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Saxon-western Corp. v. Mahin





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


Plaintiff, Saxon-Western Corporation, brought a class action suit on behalf of itself and other similarly situated retailers in Illinois against George E. Mahin, Director of the Department of Revenue of the State of Illinois; William J. Scott, Attorney General of the State of Illinois; and Alan J. Dixon, Treasurer of the State of Illinois. Plaintiff sought to enjoin the Department of Revenue from assessing or collecting the Retailers' Occupation Tax (Ill. Rev. Stat. 1971, ch. 120, par. 440 et seq.), on the stated value of trading coupons issued by plaintiff in its retail business for redemption by plaintiff only. Plaintiff further prayed for a declaratory judgment declaring that Rule 46 of the Rules of the Department of Revenue is both contrary to law and violative of the State and Federal constitutions.

The trial court issued a temporary injunction preventing both the Director and the Treasurer from proceeding pursuant to a notice of tax liability previously issued to plaintiff by the Director. The action was filed within the 20-day protest period following the issuance of the notice of tax liability. It was also ordered that all other matters pertaining to plaintiff's alleged tax liability be held in abeyance pending the outcome of this litigation.

Thereafter, pursuant to defendants' motion, the trial court dismissed plaintiff's complaint and dissolved the injunction upon the authority of Calderwood Corp. v. Mahin, 57 Ill.2d 216, 311 N.E.2d 691, wherein the Supreme Court stated that an aggrieved taxpayer is required to exhaust its administrative remedies prior to seeking judicial review of an administrative action. In addition, the trial court's order of dismissal specifically provided that, in the event plaintiff appealed from the dismissal of its complaint, all proceedings would be stayed and no final assessment issued under the notice of tax liability.

Plaintiff then perfected this appeal, whereby it urges reversal of the order of dismissal and remandment of the cause with directions that the trial court either enter judgment in favor of plaintiff, or consider the merits of the case. In support of its position on appeal, plaintiff contends that Rule 46 is unconstitutional, unlawful, and unauthorized by law with respect to its applicability to trading coupons, and as such, the Department should be enjoined from the collection of taxes thereunder. Alternatively, plaintiff maintains that it should be afforded the same procedural treatment as the taxpayer in Illinois Bell Telephone Co. v. Allphin, 60 Ill.2d 350, 326 N.E.2d 737, and hence, that the cause should be remanded for further proceedings. Due to our resolution of the procedural issue presented, we consider it unnecessary to address the constitutional questions raised by plaintiff.

• 1 In 1943 in the case of Owens-Illinois Glass Co. v. McKibbin, 385 Ill. 245, 52 N.E.2d 177, our Supreme Court recognized that two exceptions had been judicially carved out in Illinois from the general rule that a court will not take equitable jurisdiction of a matter when there exists an adequate remedy at law. It was there stated:

"* * * that from an early date the courts of this State have regarded the enjoining of the collection of an illegal tax, or the assessment of an authorized tax upon property which is not subject to taxation, as exceptions to the rule * * *." 385 Ill. 245, 252, 52 N.E.2d 177, 181.)

The court reasoned that even though a statutory remedy may be available to the taxpayer, this remedy at law was merely cumulative to the taxpayer's right to seek equitable relief, and the taxpayer may elect which remedy to pursue when attempting to avoid the burden of a tax. The court elucidated the limited scope of the equitable remedy, however, by noting that it pertained only to illegalities, and not to irregularities, in the imposition of a tax.

• 2, 3 On May 20, 1974, the Supreme Court in Calderwood Corp. v. Mahin ruled:

"Section 12 of the Retailers' Occupation Tax Act provides that all proceedings for the judicial review of final administrative decisions of the Department [of Revenue] shall be governed by the Administrative Review Act. Ill. Rev. Stat. 1969, ch. 120, par. 451." (57 Ill.2d 216, 220, 311 N.E.2d 691, 693.)

In accordance with this decision, a taxpayer must exhaust its administrative remedies prior to seeking equitable relief from a final tax liability assessment issued by the Department because "if a proceeding is not brought under the Administrative Review Act for judicial review of the Department's final assessment the assessment will be conclusive as to all questions affecting its merits" (57 Ill.2d 216, 220, 311 N.E.2d 691, 693), and any defense to the assessment will be considered waived. The threshold inquiry for determining if the Administrative Review Act is applicable is whether the assessment issued by the Department has become final. In the case before the Supreme Court, since the taxpayer had neglected to file a protest to the notice of tax liability within the 20-day statutory period (Ill. Rev. Stat. 1971, ch. 120, par. 443), the assessment became final and subject to review pursuant to the Administrative Review Act. Accordingly, the court directed the trial court to dismiss plaintiff's complaint because of the taxpayer's failure to exhaust its administrative remedies. The court commented that the taxpayer's reliance on Owens was misplaced since a final administrative decision of the Department was not involved in Owens, and therefore, the Administrative Review Act would not govern in that situation.

The effect of the Owens and Calderwood decisions was summarized in Illinois Bell Telephone Co. v. Allphin. The Owens doctrine was interpreted as extending two exceptions to well-established legal principles. First, with respect to administrative law, the Owens rationale exempted taxpayers in certain circumstances from the requirement of exhausting their administrative remedies prior to seeking judicial relief. Second, with respect to fundamental rules of equitable jurisdiction, Owens provided an exception to the general rule that a court of equity will not take jurisdiction of a cause when an adequate remedy is available at law.

• 4 After reviewing Calderwood and the legislative intent underlying the Administrative Review Act, the court in Illinois Bell held "that as to those situations covered by the Administrative Review Act, the Owens exceptions are no longer applicable." (60 Ill.2d 350, 359, 326 N.E.2d 737, 742; see Head-On Collision Line, Inc. v. Kirk, 36 Ill. App.3d 263, 343 N.E.2d 534.) But the court found that this specific holding could not be applied to the facts before it since the plaintiff-taxpayer had relied upon Owens and had filed its complaint some 10 months before the Calderwood decision was handed down. Moreover, unlike the situation in Calderwood, the trial court in Illinois Bell, though erroneously for lack of any such power, had expressly tolled the 20-day protest period, and therefore, the assessment had not become final. Consequently, fundamental fairness dictated that the merits of the case be decided on the basis of Owens.

Because of the factual similarity of the instant case with Illinois Bell, we consider the reasoning of Illinois Bell to be dispositive of this appeal. Contrary to the trial court's ruling that this action is controlled by Calderwood, we find that the chronology of events and the compelling factors which were present in Illinois Bell and which ...

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