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Amer. Acoustics & Plastering v. Dept. of Revenue

OPINION FILED JUNE 23, 1982.

AMERICAN ACOUSTICS AND PLASTERING COMPANY, INC., PLAINTIFF-APPELLANT,

v.

THE DEPARTMENT OF REVENUE, DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of Lake County; the Hon. ROBERT K. McQUEEN, Judge, presiding.

JUSTICE REINHARD DELIVERED THE OPINION OF THE COURT:

This appeal arises from an action instituted under the Administrative Review Act (Ill. Rev. Stat. 1979, ch. 110, par. 264 et seq.) wherein American Acoustics and Plastering Company, Inc. (plaintiff), sought review of a decision of the Department of Revenue (Department) which denied plaintiff's claim for a refund of Retailers' Occupation Tax, Municipal Retailers' Occupation Tax, and Use Tax which it had paid. The trial court affirmed the decision of the Department.

On appeal, plaintiff contends that the taxes were paid under a mistake of fact or an error of law thus entitling it to a refund pursuant to section 6 of the Retailers' Occupation Tax Act (Act) (Ill. Rev. Stat. 1979, ch. 120, par. 445); that the taxes were barred by the statute of limitations contained in section 5 of the Act (Ill. Rev. Stat. 1979, ch. 120, par. 444) and the taxes were paid under duress; and that the administrative proceeding was violative of due process of law.

Plaintiff is a subcontractor who performs lath and plaster construction and installs acoustical ceiling systems. Pursuant to section 6 (Ill. Rev. Stat. 1979, ch. 120, par. 445), plaintiff filed a claim with the Department for a credit or refund of Illinois Retailers' Occupation Tax, Municipal Retailers' Occupation Tax and Use Tax paid by it for the period beginning October 1967 and ending December 1975. At the administrative hearing the following evidence was adduced:

Mr. Ted Edwards, plaintiff's vice-president, testified on behalf of plaintiff. He stated that from the time of plaintiff's incorporation in 1961 until 1967, plaintiff collected its own retailers' occupation and use taxes. In 1967 plaintiff was audited by the Department. At that time plaintiff was doing mostly nontaxable work, i.e., school and municipal buildings. The Department's auditor suggested that since plaintiff did not do much taxable work, it should let the suppliers from whom it made its purchases pay the tax and the suppliers should in turn charge plaintiff for the tax. Plaintiff sent a letter to all its suppliers notifying them that they were to charge plaintiff for the tax. Plaintiff's retailers' occupation tax number was cancelled in 1967. Edwards believed that plaintiff's suppliers thereafter collected and paid the tax. Plaintiff did not introduce into evidence any receipts of its payments or any other record of payment of the tax.

In 1976 plaintiff underwent a spot audit by the Department conducted by Michael Magnusen. It was determined by him that there existed some discrepancies in plaintiff's records and a full audit was completed. Plaintiff was advised thereafter that it owed the Department $23,581.66 for the period October 1967 through December 1975 for delinquent Retailers' Occupation Tax, Municipal Retailers' Occupation Tax, and Use Tax. Edwards admitted that since 1967, plaintiff's business underwent a change and did more acoustical installation work and sales at retail than it did nontaxable work. Plaintiff then had its own auditor come in to do a private audit, after which there was considerable discussion with Magnusen concerning the assessment. Edwards testified he was given a standard form from the Department stating what recourse the Department had if the assessment was not paid: lien in favor of the Department; legal action; and seizure of assets. Edwards further stated that Magnusen advised him that if the delinquent tax was not paid the Department would "slap a lien on our bank account and various other assets." Plaintiff paid the full amount of the assessment, $23,581.66 on August 31, 1976. Edwards stated that plaintiff paid the tax because it believed it was "either that or lock the door." Edwards further stated that at that time neither he nor anyone else associated with plaintiff was informed of the three-year statute of limitations (see Ill. Rev. Stat. 1979, ch. 120, par. 444) and he never signed a waiver of this statute of limitations.

Plaintiff was issued a notice of tax liability on December 1, 1976. Included in the notice of delinquent tax was a claim of $13,205.73 for interest and penalties on the assessment paid in August 1976. Edwards, on behalf of the plaintiff, requested and received a hearing to determine whether the Department should waive the penalty and interest. The Department felt that since one of its employees had advised plaintiff to cancel its tax number and let its suppliers collect the tax, that to charge plaintiff interest and penalties was unfair. Therefore, plaintiff was advised that penalties and interest were waived. Later plaintiff received a letter from the Department advising it that the waiver only pertained to the period between February 1, 1968, and August 31, 1973, and therefore $5,305.87 penalties and interest were due and owing. Plaintiff paid this amount under protest which was later denied by the Department.

