No. 47824. Appeal from the Circuit Court of Cook County; the
Hon. Walter P. Dahl, Judge, presiding.
No. 47928. Appeal from the Circuit Court of Cook County; the
Hon. Nathan M. Cohen, Judge, presiding.
MR. JUSTICE KLUCZYNSKI DELIVERED THE OPINION OF THE COURT:
We granted direct appeal pursuant to Supreme Court Rule 302(b) from three judgments of the circuit court of Cook County. These consolidated appeals involve questions pertaining to a consumer's right to proceed against a retailer for an overcharge in taxes remitted by the retailer to the Department of Revenue (hereinafter Department), the validity of class actions under the circumstances presented, plaintiffs' right to seek an injunction to compel retailer-defendants to pursue tax refund claims before the Department and the propriety of assessing interest against the retailers.
These actions arise out of this court's opinion in Dick's Vending Service, Inc. v. Department of Revenue, 53 Ill.2d 375, which was filed October 2, 1972. In that decision we held that the State cigarette use tax is not to be included in the tax base for purposes of computations of the retailers' occupation tax. Shortly after the opinion in Dick's Vending was filed, but prior to the denial of the petition for rehearing, the various plaintiffs in these appeals filed their respective actions.
Cause No. 47824 consists of two actions, in one of which Jewel Companies, Inc., and Osco Drug, Inc., were named as defendants by Linda Adams. She acted in her individual capacity and as a "representative of a class consisting of all persons who purchased cigarettes from either of the defendants in the State of Illinois and who were required to pay Illinois Use Tax or Municipal or County Retailers' Occupation Tax calculated * * * upon the full advertised price of said cigarettes without first deducting therefrom the amount of cigarette use tax payable by said purchaser." The other action involved in cause No. 47824 was filed by Phyllis Susman in the same capacity against Dominick's Finer Foods, Inc. The allegations of the Susman complaint were comparable to the Adams' action. Both alleged that the respective defendants had calculated the amounts of use and retailers' occupation taxes ultimately borne by the cigarette purchaser upon a basis which improperly included the Illinois cigarette use tax. Additional counts in the complaints further alleged that in Chicago subsequent to January 1, 1972, defendants collected taxes on cigarettes whose tax base included the 5 cent per package home rule tax imposed by this municipality in addition to the aforesaid tax base. (See S. Bloom, Inc. v. Korshak, 52 Ill.2d 56.) These causes proceeded separately before the Honorable Walter P. Dahl, a judge of the circuit court of Cook County, and were consolidated on appeal.
In cause No. 47928 plaintiff, Phyllis Susman, filed an action against Walgreen Company basically repeating the allegations in the Jewel-Osco and Dominick's complaints with the exception that this complaint did not contain a specific count relating to the computation of taxes which included the Chicago home rule tax. The complaint was amended delimiting plaintiff's class to "all persons who purchased cigarettes from the defendant (other than persons who purchased only a single package of cigarettes in any single transaction) in the State of Illinois" and who paid tax calculated on an improper tax base. The cause was assigned to the Honorable Nathan Cohen.
Each of the complaints alleged that the respective State (Ill. Rev. Stat. 1971, ch. 120, par. 440 et seq.), municipal (Ill. Rev. Stat. 1971, ch. 24, par. 8-11-1), or county (Ill. Rev. Stat. 1971, ch. 34, par. 409.1) retailers' occupation taxes were assessed at a total rate of 5%. Plaintiffs also stated that there was in force and effect a statute imposing a tax upon the privilege of using tangible personal property more commonly referred to as the Use Tax Act (Ill. Rev. Stat. 1971, ch. 120, par. 439.1 et seq.). The interrelationship of these taxes was noted in Hagerty v. General Motors Corp., 59 Ill.2d 52, 55. The ultimate result of this interrelationship is to shift the tax burden to the consumer by allowing the retailer to recoup its payment for retailers' occupation tax by withholding remittance of an equal amount of proceeds collected under the Use Tax Act. See Johnson v. Marshall Field and Co., 57 Ill.2d 272, 276-77.
The complaints also alleged that under their respective statutes cigarette retailers had to pay a cigarette tax at a specified amount for each cigarette sold (Ill. Rev. Stat. 1971, ch. 120, par. 453.1 et seq.) and under the Cigarette Use Tax Act a tax was imposed on the privilege of using cigarettes at the same rate as the cigarette tax (Ill. Rev. Stat. 1971, ch. 120, par. 453.31 et seq.). Plaintiffs contended that these taxes are actually prepaid to the State by the cigarette distributor but, in effect, under section 3 of the Cigarette Use Tax Act (ch. 120, par. 453.33) the eventual burden imposed by these taxes is shifted to the retail purchaser.
