Appeal from the Appellate Court for the Fourth District; heard
in that court on appeal from the Circuit Court of Sangamon
County, the Hon. Simon L. Friedman, Judge, presiding.
JUSTICE MORAN DELIVERED THE OPINION OF THE COURT:
Plaintiffs, the village of Pawnee and the city of Springfield (municipalities), brought a class action in the circuit court of Sangamon County on behalf of all Illinois municipal corporations, similarly situated, against defendants, J. Thomas Johnson, Director of the Department of Revenue for the State of Illinois (Director); Roland W. Burris, Comptroller of the State of Illinois (Comptroller); Jerry Cosentino, Treasurer of the State of Illinois (Treasurer). The municipalities sought declaratory relief, an accounting, and reimbursement of interest income which accrued on tax receipts collected, invested, and distributed by defendants pursuant to the Municipal Retailers' Occupation Tax Act. (Ill. Rev. Stat. 1981, ch. 24, par. 8-11-1.) The trial court granted defendants' motion to dismiss the complaint for failure to state a cause of action. The appellate court held that the municipalities were entitled to interest; however, it limited their recovery to presently accrued and undistributed interest and to interest accruing in the future. (119 Ill. App.3d 164.) The defendants' petition for leave to appeal (cause No. 59432) that portion of the appellate court's decision requiring them to credit the municipalities with the interest which accrues on municipal retailers' occupation tax receipts was allowed. The municipalities' petition for leave to appeal (cause No. 59412) the appellate court's decision denying retroactive recovery of interest income was also allowed. The appeals have been consolidated for purposes of review. 87 Ill.2d R. 315.
There are two questions before this court: (1) Are the municipalities entitled to be credited with the interest income earned on Municipal Retailers' Occupation Tax Act receipts? and, if so, (2) Are the municipalities entitled to retroactive recovery of such interest income?
While the original action consisted of three counts, the parties appeal only as to issues raised in count I. In that count, the plaintiffs stated that they are Illinois municipal corporations that have imposed taxes on retailers as authorized by the Municipal Retailers' Occupation Tax Act and that defendants are State officials who are responsible for the collection, investment and distribution of the tax receipts. The municipalities allege that since July 1943, the date that "An Act relating to certain investments of public funds by public agencies" (the Public Funds Act) (Ill. Rev. Stat. 1981, ch. 85, par. 902) became effective, the defendants and their predecessors in office have been authorized to deposit funds collected under the Municipal Retailers' Occupation Tax Act into interest-bearing accounts. They further claim that since 1980, pursuant to "An Act in relation to the deposit of public funds" (the Public Deposits Act) (Ill. Rev. Stat. 1981, ch. 102, par. 34), the defendants have invested the tax receipts in interest-bearing accounts. The municipalities assert that they are entitled to the interest which accrues on the tax receipts but that the defendants have wrongfully retained the interest. They contend that by failing to credit them with the interest, the defendants violated the Municipal Retailers' Occupation Tax Act, since they retained more than the amount allowable under the Act. In addition, the municipalities contend that the defendants' actions violated the Public Funds Act and the Public Deposits Act. The municipalities request a declaration that the defendants' failure to credit them with the interest income earned on the tax receipts was wrongful, an accounting of the amount of interest earned since 1943, and an order directing defendants to reimburse them with the interest income wrongfully withheld since 1943.
Defendants, on November 1, 1982, moved to dismiss the complaint on the basis that it failed to state a cause of action and was barred by the doctrine of laches and sovereign immunity. The municipalities then moved for class certification. The trial court certified the class and, thereafter, entered an order dismissing the complaint. It held that the Municipal Retailers' Occupation Tax Act, the Public Funds Act, and the Public Deposits Act do not require distribution of interest income earned on municipal retailers' occupation tax receipts to Illinois municipal corporations. Because of its disposition of that issue, the court did not address the defenses of laches and sovereign immunity.
On appeal, the appellate court reversed the judgment of the trial court dismissing count I. It held that "section 2 of the Public Funds Act, when construed with the [Municipal Retailers' Occupation Tax Act] and the Public Deposits Act, requires defendants to credit the interest income earned on municipal retailers' occupation tax receipts to the plaintiffs and the members of their class, the ultimate owners of the receipts." (119 Ill. App.3d 164, 169.) It concluded that the municipalities could recover the "undistributed and future interest" income earned on the tax receipts but that they "would be unable to recover for past sums of interest income which have already been placed by the Treasurer in the general revenue fund." 119 Ill. App.3d 164, 169.
