APPEAL from the Circuit Court of Du Page County; the Hon.
GEORGE W. UNVERZAGT, Judge, presiding.
MR. JUSTICE SEIDENFELD DELIVERED THE OPINION OF THE COURT:
Rehearing denied January 20, 1977.
The City of Wheaton, in 1966, imposed a 3% privilege or occupation tax on the gross receipts of all persons engaged in the business of distributing, supplying or selling gas or electricity, or transmitting messages electrically, within the corporate limits of the City of Wheaton. The three utilities affected (Edison, Northern Illinois Gas, and Illinois Bell) passed the tax on to their customers in the form of additional charges. Two of their customers were school districts which paid such charges until 1972 when they merged into Community Unit School District No. 200. Since November of 1972, the unit district has refused to pay the additional charges, contending that the tax is unconstitutional as applied to it. In January 1974, rather than cutting off the district's service, the three utilities filed separate suits to recover the accumulated unpaid charges.
The school district answered and raised various defenses asserting the invalidity of the municipal ordinance and the enabling statute. The district also filed a petition to make the city a party to the debt actions which was denied by the trial court. The district then filed a separate declaratory judgment action against the city and the three utilities in which it made essentially the same contentions which it had raised in defense of the debt actions. In the declaratory judgment action the district claimed that the ordinance is unconstitutional because (1) the city, in taxing a school district, is taxing property outside its boundaries because taxpayers outside the city but inside the school district's boundaries must contribute to the payment of the tax; (2) the statute discriminated against this school district in comparison with those whose boundaries are wholly within a municipality; and (3) since the school district receives about 40% of its educational funds from the State, the city in effect is taxing the State to the extent that these funds are diverted from the purposes of education and paid to the city.
On the motion of the utilities the trial court struck the affirmative defenses and entered judgment for the utilities in the actions for the unpaid charges and also dismissed the declaratory judgment action. Grounds for the motions to strike the defenses in the debt action and to dismiss the declaratory judgment action were (1) that the district did not have standing to challenge the validity of the municipal utilities tax and (2) that the district had failed to exhaust its administrative remedies before the Illinois Commerce Commission. An alternative ground of the motion to dismiss was that the utilities were not proper parties defendant to the declaratory judgment action.
The appeals from the final judgments in the three debt actions and the dismissal of the declaratory judgment suit were ordered consolidated for briefing and hearing on appeal. The district's contentions in this court are (1) it has standing to challenge the tax; and (2) the tax is invalid because it is an attempt to tax beyond the municipality's territorial limits, as well as an attempt to tax state funds.
Cities may levy a tax on telephone, gas and electric utilities based upon the gross receipts from the sales of their services or products within the corporate limits of the municipality. (See Ill. Rev. Stat. 1973, ch. 24, par. 8-11-2.) Utilities subject to the tax may, in turn, charge their customers, in addition to any rate authorized by the Public Utilities Act, an additional charge equal to the sum of (1) an amount equal to the municipal tax; (2) 3% of the tax to cover the costs of accounting; (3) an amount equal to the increase in taxes and other payments to government bodies resulting from the amount of the additional charge. While the utility must file with the Illinois Commerce Commission a copy of the ordinance and a supplemental schedule specifying such additional charge, the charge becomes effective upon filing and the commission only has the power to investigate whether or not the supplemental schedule correctly specifies such additional charge. None of the ordinary rate making procedures are applicable. If the commission finds that the supplemental schedule does not correctly specify such additional charge, it must order a refund of the excess with interest. See Ill. Rev. Stat. 1973, ch. 111 2/3, par. 36(a).
As required by statute, the tax as well as the fee for collection, is added to and shown as a separate item in the bills sent to the customer.
• 1 Where an actual controversy exists, a declaratory judgment action is an appropriate method of obtaining an adjudication of the construction or validity of a statute or ordinance. (Ill. Rev. Stat. 1973, ch. 110, par. 57.1; see, e.g., Schultz v. Village of Lisle, 53 Ill.2d 39 (1972); East St. Louis v. Union Electric Co., 37 Ill.2d 537 (1967).) Therefore, we first consider whether the school district had standing to challenge the constitutionality of the tax in its suit against the City of Wheaton for declaratory judgment. The city has not filed a brief but the utilities contend that the school district has no standing since it did not pay the tax but only an additional charge for services, citing Agron v. Illinois Bell Telephone Co., 449 F.2d 906 (7th Cir. 1971), cert. denied, 405 U.S. 954, 31 L.Ed.2d 231, 92 S.Ct. 1171 (1972). The school district contends that it is the taxpayer, since the utility was a mere conduit through which the tax (and the expenses of administration) are paid by the consumers, citing East St. Louis v. Union Electric Co., 37 Ill.2d 537 (1967), cert. denied, 390 U.S. 948, 19 L.Ed.2d 1136, 88 S.Ct. 1034 (1968). Neither case, however, involved the issue whether the consumer under these circumstances may challenge the validity of the ordinance.
