyska v. Board of Education (1983), 117 Ill.App.3d 917, 930, 73 Ill.Dec. 209, 220, 453 N.E.2d 1344, 1355; Kyker v. Kyker (1983), 117 Ill.App.3d 547, 72 Ill.Dec. 803, 453 N.E.2d 108.) The party claiming the estoppel must have relied upon the acts or representations of the other and have had no knowledge or convenient means of knowing the true facts. Hickey v. Illinois Central R.R. Co. (1966), 35 Ill.2d 427, 447, 220 N.E.2d 415, cert. denied (1967), 386 U.S. 934, 87 S.Ct. 957, 17 L.Ed.2d 806.

The doctrine of estoppel can be applied against the State when acting in a governmental capacity only in the most compelling circumstances. (Hickey v. Illinois Central R.R. Co. (1966), 35 Ill.2d 427, 220 N.E.2d 415, cert. denied (1967), 386 U.S. 934, 87 S.Ct. 957, 17 L.Ed.2d 806; Tyska v. Board of Education (1983), 117 Ill.App.3d 917, 73 Ill.Dec. 209, 453 N.E.2d 1344; see generally Annot., 21 A.L.R. 4th 573 (1983).) "[W]here public revenues are involved, public policy ordinarily forbids the application of estoppel to the State" and " '[t]he government is not estopped by previous acts or conduct of its agents with reference to the determination of tax liabilities or by failure to collect the tax, nor will the mistakes or misinformation of its officers estop it from collecting the tax'." (Citations omitted.) Austin Liquor Mart, Inc. v. Dept. of Revenue (1972), 51 Ill.2d 1, 4-5, 280 N.E.2d 437.

While acknowledging the principle that a State will generally not be estopped from collecting a tax, Rockford argues this case presents extraordinary circumstances justifying application of the estoppel doctrine and relies upon Hickey v. Illinois Central R.R. Co. (1966), 35 Ill.2d 427, 220 N.E.2d 415, cert. denied (1967), 386 U.S. 934, 87 S.Ct. 957, 17 L.Ed.2d 806, for support. In Hickey, a railroad maintained and improved large amounts of lakefront property for over 50 years. Refusing to recognize "a right in the State officially disclaimed [by the State] for half a century" (35 Ill.2d 427, 449, 220 N.E.2d 415), the supreme court held the State should be estopped from now asserting its interest in the subject property. The court in Hickey emphasized the railroad's reliance on the State's position:

"Meanwhile, numerous other lake shore boundary line agreements have been consummated and confirmed, conveyances made, leases executed and options granted; proposals for lake shore development were agreed upon and accepted whereby substantial construction obligations were apportioned as between the city, Park Commissioners and the railroad in reliance upon the assumption that the railroad was the fee owner of the lands it occupied * * *." (35 Ill.2d 427, 450, 220 N.E.2d 415.)

Therefore, while the Hickey court reiterated that qualified immunity from the estoppel doctrine was enjoyed by the State, it held that under these "extraordinary circumstances", the State was estopped from asserting its latent title claim.

Rockford argues the circumstances here similarly are "extraordinary". In the case at bar, Rockford reported NCA obligations on its 1974 tax return which were initially assessed but were later ruled exempt by the Director. In 1975, Rockford reported NCA and GNMA obligations which were initially assessed, but were later deducted from its capital stock assessment. Rockford in its 1976 return reported MMA obligations in addition to the GNMA obligations which the Director initially assessed, but upon reconsideration exempted from the capital stock tax computation. In its 1977 return, Rockford reported additional GNMA and MMA obligations as deductions which the Department allowed. In 1978, the Department reversed its prior position and decided that the GNMA, MMA, NCA and NCDA obligations were subject to the capital stock tax.

Rockford argues that these circumstances constitute appropriate grounds for estoppel and contends all of the elements of the doctrine are satisfied: (1) positive acts by the Department; (2) justifiable reliance by Rockford upon these acts; (3) amounting to fraud and injustice. Rockford cites the regulations contained in the Department's manual and the approval of the exemption in the years 1974-77 as positive acts by the State. The Department counters that its exemptions of these securities at issue are less affirmative than were the actions of the State in Austin Liquor Mart, Inc. v. Department of Revenue (1972), 51 Ill.2d 1, 280 N.E.2d 437, where the Department accepted payment from the taxpayer of his assessment and then attempted to reopen the investigation concerning the period covered by the assessment. The Department also quotes supreme court language that "State inspectors perform[ing] the ministerial acts of computing the tax due under one particular formula does not estop the State from repudiating that formula." (People ex rel. Scott v. Chicago Thoroughbred Enterprises, Inc. (...