Sherman-Reynolds, Inc. v. Mahin

• Decision Date: 04 December 1970
• Docket Number: No. 43021,SHERMAN-REYNOLD,INC,43021
• Citation: 47 Ill.2d 323,265 N.E.2d 640
• Parties: , Appellant, v. George E. MAHIN, Director of Revenue, et al., Appellees.
• Court: Illinois Supreme Court

Page 640

265 N.E.2d 640

47 Ill.2d 323

SHERMAN-REYNOLDS, INC., Appellant, v. George E. MAHIN, Director of Revenue, et al., Appellees.

No. 43021.

Supreme Court of Illinois.

Dec. 4, 1970.

George J. Haddad and William H. Kelly, Jr., Chicago, for appellant.

William J. Scott, Atty. Gen., Springfield (Francis T. Crowe and Calvin C. Campbell, Asst. Attys. Gen., of counsel), for appellees.

CULBERTSON, Justice.

Purporting to act for itself and on behalf of a class consisting of all other nongovernmental employers who are required by article 7 of the Illinois Income Tax Act to withhold tax from compensation paid to their employees, (Ill.Rev.Stat.1969, ch. 120, pars. 7--701 thru 7--707,) plaintiff, Sherman-Reynolds, Inc., brought this action in the circuit court of Cook County naming appropriate State Officials as defendants. The complaint, as amended, alleged that compliance with the withholding provisions required each member of the class to advance out of their own property substantial sums for necessary equipment, supplies, personnel and professional advice and assistance, and prayed for an adjudication that each member of the class is entitled to reasonable compensation for the services rendered and the risks incurred in withholding tax, as well as a determination of what just compensation would be for each class member. In the alternative, it was prayed that article 7 be found unconstitutional as class legislation, and that defendants be enjoined from enforcing its provisions against any member of the class. This appeal is taken by plaintiff from a judgment order striking the amended complaint and dismissing the action.

Plaintiff's claim that employers have a constitutional right to compensation for their services and expenses incurred in withholding tax is bottomed on the guarantees of the State and Federal constitutions that no person shall be deprived of property without due process of law, (Ill.Const.art. II, § 2, S.H.A.; U.S.Const. amend. XIV,) and upon the similar provisions in each constitution which direct that private property shall not be taken for public use without just compensation. (Ill.Const., art. II, § 13; U.S.Const., amend. V.) And the broad sweep of its initial argument here is that these constitutional provisions are self-executing, making it incumbent upon the judiciary to ascertain and award just and reasonable compensation. Although the uncompensated withholding of tax by employers has been the practice in the Federal government for many years, the issue here presented, so far as we have been informed and can ascertain, appears to be one of first impression. Kellems v. United States (D.C. Conn.1951), 97 F.Supp. 681, relied upon to some degree by defendants, is not helpful. Its only holding was that an employer's 'belief' that the Federal Withholding Act (26 U.S.C.A. § 1621 et seq.,) was unconstitutional, did not relieve such employer from penalities assessed for failure to comply with the Act. The presumptive constitutional validity of the Act permitting withholding was not attacked in the manner that our own act is challenged in this case.

As a consequence plaintiff seeks to persuade us on the basis of principles and analogies diligently drawn from factually inapposite decisions applying the constitutional provisions upon which it seeks to rely. We see no useful purpose to be served by analyzing each decision cited, or in setting forth the various approaches of plaintiff in detail. For even if it be agreed that a 'right' to compensation flows to plaintiff from the guarantees of due process of law, or from the constitutional commands relating to the taking of private property for public use, or both, such right is subordinate to the police power of the State employed here in support of the authority to tax and, in our view, any 'loss' or 'taking' of property occasioned by an employer's compliance with the withholding provisions of article 7 is Damnum absque injuria.

