Appeal from the Circuit Court of Cook County; the Hon. Harold
Siegan, Judge, presiding.
PRESIDING JUSTICE SULLIVAN DELIVERED THE OPINION OF THE COURT:
This appeal is from an order declaring the Chicago Alcoholic Beverage Tax Ordinance (Chicago Municipal Code sec. 200.5 et seq. (1984)), unconstitutional and enjoining its enforcement.
On December 31, 1984, pursuant to the home rule powers conferred by section 6(a) of article VII of the 1970 Illinois Constitution (Ill. Const. 1970, art. VII, sec. 6(a)), the Chicago city council enacted chapter 200.5 of the Municipal Code, entitled the Chicago Alcoholic Beverage Tax Ordinance. The ordinance imposes a tax upon "the purchase of alcoholic beverages for immediate consumption from an alcoholic beverage dealer" (Chicago Municipal Code sec. 200.5-2(A) (1984)), defined as "any person who engages in the business of selling alcoholic beverages in the City of Chicago to a purchaser for immediate consumption" (Chicago Municipal Code sec. 200.5-1). The term "immediate consumption" applies to "purchases of alcoholic beverages (1) in open containers, (2) in any container or form that is not its original package, or (3) from establishments which provide for, allow, or have facilities for the consumption of alcoholic beverages on its premises, except for those sales of alcoholic beverages for consumption off the premises of the establishment and actually consumed off such premises." (Chicago Municipal Code sec. 200.5-1.) The amount of the tax is computed on the number of ounces of alcohol contained in a given beverage, ranging from one-half cent per ounce on beer to five cents per ounce on distilled alcohol (Chicago Municipal Code secs. 200.5-2(A)(1) through (A)(4)), fractions of which are to be rounded off to the nearest cent. The ordinance further states that "the ultimate incidence of and liability for payment of the tax * * * is to be borne by the purchaser" (Chicago Municipal Code sec. 200.5-2(B)), and that "nothing [in the ordinance] shall be construed to impose a tax upon the occupation of alcoholic beverage dealers" (Chicago Municipal Code sec. 200.5-2(A)). Responsibility for collection and remittance of the tax is on the alcoholic-beverage dealer who is also obliged to register with the Department of Revenue of the city within a prescribed time (Chicago Municipal Code sec. 200.5-4(A)), and maintain records which are subject to inspection by the Director of Revenue of all sales of alcoholic beverages (Chicago Municipal Code sec. 200.5-4(B)). Each sale is presumed subject to the tax absent proof by the dealer establishing the contrary. (Chicago Municipal Code sec. 200.5-4(C).) Thus, if an alcoholic-beverage dealer sells such beverages both for immediate consumption and not for immediate consumption he is required to segregate those sales when they are made and keep accurate records thereof. (Chicago Municipal Code sec. 200.5-4(C).) The ordinance prescribes certain penalties for violations of it by any person (Chicago Municipal Code sec. 200.5-6(A)), authorizes the corporation counsel, upon request of the Department of Revenue, to bring an action to enforce the payment of the tax (Chicago Municipal Code sec. 200.5-6(B)), and gives the mayor the power to "suspend or revoke all city licenses held by [such person]" (Chicago Municipal Code sec. 200.5-6(C)). Finally, the ordinance provides that any tax collected or required to be collected by an alcoholic-beverage dealer shall constitute a debt owed by the dealer to the city. Chicago Municipal Code sec. 200.5-12.
On January 18, 1985, the effective date of the ordinance, the original plaintiffs, who include numerous restaurant and tavern owners selling liquor at retail for on-premises consumption in the city of Chicago and individual consumers of such beverages, filed a verified complaint seeking a declaration that the ordinance was unconstitutional and an injunction prohibiting its imposition and enforcement. The complaint alleged, in substance, that the ordinance (a) is unrelated to the government and affairs of the city; (b) is an occupation tax which the city lacks the power to enact without express authorization from the General Assembly (Ill. Const. 1970, art. VII, sec. 6(e)); and (c) denies due process and equal protection and violates the uniformity of taxation provision of the Illinois Constitution (Ill. Const. 1970, art. IX, sec. 2).
The trial court entered an agreed order temporarily restraining the city from enforcing the tax, allowed certain trade associations of the restaurant, hotel and retail liquor industries leave to intervene as plaintiffs, and subsequently issued a preliminary injunction staying the effective date of the ordinance pending the outcome of a hearing on its validity. On April 1, 1985, defendants filed a motion to strike and dismiss plaintiffs' complaints in lieu of an answer thereto. A hearing was held on May 13, 1985, after which the trial court denied defendants' motion and, upon the request of all counsel for a ruling on the validity of the ordinance, declared it unconstitutional, void and unenforceable. This appeal followed.
Since the trial court did not state the basis for its ruling, defendants' arguments in support of their general contention that the ordinance is valid are, essentially, in the form of responses to the allegations made and argued by plaintiffs in the trial court, the first of which we will consider is that the ordinance creates arbitrary and unreasonable classifications in defining the persons and transactions subject to the tax and thereby constitutes a denial of due process and equal protection and a violation of the uniformity provision of the Illinois Constitution which requires that (1) legislative classifications defining the subjects of the tax be reasonable and (2) the tax be uniform within the class upon which it operates. Ill. Const. 1970, art. IX, sec. 2.
