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Lincoln Nat. Bank v. Cullerton

APRIL 1, 1974.




APPEAL from the Circuit Court of Cook County; the Hon. THOMAS C. DONOVAN, Judge, presiding.


This appeal presents additional aspects of the legal history of the personal property tax of Illinois. We are concerned here with attempts to obtain refunds of personal property taxes for 1971 paid by Lincoln National Bank and Mercantile National Bank of Chicago, both national banking associations (plaintiffs), upon capital stock issued by them and owned by various individuals. Plaintiffs bring this suit on behalf of themselves and all other taxpayers similarly situated. The defendants, all in their official capacities, are the assessor, county treasurer and county clerk of Cook County and also the Director of the Department of Local Government Offices of Illinois and the Treasurer of the State of Illinois. The three officials of Cook County filed a motion to strike and dismiss plaintiffs' complaint, as amended. The two State officials filed an answer to the complaint. After a hearing by the court, the motion to dismiss was granted and plaintiffs' complaint, as amended, was dismissed with prejudice. Plaintiffs appeal. By leave of this court, the State officials have adopted the brief filed in behalf of the three county officials by the State's Attorney of Cook County.

The comparatively simple facts appear from the properly pleaded allegations of plaintiffs' complaint, as amended, which are deemed admitted by the motion to dismiss. (See Holiday Magic, Inc. v. Scott, 4 Ill. App.3d 962, 963, 282 N.E.2d 452 and other cases therein cited.) Plaintiffs' complaint, as amended, alleged that they are taxpayers of Illinois doing business in this State. Despite the amendment to the Illinois Constitution of 1870 prohibiting taxation of personal property owned by individuals, the assessor of Cook County assessed all outstanding shares of bank stock as personal property and demanded payment of these taxes for the years 1970 and 1971. Numerous shares of stock in various banks were owned by individuals who were not subject to personal property taxes. Pursuant to long-standing custom, the assessor and county collector assessed and billed plaintiffs, and other Illinois banks similarly situated, for personal property taxes on the value of their outstanding shares of capital stock owned by their respective shareholders. Plaintiffs and others similarly situated paid these taxes from their general funds and did not withhold dividends from shareholders for payment of these taxes and individual shareholders did not reimburse the banks for the taxes thus paid. Demand was made upon the county treasurer for refund of these tax payments which he has refused.

The motion to dismiss filed by defendants set forth that plaintiffs are not the actual taxpayers and were not liable to pay the taxes in question so they could not bring the action. The order dismissing the cause found that natural persons are the only taxpayers entitled to refunds of personal property taxes and plaintiffs had paid the taxes as volunteers without legal obligation to do so.

In this court, plaintiffs urge that all taxes imposed upon bank stock owned by natural persons must be refunded; plaintiffs paid the tax in question under legal duress so that the payments were not voluntary; whenever taxes are paid by one person to the credit of another, the payor is entitled to reimbursement if it was reasonable for him to have made the payment; and, finally, that assessment of personal property taxes on shares of stock in national banks is specially related to Federal law governing State taxation and actual payment of such taxes by these banks has always been an integral part of the taxing scheme. Counsel for the three county officials involved in this appeal urge in response that the plaintiffs are not the primary obligators of the personal property tax which is upon stock owned by individuals; payment by plaintiffs, on behalf of its shareholders without legal obligation to do so was voluntary; and, in the absence of statutory authorization, taxes voluntarily paid cannot be recovered. Collaterally, these defendants urge that plaintiffs are not the taxpayers who should benefit from legislation authorizing refund of personal property taxes imposed after January 1, 1971.