Necessarily, we believe, the legislative authority to enact article 7 rests, not in its power to tax as intimated by defendants, but in the police power, the attribute of sovereignty in every government by which it may protect lives, health, morals and general welfare. (People v. John Doe of Rosehill Cemetery Co., 334 Ill. 555, 166 N.E. 112; White County v. Louisville and Nashville Railroad Co., 340 Ill. 42, 172 N.E. 22; East New York Savings Bank v. Hahn, 326 U.S. 230, 66 S.Ct. 69, 90 L.Ed. 34.) While the power is not without limitation and may not be exercised arbitrarily, the legislature has a broad discretion in the enactment of legislation in its exercise. (Union Cemetery Ass'n of City of Lincoln v. Cooper, 414 Ill. 23, 110 N.E.2d 239; City of El Paso v. Simmons, 379 U.S. 497, 85 S.Ct. 577, 13 L.Ed.2d 446.) And, as one court has observed: 'The police power relates not merely to the public health and to public physical safety, but also to public financial safety. Laws may be passed within the police power to protect the public from financial loss.' (Zeigler v. People, 109 Colo. 252, 124 P.2d 593, 598.) It is settled, too, that the police power may be exercised to promote the economic welfare of the State, its communities and its citizens, (E.g., Zelney v. Murphy, 387 Ill. 492, 56 N.E.2d 754; Vissering Mercantile Co. v. Annunzio, 1 Ill.2d 108, 115, N.E.2d 306,) or to regulate practices in commercial or business affairs. (Memorial Gardens Ass'n Inc. v. Smith,16 Ill.2d 116, 156 N.E.2d 587; Gadlin v. Auditor of Public Accounts, 414 Ill. 89, 110 N.E.2d 234; Lincoln Federal Labor Union No. 19129, A.F. of L. v. Northwestern Iron and Metal Co., 335 U.S. 525, 69 S.Ct. 251, 93 L.Ed. 212.) Concededly, the decisions cited have not involved or approached an exercise of the police power comparable to that encompassed in article 7 in the present case. But if, in the interest of general welfare, the police power may be exercised to protect citizens and their businesses in financial and economic matters, it may be exercised to protect the government itself against potential financial loss and the possible disruption of governmental functions. We consider the legislature could appropriately invoke the power as a complement to the power to tax.

To be a valid exercise of the police power, the enactment of the legislature must bear a reasonable relation to the public interest sought to be protected, and the means adopted must be a reasonable method to accomplish such objective. (DeGrazio v. Civil Service Comm. of City of Chicago, 31 Ill.2d 482, 202 N.E.2d 522; Schuringa v. City of Chicago, 30 Ill.2d 504, 198 N.E.2d 326.) We believe it obvious that article 7 meets these tests when it is measured by a purpose of fostering the financial and economic stability of our State government and thus promotes the general welfare of all its citizens. We need not elaborate upon the vital services rendered to citizens and businesses by the State and other governmental entities who survive only by taxation, nor upon the need for tax revenues to permit such services to be forthcoming. It is common knowledge that the Illinois Income Tax Act was enacted to fulfill a desperate need for funds to insure the financial stability of the State and the continuance of its essential governmental functions, and, we believe, it reflects a purpose of the legislature to create a tax base by which the burden of the cost of government will be proportionately shared by a greater number of its citizens and businesses. And, most assuredly, if the taxes contemplated by the Act are not fully collected, the public need and the purposes of the tax will be thwarted. By the withholding provisions of article 7 the objects and purposes of the Act are promoted and more completely fulfilled. Chances for complete evasion of the tax are minimized. delinquencies in collections are reduced, and the costs of enforcement when either occur are obviated. In addition, taxpayers are put on a current basis and tax monies become available to the government at intervals more consonant with its month-to-month needs, perhaps forestalling deficit spending or the need to raise money in anticipation of future tax income.

Regulations imposed by a State in the exercise of its police power, when reasonable and adapted to the scope and objects sought ot be accomplished, are not rendered unconstitutional even though private property may be injured,...