• 1-3 It is well settled that article VII, section 6(a), of the 1970 Illinois Constitution (Ill. Const. 1970, art. VII, sec. 6(a)), gives home rule units broad power in matters pertaining to local taxation (Chicago Park District v. City of Chicago (1986), 111 Ill.2d 7, 488 N.E.2d 968; Mulligan v. Dunne (1975), 61 Ill.2d 544, 338 N.E.2d 6; Paper Supply Co. v. City of Chicago (1974), 57 Ill.2d 553, 317 N.E.2d 3; S. Bloom, Inc. v. Korshak (1972), 52 Ill.2d 56, 284 N.E.2d 287), and that because there is a presumption favoring the validity of legislatively created classifications defining the subjects of taxation, the burden of proving them invalid is on the party challenging them (Williams v. City of Chicago (1977), 66 Ill.2d 423, 362 N.E.2d 1030, cert. denied (1977), 434 U.S. 924, 54 L.Ed.2d 282, 98 S.Ct. 402; Illinois Gas Dealers Association v. City of Chicago (1986), 141 Ill. App.3d 976, 491 N.E.2d 112). In defining the subjects of taxation, a legislative body may define a general class and expressly exclude a subclass or merely specify a subclass without naming the general class. (Fiorito v. Jones (1968), 39 Ill.2d 531, 236 N.E.2d 698.) However, irrespective of the manner in which the classes are defined, the classifications themselves must be based upon real and substantial differences of condition or situation between those subject to the tax and those excluded which bear some reasonable relationship to the purpose of the legislation. (Commercial National Bank v. City of Chicago (1982), 89 Ill.2d 45, 432 N.E.2d 227; People ex rel. City of Salem v. McMackin (1972), 53 Ill.2d 347, 291 N.E.2d 807; People ex rel. Holland Coal Co. v. Isaacs (1961), 22 Ill.2d 477, 176 N.E.2d 889; Modern Dairy Co. v. Department of Revenue (1952), 413 Ill. 55, 108 N.E.2d 8.) Decisions have held the constitutional mandate of uniformity to have been violated where the ordinance included within a class those in fact not within it or excluded those properly belonging to it. Commercial National Bank v. City of Chicago (1982), 89 Ill.2d 45, 432 N.E.2d 227; Fiorito v. Jones (1968), 39 Ill.2d 531, 236 N.E.2d 698; People ex rel. Holland Coal Co. v. Isaacs (1961), 22 Ill.2d 477, 176 N.E.2d 889; Ohio Oil Co. v. Wright (1944), 386 Ill. 206, 53 N.E.2d 966; City of Chicago v. Ames (1937), 365 Ill. 529, 7 N.E.2d 294; Winter v. Barrett (1933), 352 Ill. 441, 186 N.E.2d 113.
Here, plaintiffs assert that there is no rational basis for imposing a tax upon those who purchase an alcoholic beverage for immediate consumption on the premises of the seller where no such tax is imposed on purchases of substantially identical beverages for off-premises consumption and that such classification is arbitrary, discriminatory and bears no reasonable relationship to the purpose of the ordinance. In support thereof, plaintiffs analogize the tax at issue to those found invalid in Commercial National Bank v. City of Chicago (1982), 89 Ill.2d 45, 432 N.E.2d 227, Fiorito v. Jones (1968), 39 Ill.2d 531, 236 N.E.2d 698, and Winter v. Barrett (1933), 352 Ill. 441, 186 N.E.2d 113, for lack of uniformity in classifying the subjects of taxation.
In Commercial National Bank, plaintiffs challenged, on numerous grounds, the Chicago Service Tax Ordinance which imposed a 1% tax on purchases of service in the city but exempted from taxation services provided by commodities and securities businesses. The ordinance was held invalid both as an unauthorized occupation tax and as violative of the uniformity provision. With respect to uniformity, the court noted that the exempted businesses provided many of the same services provided by certain of the nonexempt businesses, e.g., banks, and thus, to some extent were in competition with them. The court stated:
"There is no apparent reason why a tax should be imposed upon those who purchase services from some of the plaintiffs while no tax is imposed upon those who purchase the same services from the exempt businesses. There does not appear to be any real or substantial difference between those taxed and those not taxed which bears a reasonable relationship to the revenue gathering purpose of the tax. [Citation.] All businesses providing services in Chicago share the benefits of the tax, but not all share the burden. The distinction is wholly arbitrary and cannot be upheld." Commercial National Bank v. City of Chicago (1982), 89 Ill.2d 45, 73, 432 N.E.2d 227, 240.
Similarly, in Fiorito v. Jones (1968), 39 Ill.2d 531, 236 N.E.2d 698, cited by Commercial National Bank, it was held that certain amendments to the service occupation tax which limited its application to four subclassifications of servicemen rendered the Act unconstitutional for lack of uniformity and denial of due process and equal protection where the court could discern no real or substantial difference between the four classes of servicemen specifically subjected to the tax and those impliedly excluded from it.
In Winter v. Barrett (1933), 352 Ill. 441, 186 N.E.2d 113, also discussed in Commercial National Bank, the court considered the constitutionality of the 1933 Sales Tax Act which imposed a tax on the retail sale of "all tangible personal property" but exempted from that definition any produce or other farm products sold by farmers directly to the consumer. Observing first that farm produce is by its very nature tangible personal property, that the legislature "has no power to declare that not to be a fact which everyone knows is a fact," and that clearly the sole purpose of the disputed provision was to exclude farmers from the Act, the court then turned to the question whether such exemption constituted an unreasonable classification which violated the requirement of uniformity in taxation and denied equal protection to nonexempt produce retailers. Holding that it did, the court noted that farmers who sold produce at retail were in direct competition with nonfarmers selling identical products and stated that it could find no valid basis in fact for discriminating in the farmers' favor or excluding them from a class into which they naturally fell.
• 4 It is plaintiffs' position that the ordinance before us suffers the same constitutional infirmities in its classifications as those in the cases discussed above ...