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American Nat'l Bank & Trust Co. v. Kusper

OPINION FILED NOVEMBER 30, 1977.

AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO ET AL., APPELLANTS,

v.

STANLEY T. KUSPER, COUNTY CLERK, ET AL., APPELLEES, R.B. ROBINSON, APPELLANT,

v.

STANLEY T. KUSPER, COUNTY CLERK, ET AL., APPELLEES.



Appeal from the Circuit Court of Cook County, the Hon. F. Emmett Morrissey, Judge, presiding.

MR. JUSTICE UNDERWOOD DELIVERED THE OPINION OF THE COURT:

Rehearing denied January 26, 1978.

The plaintiffs in these consolidated causes filed class actions in the circuit court of Cook County seeking, inter alia, a declaratory judgment that Public Act 78-1250 (Ill. Rev. Stat. 1975, ch. 120, par. 500.21b) is a valid legislative enactment exempting from personal property taxation for 1975 and subsequent years all personal property held by a trustee for the exclusive benefit of a natural person. The trial court dismissed certain counts of each complaint on the grounds that Public Act 78-1250 was unconstitutional because of the failure of the General Assembly to enact a concurrent replacement tax as required by section 5(c) of article IX of the 1970 Constitution of the State of Illinois and that this court's decision in Hanley v. Kusper (1975), 61 Ill.2d 452, was res judicata as to other relief sought. Plaintiffs have appealed directly to this court pursuant to Supreme Court Rule 302(a)(1). 58 Ill.2d R. 302(a)(1).

Public Act 78-1250, which became effective September 10, 1974, added section 19.21b to the Revenue Act of 1939 (Ill. Rev. Stat. 1975, ch. 120, par. 500.21b). The statute, as so amended, provides in pertinent part:

"Sec. 19. All property described in Sections 19.1 through 19.24 to the extent therein limited, is exempt from taxation. * * *

Sec. 19.21b. All personal property held by a trustee, guardian, conservator, executor, administrator or other fiduciary to the extent held for the exclusive benefit of a natural person."

The principal issue is whether the failure of the General Assembly to concurrently enact a replacement tax renders this exemption unconstitutional as violative of section 5(c) of article IX of the 1970 Illinois Constitution, which provides:

"On or before January 1, 1979, the General Assembly by law shall abolish all ad valorem personal property taxes and concurrently therewith and thereafter shall replace all revenue lost by units of local government and school districts as a result of the abolition of ad valorem personal property taxes subsequent to January 2, 1971. Such revenue shall be replaced by imposing statewide taxes, other than ad valorem taxes on real estate, solely on those classes relieved of the burden of paying ad valorem personal property taxes because of the abolition of such taxes subsequent to January 2, 1971. If any taxes imposed for such replacement purposes are taxes on or measured by income, such replacement taxes shall not be considered for purposes of the limitations of one tax and the ratio of 8 to 5 set forth in Section 3(a) of this Article."

The complaint in cause No. 49266 was filed by seven banks and trust companies against certain taxing officials in Cook County who were responsible for the assessment and collection of personal property taxes in that county. The action was designated as a class action brought by plaintiffs on behalf of themselves and other trustees of "traditional forms of trusts" created by wills and other written instruments for the purpose of holding, conserving and managing trust assets for the benefit of natural persons and also as representatives of the beneficiaries of said trusts. Count I of plaintiffs' second amended complaint included allegations that when the General Assembly enacted Public Act 78-1250, its members were of the opinion that it was not necessary to concurrently enact a replacement tax for the reason that there had been no loss of revenue to school districts and units of local government in 95 counties which had never assessed trusts for the benefit of natural persons; that the fiduciary class on which a replacement tax would fall could not be delineated, since many trusts for natural persons held assets exempt from personal property taxation under section 21(4) of the Revenue Act of 1939 (Ill. Rev. Stat. 1975, ch. 120, par. 502(4)), which exempts from personal property taxation the shares of capital stock of corporations whose tangible personal property or capital stock is assessed in Illinois; that because of changes in investments, trusts frequently shift from a taxable to a nontaxable status; and that the heaviest burden of a replacement tax would fall on trusts which had not previously been taxed by reason of the exemption contained in section 21(4) of the Revenue Act. Count I further alleged that the exemption contained in section 21(4) of the Revenue Act was preserved by section 5(b) of article IX of the 1970 Illinois Constitution, which provides that "[a]ny ad valorem personal property tax abolished on or before the effective date of this Constitution shall not be reinstated"; and that if the General Assembly had enacted a replacement tax on trusts for the benefit of natural persons, such replacement tax would have constituted the reimposition of a tax abolished prior to the adoption of the 1970 Constitution contrary to the express provisions of section 5(b) of article IX thereof. It was further alleged that by letter dated October 14, 1975, the Director of the Department of Local Government Affairs had ruled that personal property held in trust for the benefit of natural persons was not to be assessed for 1975 and that such ruling was binding on Cook County taxing officials by reason of section 130(3) of the Revenue Act (Ill. Rev. Stat. 1975, ch. 120, par. 611(3)), which provides in pertinent part that the Department of Local Government Affairs shall "prescribe general rules and regulations, not inconsistent with law, * * * which * * * shall be binding upon all local assessment officers and shall be obeyed by them respectively until reversed, annulled or modified by a court of competent jurisdiction"; and that contrary to such ruling the defendants had assessed and had attempted to collect ad valorem taxes on personal property held by plaintiffs on April 1, 1975, as trustees for the exclusive benefit of natural persons. Plaintiffs prayed that section 19.21b of the Revenue Act be held to exempt from ad valorem taxation personal property held by a trustee for the exclusive benefit of a natural person and that the ruling of the Director of the Department of Local Government Affairs not to assess personal property held in trust for the benefit of natural persons be held to be binding on the defendant county taxing officials.

