Appeal from the Circuit Court of Cook County; the Hon. Donald
O'Brien, Judge, presiding.
PRESIDING JUSTICE MCNAMARA DELIVERED THE OPINION OF THE COURT:
Plaintiffs are residents of various suburban Cook County municipalities and customers of defendant utilities, Commonwealth Edison Company, Illinois Bell Telephone Company, and Northern Illinois Gas Company. They brought this class action complaint on behalf of all similarly situated utility customers in their municipalities against the municipalities, the utilities, and the Illinois Department of Revenue, alleging that defendants had collected unlawfully inflated municipal and State utility taxes. Plaintiffs sought damages and declaratory and injunctive relief.
The trial court granted defendants' motion to dismiss some allegations as substantially insufficient in law. Other allegations were dismissed as to some defendants on the ground that other class actions were pending between the same parties for the same cause of action. Plaintiffs appeal the dismissals.
Plaintiffs' complaint alleged that defendants had erroneously interpreted "gross receipts" as used in various statutory provisions relating to the taxation of public utilities by State and municipal governments. Such interpretation allegedly resulted in an inflated tax base which caused the utility taxes to be excessive. Plaintiffs' interest stems from the fact that, pursuant to statute, the burden of these taxes is substantially passed on by the utilities to the customer.
Section 8-11-2 of the Illinois Municipal Code (Ill. Rev. Stat. 1979, ch. 24, par. 8-11-2) authorizes municipal governments to tax public utilities which supply service within the municipality at a rate not to exceed 5% of the utilities' "gross receipts." Pursuant to section 36(a) of the Public Utilities Act (Ill. Rev. Stat. 1979, ch. 111 2/3, par. 36(a)), the utilities in turn are permitted to pass on the burden of this tax to the customer by charging an additional charge equal to the sum of (1) an amount equal to such municipal tax, or any part thereof; (2) 3% of such amount to cover accounting costs; "and (3) an amount equal to the increase in taxes and other payments to governmental bodies resulting from the amount of such additional charge."
Similarly, a State tax of 5% of gross receipts is imposed upon defendant utilities pursuant to section 2 of the Messages Tax Act (Ill. Rev. Stat. 1979, ch. 120, par. 467.2), section 2 of the Gas Revenue Tax Act (Ill. Rev. Stat. 1979, ch. 120, par. 467.17), and section 2 of the Public Utilities Revenue Act (Ill. Rev. Stat. 1979, ch. 120, par. 469). In addition, the utilities are taxed at .08% of gross revenue pursuant to section 7a.5 of the Public Utilities Act (Ill. Rev. Stat. 1979, ch. 111 2/3, par. 7a.5), to defray the expense of the Illinois Commerce Commission. The utilities are not, however, authorized to pass on to their customers the entire burden of these various State taxes. Rather, pursuant to section 36(b) of the Public Utilities Act (Ill. Rev. Stat. 1979, ch. 111 2/3, par. 36(b)), only that portion of the 5% tax which exceeds 3% of gross receipts can be passed on. No portion of the .08% tax on gross revenue may be passed on, nor can the utilities collect a fee to cover their accounting costs.
The gist of plaintiffs' complaint was that, for purposes of computing the State utility tax, defendants erroneously inflated the State tax base by including in gross receipts the section 36(a) additional charge collected from customers to offset the municipal tax. Similarly, in computing the municipal utility tax, defendants included in gross receipts not only the amount collected pursuant to section 36(b) to offset the State tax, but also the section 36(a) charge which was based on the municipal tax itself. In addition, defendants included the section 36(a) charges in gross revenue for purposes of computing the .08% State tax imposed by section 7a.5. Plaintiffs take the position that gross receipts should include only those sums received by the utility from the customer to cover the utility service itself. They alleged that defendants' interpretation of gross receipts and gross revenue was unauthorized and resulted in defendants being unjustly enriched and plaintiffs being required to pay taxes upon taxes. Plaintiffs alleged further that defendants' conduct violated both the Federal and State constitutions.
The trial court recognized that defendants' practice of including in the municipal tax base the amounts collected to offset the municipal tax itself was declared impermissible by our supreme court in Getto v. City of Chicago (1979), 77 Ill.2d 346, 396 N.E.2d 544. The court found, however, that the practice was already being challenged in two pending class actions involving Illinois Bell, Commonwealth Edison and the municipal defendants. It therefore dismissed this allegation as to those parties.
The trial court found the other methods of computation challenged in plaintiffs' complaint to be proper and authorized by statute. It therefore dismissed allegations arising from or related to such methods of computation as substantially insufficient at law.
On appeal, plaintiffs contend that the reasoning employed by the court in Getto requires a finding that none of the tax computation practices challenged in this case were authorized by statute; that if the trial court correctly construed the statutes in question such statutes are unconstitutional; and that the dismissal of any of plaintiffs' allegations was improper.
We first address plaintiffs' contention that the decision in Getto renders invalid all of the tax computation practices challenged in the present case. As here, Getto involved a challenge by a utility customer of the utility's and municipality's interpretation of gross receipts as used in section 8-11-2 of the Illinois Municipal Code for purposes of computing the municipal utility tax. Unlike the present case, however, the only practice challenged was the inclusion in the municipal tax base of the section 36(a) charge collected from utility customers to offset the municipal tax itself. Recognizing that the economic burden of the tax had been passed on to the customer pursuant to section 36(a), the court found that the customer had standing to challenge the tax. The court then turned to the definition of gross receipts found in section 8-11-2 but found it to be inconclusive with regard to the challenged practice. In light of this doubt, the court applied the maxim that application of tax laws, when in doubt, should be construed against the taxing body and in favor of the taxpayer and found defendants' construction of gross receipts to be erroneous. Plaintiffs were given the benefit of this maxim because they were required to pay the additional section 36(a) charge prior to the time the utility incurred any liability for the tax itself.
We reject plaintiffs' argument that Getto stands for the proposition that utility taxes apply only to amounts which actually have been received by a utility for services rendered. The determination in Getto that the utility received the money from its customer to cover the tax before it actually became liable for the tax did not in itself invalidate the utility's manner of tax computation. Rather, this element of timing was relevant only in that it required that the customer, not the utility, be given the benefit of the doubt in interpreting the taxing statute. Similarly, in the present case, if examination of the statutory language in question leaves us in doubt as to its proper construction, that doubt must be resolved in favor of plaintiffs.
Each of the utility tax provisions in question contains its own definition of gross receipts. The definitions found in the State tax provisions are essentially identical. We will first consider the State provisions and then turn to the definition found in the municipal tax provision.
Section 1 of the Messages Tax Act (Ill. Rev. Stat. 1979, ch. 120, par. 467.1) (as well as section 1 of the Gas Revenue Tax Act (Ill. Rev. Stat. 1979, ch. 120, par. 467.16) and section 1 of the Public Utilities Revenue Act (Ill. Rev. Stat. 1979, ch. 120, par. 468)) defines "gross receipts" as "consideration received for the transmission of messages [and for gas and electricity distributed] * * * without any deduction on account of the cost of" providing the utility service "or any other expense whatsoever. However, any charges added ...