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Shapiro v. Barrett

OPINION FILED DECEMBER 29, 1978.

CLEMENS K. SHAPIRO ET AL., PLAINTIFFS-APPELLEES,

v.

EDWARD J. BARRETT, COOK COUNTY CLERK, ET AL., DEFENDANTS-APPELLANTS.



APPEAL from the Circuit Court of Cook County; the Hon. NATHAN M. COHEN, Judge, presiding.

MR. JUSTICE PERLIN DELIVERED THE OPINION OF THE COURT:

Plaintiffs, taxpayers in Cook County, brought an action to require segregation of the amount of personal property tax collected on bank stock owned by natural persons and for an immediate refund to the bank shareholders of the tax and interest thereon. The court directed defendants to establish in separate interest-bearing protest funds all personal property tax monies received for 1971 and 1972 on bank stock owned by natural persons and the amount of interest which would have been earned had the tax collected been placed in escrow in 1972. The court further ordered an immediate refund with interest to the shareholders. Defendants filed a motion to vacate the order, which was denied. Defendants appeal, challenging only that portion of the order which requires payment into a special escrow account of an amount equal to the interest which would have been earned had the personal property tax on bank stock owned by natural persons been placed in an interest-bearing account in 1972.

The issues presented for review are whether the personal property tax on bank stock owned by natural persons was encompassed in the original action filed by plaintiffs questioning the constitutionality of defendant's interpretation of article IX-A, which abolished the personal property tax as to natural persons, and whether section 195.01 of the Revenue Act provides for a refund of interest.

We affirm in part and reverse in part.

By referendum vote article IX-A was added to the Illinois Constitution of 1870 to be effective January 1, 1971. Article IX-A stated:

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

Three separate actions were filed, one by plaintiffs in the case at bar, questioning the constitutionality and interpretation of article IX-A. Plaintiffs filed a class action for declaratory judgment on May 8, 1971, in which it was alleged that Clemens K. Shapiro was a natural person who owned personal property in his own name and jointly with his wife, none of which was used for business purposes and all of which was used for his personal enjoyment; that Jerome Herman was a natural person who owned personal property and operated a business as sole proprietor; that Guy Ross and Eugene Ross were natural persons who owned property and operated a business as a partnership; and that M. Weil and Sons, Inc., was a corporation which owned personal property situated in Cook County. Plaintiffs submitted that the members of the class included all others affected by article IX-A, "which others include those required to list property as provided in Section 534 of Illinois Revenue Act of 1939." Plaintiffs then stated that the property subject to taxation included "all moneys, credits, bonds or stocks and other investments, the shares of stock of incorporated companies and associations, and all other personal property * * *." Defendants consisted of Edward J. Barrett, county clerk of Cook County; Bernard J. Korzen, county treasurer and ex-officio county collector of Cook County; George Keane and Harry Semrow, members of the Board of Appeals; P.J. Cullerton, county assessor; and Robert J. Lehnhausen, director of the Department of Local Government Affairs of the State of Illinois (hereinafter defendants).

On May 9, 1971, defendant Lehnhausen filed a motion to dismiss, asserting that the issues presented were then on appeal to the Illinois Supreme Court. On May 28, 1971, the trial court found that the action was properly maintained as a class action and that except as to Shapiro and members of his class (hereinafter plaintiffs), the complaint was dismissed. All the original plaintiffs appealed, and the case was consolidated with Lake Shore Auto Parts Co. v. Korzen and Maynard v. Barrett, which were before the supreme court.

On July 9, 1971, the Supreme Court of Illinois held article IX-A to be invalid as contravening the equal protection clause of the fourteenth amendment to the United States Constitution. (Lake Shore Auto Parts Co. v. Korzen (1971), 49 Ill.2d 137, 273 N.E.2d 592.) This decision was appealed to the United States Supreme Court which granted certiorari on April 3, 1972. 405 U.S. 1039, 31 L.Ed.2d 579, 92 S.Ct. 1307.

On April 13, 1972, pursuant to a motion by defendants for relief ancillary to the court's jurisdiction, Judge Donovan entered an order enjoining defendants from distributing the personal property tax receipts collected "from natural persons who own personal property in Cook County, Illinois, which is used for their personal enjoyment and that of their families, * * *" and requiring defendants to place such receipts in a "protest" fund. *fn1 On April 27, 1972, the court amended its order to add that defendants were enjoined from distributing the interest realized from the taxes held in the protest fund and must hold such interest as part of the fund. On May 25, 1972, Judge Donovan entered an order enjoining defendants from distributing the personal property tax receipts collected from all non-corporate business entities and requiring defendants to place in a protest fund such receipts and the interest thereon.

After the first supreme court opinion in Lake Shore Auto Parts Co., the legislature amended the Revenue Act of 1939 by adding section 195.01 (Ill. Rev. Stat. 1973, ch. 120, par. 676.01), effective July 27, 1972. The section provided:

"The county collector of each county shall deposit in a special interest-bearing escrow account 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, and received by him pending final disposition of Lake Shore Auto Parts v. Korzen, 49 Ill.2d 137 (1971). All such payments shall be considered to have been made under protest. Each taxpayer for whom such tax payments are placed in escrow shall be eligible for automatic full repayment from the county collector if such personal property taxes are ultimately held to be invalid, the provisions of Sections 194 and 195 of this Act notwithstanding. No part of the funds deposited in the escrow account may be withdrawn except by the county collector subsequent to final disposition of Lake Shore Auto Parts v. Korzen."

In February 1973 the United States Supreme Court reversed the decision of the Illinois Supreme Court and held that article IX-A was constitutionally valid. (Lehnhausen v. Lake Shore Auto Parts Co. (1973), 410 U.S. 356, 35 L.Ed.2d 351, 93 S.Ct. 1001.) The Supreme Court of Illinois then issued an opinion upon remand stating that the meaning of article IX-A is that ad valorem taxation of personal property owned by a natural person or by two or more natural persons as joint tenants or tenants in common is prohibited. (Lake Shore Auto Parts Co. v. Korzen (1973), 54 Ill.2d 237, 296 N.E.2d 342, cert. denied (1973), 414 U.S. 1039, 38 L.Ed.2d 329, 94 S.Ct. 539.) The court specifically stated at page 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 ...


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