Michael Magnusen testified at the hearing for the Department. He conducted the 1976 audit of plaintiff's records. In doing so, he looked over plaintiff's general ledger, cash receipts journal, cash disbursements, vendor invoices and State and Federal income tax returns. He noted that at the beginning of the audit period plaintiff was doing mostly nontaxable work but it later began doing taxable work which outweighed the nontaxable work. His audit was admitted into evidence. He further testified that he never asked Edwards to sign, on behalf of plaintiff, a consent or waiver of the statute of limitations nor did he inform Edwards of the statute of limitations. Magnusen also testified that at the time Edwards signed the final assessment which listed the amount of tax due no threats were made by him although Edwards was informed of "what remedies the State had." He believed this was standard procedure and did not amount to duress.

The Department denied plaintiff's claim, finding that plaintiff owed the taxes, that there was no wilful failure or refusal by plaintiff to file the past returns, and that plaintiff had voluntarily signed the combined tax return and paid the back taxes on August 31, 1976.

• 1 First, we consider the constitutional question raised by plaintiff that its due process right was violated by the procedure at the administrative hearing where the hearing officer assumes both prosecutorial and adjudicative functions pursuant to the Department's Hearing Rule 2-4. Plaintiff acknowledges that earlier decisions of our supreme court have held that this procedure does not violate due process (see Murphy v. Cuesta, Rey & Co. (1942), 381 Ill. 162, 45 N.E.2d 26; Department of Finance v. Gandolfi (1940), 375 Ill. 237, 30 N.E.2d 737; Department of Finance v. Cohen (1938), 369 Ill. 510, 17 N.E.2d 327), but urges this court to re-examine this issue in the light of more recent decisions of other courts>, citing Withrow v. Larkin (1975), 421 U.S. 35, 43 L.Ed.2d 712, 95 S.Ct. 1456; Morrissey v. Brewer (1972), 408 U.S. 471, 33 L.Ed.2d 484, 92 S.Ct. 2593; Goldberg v. Kelly (1970), 397 U.S. 254, 25 L.Ed.2d 287, 90 S.Ct. 1011; and Huber Pontiac, Inc. v. Allphin (S.D. Ill. 1977), 431 F. Supp. 1168, rev'd on other grounds (7th Cir. 1978), 585 F.2d 817. We find these cases either inapposite or not controlling. Instead, dispositive of this issue are recent decisions of this court which hold that having the hearing officer also act as a representative of the Department is not, in and of itself, a constitutional deprivation of due process. (Howard Worthington, Inc. v. Department of Revenue (1981), 96 Ill. App.3d 1132, 421 N.E.2d 1030; Lakeland Construction Co. v. Department of Revenue (1978), 62 Ill. App.3d 1036, 379 N.E.2d 859; Sundstrand Corp. v. Department of Revenue (1975), 34 Ill. App.3d 694, 339 N.E.2d 351.) Thus, since plaintiff's real challenge is addressed only to the general procedure and not to any particular facts in the way the hearing was conducted below, we reject this contention in view of the settled law in Illinois.

Plaintiff next contends that it is entitled to a refund pursuant to section 6 of the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1979, ch. 120, par. 445) "as the result of a mistake of fact or an error of law." In this regard plaintiff advances two different bases for that contention. First, plaintiff argues that it was the duty of plaintiff's suppliers to collect and pay the tax and that plaintiff does not owe the tax that it paid for the entire period from October 1967 through December 1975 amounting to $28,889.53. Alternatively, plaintiff contends that it does not owe $16,814.67, which was the amount pertaining to the period between October 1967 and August 1973, since that sum is barred by the three-year statute of limitations set forth in section 5 of the Act. Ill. Rev. Stat. 1979, ch. 120, par. 444.

• 2-4 The right to a refund is of statutory origin, and in the absence of a statute, taxes voluntarily, though erroneously paid, cannot be recovered. (Snyderman v. Isaacs (1964), 31 Ill.2d 192, 201 N.E.2d 106; W.F. Monroe Cigar Co. v. Department of Revenue (1977), 50 Ill. App.3d 161, 365 N.E.2d 574.) The Illinois General Assembly has enacted such a refund provision as part of the Illinois Retailers' Occupation Tax Act. (See People ex rel. Herlihy Mid-Continent Co. v. Nudelman (1938), 370 Ill. 237, 18 N.E.2d 225.) Section 6 provides, inter alia, as follows:

"If it appears, after claim therefor filed with the Department, that an amount of tax or penalty or interest has been paid which was not due under this Act, whether as the result of a mistake of fact or an error of law, except as hereinafter provided, then the Department shall issue a credit memorandum or refund to the person who made the erroneous payment or, if that person has died or become incompetent, to his legal representative, as such." (Ill. Rev. Stat. 1979, ch. 120, par. 445.)

In considering plaintiff's first contention, that it did not owe the tax because it was the obligation of its suppliers to collect and pay the tax, a well-established principle of law is involved. Findings of the Department of Revenue on questions of fact are prima facie correct and are not to be disturbed on review unless manifestly against the weight of the evidence. (Marion Power Shovel Co. v. Department of Revenue (1969), 42 Ill.2d 13, 244 N.E.2d 598; W.F. Monroe Cigar Co. v. Department of Revenue (1977), 50 Ill. App.3d 161, 163, 365 N.E.2d 574.) A corrected return as prepared ...


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