To challenge the constitutionality of a statute or an ordinance, the party must be directly affected by the provision attacked. (Winberry v. Hallihan, 361 Ill. 121, 131 (1935); Klein v. Department of Registration & Education, 412 Ill. 75, 87, cert. denied, 344 U.S. 855, 97 L.Ed. 664, 73 S.Ct. 93 (1952); Village of Itasca v. Luehring, 4 Ill.2d 426, 430 (1954).) But it is not always necessary that one challenging a tax as unconstitutional be the initial taxpayer. Thus it was held in Marquardt Corp. v. Weber County, 360 F.2d 168, 171 (10th Cir. 1966), that where the United States reimbursed certain contractors for taxes levied upon them by the State of Utah because it had agreed by contract to pay them a "cost-plus fixed fee" (including taxes), the United States, upon reimbursing the taxpayer pursuant to its contract, became the real party in interest with the right to assert the invalidity of the tax on the grounds of unconstitutional discrimination against the government and those with whom it deals. Similarly the Illinois Supreme Court in Crane Construction Co. v. Symons Clamp & Manufacturing Co., 25 Ill.2d 521 (1962), allowed a lessee to challenge the constitutionality of retailers' occupation tax although that tax was not levied upon it where the validity of the use tax the lessee paid to the vendor was dependent on the validity of the former tax, stating:
"In their reply brief, appellants contend that Crane has no standing to challenge the retailers' occupation tax, since that tax is not levied upon Crane but upon its vendors. Since this point was not raised in appellant's initial brief, it has been waived. We think, however, that the contention is without merit. If the retailers' occupation tax were alone involved, the point would be well taken. As applied to this case, however, the contention completely ignores the complementary and interlocking nature of the retailers' occupation tax and the use tax. Although the retailers' occupation tax is not laid on plaintiff, the use tax is. It pays use tax, however, not directly to the State, but to its suppliers, in this case Symons Clamp & Manufacturing Company. Symons collects use tax from Crane and remits retailers' occupation tax to the Department of Revenue. Crane obviously has standing to challenge the validity and applicability of the use tax and is not compelled to rely upon its lessor, Symons, to protect its interests. To the extent to which the validity of the use tax and its application to plaintiff is dependent upon the validity of the retailers' occupation tax, it may also challenge that tax. In this case, plaintiff has followed an appropriate method for litigating questions which it has a right to have determined." (25 Ill.2d 521, 527-28.)
In the instant case, the school district, while not paying a tax to the utilities, pays an additional charge whose validity, like the tax paid in Crane, is dependent on the validity of the taxing ordinance. If the municipality cannot levy the tax, the utility cannot levy the additional charge. The validity of the one depends on the validity of the other. Other taxes are treated as expenses which the Illinois Commerce Commission may consider in determining whether to allow a rate increase. Here the commission has no choice. If the tax is levied, the additional charge must be allowed.
The purpose of the doctrine of standing is merely to preclude persons having no interest in the controversy from bringing suit. (Davis, Administrative Law Treatise § 22.00-4 (1970 Supp.).) It is not meant to preclude a valid controversy from being litigated. And where the person most directly affected actually has no interest in the controversy, the courts in recent years have been more liberal in allowing persons indirectly affected to bring suit. Here the utilities directly affected as the initial taxpayer can be said to have no real interest in the controversy since the charge is added to the users' bills. As pointed out by the Supreme Court in East St. Louis v. Union Electric Co., 37 Ill.2d 537, 542 (1967), cert. denied, 390 U.S. 948 (1968):
"On a literal and superficial view it might appear as if the utility tax ordinance imposed a tax burden upon the Company, but on examination it is evident that the burden was placed on the consumers. The Company as authorized simply passed on the new charges to its consumers and the consumers not only paid such charges to the City but also paid the Company the expenses ...