On March 15, 1984, this court entered an order prohibiting the defendants from transferring any interest earned on municipal retailers' occupation tax receipts since November 3, 1983, the date of the appellate court's decision, to the General Revenue Fund until final disposition of this case. The defendants, by affidavit, represented to the court that the interest earned on tax receipts collected since November 3, 1983, has been segregated from the General Revenue Fund.
Although the Act does not specifically provide for the allocation of the interest income earned on the tax receipts, the municipalities maintain that if the Municipal Retailers' Occupation Tax Act is read in conjunction with section 1 of the Public Deposits Act and section 2 of the Public Funds Act, it is clear that the interest income is to be credited to them and is not to be retained by the defendants. The defendants, however, argue that section 2 of the Public Funds Act is not applicable to the present case. Additionally, they maintain that the plain language of the Municipal Retailers' Occupation Tax Act makes clear the legislative intent that the municipalities are entitled only to be credited for "the amount collected under section 8-11-1 without any additions." In the alternative, defendants argue that even if the municipalities are entitled to the interest income earned on Municipal Retailers' Occupation Tax Act receipts, the relief sought by them is improper. They contend that an award to the municipalities for past sums of interest would constitute an impermissible money judgment against the State.
The Municipal Retailers' Occupation Tax Act provides that each municipality in the State of Illinois may impose a tax, at a specified rate, "upon all persons engaged in the business of selling tangible personal property at retail in the municipality." (Ill. Rev. Stat. 1981, ch. 24, par. 8-11-1.) Section 8-11-1 also sets forth the powers and duties of the State officials regarding the administration of the Act. The Director is charged with administering and enforcing the Act "on behalf of" the municipalities. He therefore is empowered to collect all taxes and penalties due under the Act. Upon collection of such monies, the Director is to pay over all receipts to the Treasurer, who holds the tax receipts as trustee. The Act further requires that, on or before the 25th day of each month, the Director must certify to the Comptroller the share to be disbursed to each municipality. The sum to be paid to the municipality is the "amount * * * collected during the second preceding calendar month by the Department," minus certain deductions not relevant here, less a 2% administrative charge. The Comptroller is then required to "cause the warrant to be drawn for the amount specified" by the Director. The Treasurer then pays that amount to the municipalities out of the municipal retailers' occupation tax fund. Ill. Rev. Stat. 1981, ch. 24, par. 8-11-1.
Section 1 of the Public Deposits Act requires that "[a]ny treasurer or other custodian of public funds" must invest collected funds which are "not needed for immediate disbursement" within two working days at "prevailing [interest] rates or better." (Ill. Rev. Stat. 1981, ch. 102, par. 34.) The Public Deposits Act became effective on July 1, 1980, and, as the court held in Town of the City of Peoria v. O'Connor (1981), 85 Ill.2d 195, 204, investment of public funds in interest-bearing accounts has been mandatory since that date.
Section 2 of the Public Funds Act provides, in relevant part:
"To the extent a public agency has custody of funds not owned by it or another public agency and does not otherwise have authority to invest such funds, the public agency may invest such funds as if they were its own. Such funds must be released to the appropriate person at the earliest reasonable time, but in no case exceeding 31 days, after the private person becomes entitled to the receipt of them. All earnings accruing on any investments or deposits made pursuant to the provisions of this Act shall be credited to the public agency by or for which such investments or deposits were made, except where by specific statutory provisions such earnings are directed to be credited to and paid to a particular fund." (Emphasis added.) Ill. Rev. Stat. 1981, ch. 85, par. 902.
The defendants contend that this section is inapplicable to the present case. They assert that the reference in the section to "private person" makes it clear that the legislature intended that the section apply only to interest earned on privately owned funds held by a public agency. Although we agree that the section is somewhat confusing because it refers to funds owned both by private persons and public agencies, we conclude that the intendment of the legislature was that the statute apply to all investments and deposits made thereunder.
The defendants rely upon City of Springfield v. Allphin (1980), 82 Ill.2d 571 (Allphin II), to support their position that interest income earned on municipal retailers' occupation tax receipts cannot be recovered by the municipalities. Our review of Allphin II, however, discloses that it is distinguishable from the instant case. In Allphin II, this court reversed the judgment of the circuit court allowing interest on municipal retailers' occupation tax funds found to have been wrongfully withheld by the State. The court denied recovery of the interest because the municipalities there sought prejudgment interest which was not authorized either by the Interest Act (Ill. Rev. Stat. 1977, ch. 74, pars. 3, 4) or in equity. (City of ...