It is necessary first to note certain legal matters which bear upon the rights of the parties. By referendum vote, article IX-A was added to the Illinois constitution of 1870 effective January 1, 1971:

"Notwithstanding any other provision of this Constitution, the taxation of personal property by valuation is prohibited as to individuals." *fn1

The legislative and other background of this amendment appears in Lake Shore Auto Parts Co. v. Korzen, 49 Ill.2d 137, 273 N.E.2d 592. The supreme court there held article IX-A invalid on the ground "that the discrimination produced by article IX-A violates the equal-protection clause of the fourteenth amendment." (49 Ill.2d at 151.) The United States Supreme Court reviewed this decision and held article IX-A constitutionally valid. (Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 35 L.Ed.2d 351, 93 S.Ct. 1001.) On April 25, 1973, upon remand of the cause, the Illinois Supreme Court filed a supplemental opinion which confirmed exemption from "ad valorem taxation of property owned by a natural person or by two or more natural persons as joint tenants or tenants in common." (Lake Shore Auto Parts Co. v. Korzen, 54 Ill.2d 237, 239, 296 N.E.2d 342.) The court defined personal property remaining subject to taxation, after the effective date of article IX-A of the Illinois constitution of 1870, as including that owned by limited partnerships, trusts and other fiduciaries and other similar categories. The court also used specific language regarding bank stock (54 Ill.2d at 239):

"Bank stock, like the shares of any other corporation, is exempt only when owned by a natural person or by two or more natural persons as joint tenants or tenants in common."

Certain provisions of the Illinois Revenue Act should also be noted. Their pertinent parts may be summarized as follows:

Section 76 of the Act (Ill. Rev. Stat. 1971, ch. 120, par. 557) provides that shareholders of incorporated banks located in Illinois, whether organized under the law of Illinois or of the United States, shall be assessed and taxed upon the value of their shares of stock. Their shares are to be listed and assessed with regard to ownership and value as they existed on the first day of April, annually.

Section 77 of the Act (Ill. Rev. Stat. 1971, ch. 120, par. 558) provides that each bank shall keep a full and correct list of the names and residences of its shareholders and the number of shares held by each. The assessor is to report to the county clerk a correct list of these names and residences together with the number and assessed value of all such shares. The county clerk is to enter the valuation of the shares in the names of the respective owners thereof and to compute and extend the taxes accordingly. The tax against these shares shall remain a lien thereon until payment of the tax. In addition, for the purpose of collecting these taxes, it is the duty of every bank, or the managing officers thereof, to retain dividends belonging to the shareholders as necessary to pay taxes levied upon their shares until the taxes have been paid. Officers of any bank who pay, or authorize payment of such dividends contrary to the statutory provisions, are liable for the tax. If the tax is not paid, the collector shall sell the shares to pay the same like other personal property.

It should also be noted that, after the first opinion of the Supreme Court of Illinois in Lake Shore Auto Parts Co., (filed July 9, 1971), the legislature further amended the Revenue Act by adding section 195.01 (Ill. Rev. Stat. 1973, ch. 120, par. 676.01), effective July 27, 1972. This amendment provided that the county collector should create a special interest bearing escrow account in which he was to deposit an amount equal to all payments of ad valorem personal property taxes extended in 1972 against personal property owned by a natural person, or two or more natural persons as joint tenants or tenants in common, pending final disposition of the Lake Shore Auto Parts Co. litigation. The amendment specified that "[a]ll such payments shall be considered to have been made under protest." Each taxpayer for whom tax payments were placed in escrow was to be eligible for automatic full repayment if such personal property taxes were ultimately held invalid, notwithstanding the provisions of sections 194 and 195 of the Revenue Act which pertain to payment of taxes under protest.

It may also be of interest, if not directly essential, to note the provisions of pertinent Federal law (12 U.S.C. § 548 (1971)). This statute authorizes the legislature of each State to determine and direct, subject to the provisions thereof, the manner and place of taxation of all shares of national banking associations located within its limits. The States are expressly authorized to tax the shares; or, alternatively, to include dividends derived from the shares in the taxable income of the owner and holder of the shares; to tax the bank on the net income thereof or according to or measured by ...

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