Count II similarly alleged that certain trusts held only shares of stock of companies whose tangible personal property or capital stock had been assessed under the Revenue Act and were therefore exempt from personal property taxation under section 21(4) of that act; that Public Act 78-1250 was valid and constitutional without the concurrent enactment of a replacement tax; that if a replacement tax were enacted with respect to such trusts whose only assets were tax exempt under section 21(4) of the Revenue Act, it would constitute the reimposition, under the guise of a replacement tax, of a tax abolished prior to the adoption of the 1970 Constitution in violation of section 5(b) of article IX thereof. Plaintiffs prayed in count II that section 19.21(b) of the Revenue Act be held constitutional.

Count III sought a declaration that nine specific testamentary and inter vivos trusts were exempt from personal property taxation under the authority of this court's decision in Hanley v. Kusper (1975), 61 Ill.2d 452, due to the fact that the trust imposed involuntary fiduciary relationships under which the beneficiaries were prevented from exercising property rights generally available to other natural persons or under which the beneficiaries, by reason of age or mental or physical incapacity or disability, were unable to exercise such property rights.

Cause No. 49267 is a class action for declaratory judgment brought against the same Cook County taxing officials by plaintiff, R.B. Robinson, on her own behalf and on behalf of the settlors of all irrevocable and revocable trusts created for the benefit of natural persons and on behalf of the beneficiaries of such trusts. Count II of plaintiff's second amended complaint, which is the only count with which we are concerned on this appeal, alleged that plaintiff was the settlor of an irrevocable trust for her son and daughter; that she was a registered voter and had voted at the general election held November 3, 1970, in favor of the proposition to add article IX-A to the 1870 Illinois Constitution, which provided: "Section 1. Notwithstanding any other provision of this Constitution, the taxation of personal property by valuation is prohibited as to individuals"; that prior to voting on said proposition, she had read in full the pamphlet mailed to the electorate pursuant to law and was led to believe that the proposition would exempt from taxation all personal property held in a fiduciary capacity for the benefit of natural persons; that she further believed in subsequently voting favorably on the 1970 Illinois Constitution that section 5(b) of article IX thereof would prohibit the reinstatement of such previously abolished ad valorem tax on personal property held in trust for the benefit of natural persons; that in reliance thereon and in the belief that property held in trust for the benefit of natural persons was exempt from personal property taxation, she created an irrevocable trust with herself as settlor for the benefit of her son and daughter on December 23, 1970; that Public Act 78-1250 adding section 19.21b to the Revenue Act exempted from personal property taxation for 1975 and subsequent years all personal property held by a trustee for the exclusive benefit of a natural person; that notwithstanding the foregoing and notwithstanding the ruling of the Director of the Department of Local Government Affairs dated October 14, 1975, not to assess trusts for the benefit of natural persons, the defendant taxing officials had continued to assess and collect taxes on the personal property held in said irrevocable trust for the benefit of her son and daughter for 1975 and prior years; and that unless article IX-A of the 1870 Illinois Constitution was construed to exempt personal property held in trust for natural persons from ad valorem taxation, her right to vote and that of other members of the class she represented would have been unconstitutionally abridged. Various affidavits of members of the General Assembly as to their intent in proposing the addition of article IX-A to the 1870 Constitution were attached to the complaint. Plaintiff prayed that article IX-A of the 1870 Constitution be construed to exempt personal property owned by or held in a fiduciary capacity for the benefit of natural persons from ad valorem taxation and that section 19.21b of the Revenue Act be held to exempt from taxation all personal property held by a trustee for the exclusive benefit of a natural person.

The two causes were consolidated for hearing in the trial court. In each cause the defendants filed motions to dismiss the complaints for failure to state a cause of action. In No. 49266, the trial court granted the motion to dismiss count I of plaintiffs' second amended complaint on the ground that Public Act 78-1250 was unconstitutional for failure of the General Assembly to concurrently enact a replacement tax as required by section 5(c) of article IX of the 1970 Constitution and on the further ground that the memorandum of the Director of the Department of Local Government Affairs dated October 14, 1975, was null and void and not binding on defendants. The motion to dismiss was sustained as to counts II and III on the grounds that the decision of this court in Hanley v. Kusper (1975), 61 Ill.2d 452, was res judicata. In No. 49267, the trial court apparently granted some form of relief as to count I, the ...


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