To reiterate, basically each plaintiff maintained that in purchasing cigarettes they were required to pay State use tax and to reimburse the retailer for municipal and county retailers' occupation tax. The amount of tax imposed on the purchaser, however, was calculated by including within the tax base the amount of the cigarette use tax payable by the purchaser as part of the selling price of the cigarettes. This amounted to a $1.20 increase in the tax base for each carton of cigarettes.
The records establish that prior to December 1, 1971, Rule 52 of the Department denied retailers the right to deduct the cigarette tax from the selling price of the cigarettes for the determination of retailers' occupation taxes. Rule 52 was amended on the aforesaid date to allow deduction of the cigarette tax or cigarette use tax in arriving at the net selling price for determination of the retailers' occupation tax. Apparently such rule modification was not claimed to be mandatory. Rule 52, as amended, recognized the pending action in the Dick's Vending case as well as Hradek v. Korshak, No. 66 Ch 7491, a class action in the circuit court of Cook County which purportedly involved the challenge to the determination of said taxes based on an inclusion of the cigarette use tax in the retail selling price for a period from January 1, 1967, to December 1, 1971.
The Department and its director were either made a third-party defendant or additional defendant in each of these actions. Ill. Rev. Stat. 1971, ch. 110, par. 25.
Plaintiffs amended their complaints to include as relief sought the requirement that each retailer-defendant file claims for tax refunds with the Department and pursue collection of the tax overcharge. Each defendant did file such claims as a protective measure for those periods of time not barred by the statute of limitations for advancing such claims (Ill. Rev. Stat. 1971, ch. 120, par. 445). In seeking to amend their complaints plaintiffs asserted that prior to August 17, 1971, they could neither proceed directly against the retailers for tax overcharges nor file claims with the Department for refunds because they did not remit the tax and thus lacked standing. (Ch. 120, par. 445; see also Snyderman v. Isaacs, 31 Ill.2d 192, 196; Youhas v. Ice, 56 Ill.2d 497, 502.) But defendants also apparently lacked standing to seek refunds, for they had not borne the tax burden which is necessary in order to seek a refund from the Department. (Ch. 120, par. 445.) Thus plaintiffs for the benefit of their classes sought to have the trial courts direct defendants to diligently pursue tax refund claims with the Department for these tax overcharges. It was urged by plaintiffs that defendants could pay their own funds into the circuit court and simultaneously the Department would deposit an equal amount with the court representing a refund to defendants of the tax overcharges. Plaintiffs now suggest an escrow arrangement be devised to fulfill the above-mentioned requirements. Answers by the Department to the interrogatories indicated that defendants' refund claims were denied and said denials had been protested but not yet resolved because of the litigation.
In the Jewel-Osco cases the trial court entered final orders finding that between December 5, 1971, and February 3, 1973, Jewel had collected nearly $500,000 in tax overcharges from its customers which were not remitted to the Department, but Jewel was granted summary judgment as to the amount it had remitted. The trial court determined that the net benefits to be realized by each member of the class in the Jewel case were outweighed by administrative costs in distributing these unremitted amounts. The court held the class action was improper in the Jewel matter, and it directed Jewel to turn over the unremitted excess taxes to a financial institution as trustee for the Department, and the court discharged Jewel from liability including any claim for interest. Osco had been granted summary judgment after it was determined all excessive taxes it had collected had been remitted to the Department. Finally, in its orders the trial court denied plaintiff's motions to require Jewel and Osco to participate in refund hearings before the Department. Plaintiff's attorneys in Jewel were allowed fees for their services in an amount not yet determined by the trial court. That portion of the judgment has not been challenged, although the trial court found there was no just reason to delay an appeal. There is no challenge made to the individual judgment for $5.10 entered on behalf of Linda Adams, which represented her amount of tax overcharge. Plaintiff in Jewel-Osco filed notice of appeal from portions of the judgments adverse to her contentions.
In the Dominick's case it was determined that the tax overcharges were terminated by Dominick's in May 1973. The trial court held that, since this defendant remitted all sums to the Department which allegedly had been wrongfully collected, summary judgment would be granted to Dominick's. Plaintiff's motion to require this ...