APPEAL from the Circuit Court of Cook County; the Hon. THOMAS
C. DONOVAN, Judge, presiding.
MR. JUSTICE KLUCZYNSKI DELIVERED THE OPINION OF THE COURT:
Rehearing denied May 28, 1968.
This is an appeal from a decree of the circuit court of Cook County holding unconstitutional the 1967 amendments to the Service Occupation Tax Act (Ill. Rev. Stat. 1967, chap. 120, par. 439.101 et seq.), the Service Use Tax Act (Ill. Rev. Stat. 1967, chap. 120, par. 439.31), and the Municipal and County Service Occupation Tax Acts (Ill. Rev. Stat. 1967, chap. 24, par. 8-11-5 and chap. 34, par. 409.2), as well as articles I, II, and III of the Department of Revenue's Rules and Regulations (which implemented these amendatory Acts).
The complaint was filed by Phyllis Fiorito, doing business as JayLee Studios in Chicago, as a citizen and taxpayer, on behalf of herself and "all others similarly situated" against the defendants, specifically naming them. Shortly thereafter, the trial court entered an injunction ordering that the taxes collected under these Acts be temporarily impounded and withheld by the Treasurer of the State of Illinois from the General Revenue Fund. Subsequently, four other individual and corporate plaintiffs sought and obtained leave to intervene and each adopted the Fiorito complaint. The defendants filed a motion to dissolve the temporary injunction and to strike and dismiss the complaint. There being no contested issues of fact, the cause was submitted to the trial court on the complaint and the motion to dismiss. On December 6, 1967, the trial court entered the decree finalizing the injunction and holding the above Acts violative of section 1 of article IX (uniformity of taxation), section 2 of article II (due process) and section 22 of article IV (special legislation) of the Illinois constitution and the fourteenth amendment (due process, equal protection) to the Federal constitution. State revenue being directly involved, the jurisdiction of this court is properly invoked.
Before the enactment of the 1967 amendments, the Service Occupation Tax Act imposed a tax upon "all persons engaged in the business of making sales of service (hereinafter referred to as servicemen) at the rate of 3% of the cost price of all tangible personal property transferred by said servicemen either in the form of tangible personal property or in the form of real estate as an incident to a `sale of service' * * * and at the rate of 3 1/2% where the sale of service occurs on or after December 1, 1961, * * *." (Ill. Rev. Stat. 1965, chap. 120, par. 439.103.) The complementary Service Use Tax Act likewise imposed a tax upon "the privilege of using in this State real or tangible personal property acquired as an incident to the purchase of a service from a serviceman." (Par. 439.33.) "Sale of Service" was defined as "any transaction except a retail sale of tangible personal property taxable under the Retailers' Occupation Tax Act * * * or under the Use Tax Act", with certain exceptions that are not relevant here. (Pars. 439.32, 439.102.) Thus, prior to the amendments of 1967, every "serviceman" with a few specific exceptions (e.g. sales of service by a charitable organization, sale of newsprint and ink sold for the primary purpose of conveying news) who transferred tangible personal property as an incident to performing his service was taxed under this Act, the base of the tax being the cost price to him of the materials transferred.
The 1967 amendments substantially altered the taxing scheme under both the Service Occupation and the Service Use Tax Acts. The principal changes were: (1) the base of the tax was expanded to the gross receipts of the sale of service (Ill. Rev. Stat. 1967, chap. 120, pars. 439.32, 439.102) and (2) the application of the service occupational taxes was limited to "sales of service" by four enumerated categories of servicemen, to-wit:
"a. Selling specially made machines, tools, dies, jigs, patterns, guages, or other specially made tools or equipment, or
b. graphic arts or related occupations not presently taxable under the `Retailers' Occupation Tax Act' or the `Use Tax Act', or
c. repairing, renovating or reconditioning tangible personal property, or
d. selling drugs or medicines as a registered pharmacist or druggist on the prescription of a licensed physician or other person qualified to issue prescriptions." (Pars. 439.102, 439.32.)
In the same sections the following types of sales were then specifically exempted from the definition of "sale of service", viz., any such sale: "(1) for or by any governmental body, (2) for or by any corporation, society, association, foundation or institution organized and operated exclusively for charitable, religious or educational purposes or (3) for the primary purpose of conveying news (with or without other information), or (4) in connection with the sale, purchase, transfer, employment or use of pollution control facilities or services related thereto, or (5) for someone else in producing tangible personal property which will be transferred by the purchaser to another person, without a specific valuable consideration, for ultimate use or consumption by such other person."
In addition to these principal changes, the amendments raised the tax from 3 1/2% to 4 1/4% (pars. 439.33, 439.103), placed a duty on the servicemen to collect and remit the tax monies due under both Acts, and provided that municipalities and counties could levy in combination up to 3/4 of 1% on these "sales of service", making a possible tax of 5%. (Chap. 24, par. 8-11-5, chap. 34, 409.2.) These amendments took effect on August 1, 1967. Also effective on that date, the Department of Revenue of the State of Illinois passed certain Rules and Regulations designed to clarify and regulate the administration of the amended tax Acts. See arts. I, II, and III, Department's Rules and Regulations, bulletin issued August 1, 1967.
On appeal, defendants raise two points. They argue (1) that plaintiffs' suit is not a proper case for a class action, viz., that they are entitled to sue only for reimbursement of the tax monies paid by them or to enjoin the collection of those monies owing by them and not by all other "servicemen" in the State and (2) that, in any event, the amendatory Acts are constitutional.
Irrespective of our holding concerning the propriety of plaintiffs' right to bring a class action, we must determine the constitutional issues raised since plaintiffs' standing to raise these issues is not challenged, and, in fact, is admitted by defendants. We therefore proceed to a consideration of the constitutionality of the legislation under attack.
It is well established that the legislature has broad powers to establish reasonable classifications in defining subjects of taxation. (Klein v. Hulman, 34 Ill.2d 343, 346; People ex rel. Holland Coal Co. v. Isaacs, 22 Ill.2d 477; Ohio Oil Co. v. Wright, 386 Ill. 206.) It is equally well settled that the legislature may define a general class which is subject to an occupation tax and then specifically remove a subclass (Bode v. Barrett, 412 Ill. 204; Modern Dairy Co. v. Department of Revenue, 413 Ill. 55), or it may merely define a subclass without naming the general class. (People v. Deep Rock Oil Corp., 343 Ill. 388.) But regardless of the manner in which the classes to be taxed have been defined, the classifications must be based upon real and substantial differences between persons taxed and those not taxed (City of ...