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Ill. Dep't of Revenue v. Country Gardens

OPINION FILED JULY 7, 1986.

THE ILLINOIS DEPARTMENT OF REVENUE, PLAINTIFF-APPELLANT,

v.

COUNTRY GARDENS, INC., ET AL., DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Marion County; the Hon. Robert F.A. Stocke, Judge, presiding.

JUSTICE HARRISON DELIVERED THE OPINION OF THE COURT:

Plaintiff, the Department of Revenue (hereinafter referred to as the Department) appeals from an order of the circuit court of Marion County granting summary judgment in favor of defendants Gerald, James, and John Purcell, former corporate officers of defendant Country Gardens, Inc., on the grounds that the Department's suit to impose personal liability on them for the corporation's unpaid retailers' occupation taxes was time barred under section 13 1/2 of the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1983, ch. 120, par. 452 1/2). For the reasons which follow, we reverse and remand.

Defendant Country Gardens, Inc., was a Delaware corporation qualified to do business in the State of Illinois. It was engaged in the business of selling tangible personal property at retail in Salem, Illinois. Defendants Gerald, James and John Purcell were, respectively, president, secretary and treasurer of the defendant corporation. They were allegedly charged with the control, supervision or responsibility of filing returns and making payments for the corporation under the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1983, ch. 120, par. 440 et seq.).

Country Gardens filed no returns and made no tax payments under the Act for the periods of July and August 1979 and September 1981 through February 1982. The Department issued a notice of tax liability for those periods on May 7, 1982, but the defendant corporation did not file a protest or request a hearing, and the Department's notice automatically became a final assessment on May 27, 1982. (See Ill. Rev. Stat. 1983, ch. 120, par. 444.) In addition, the corporation filed a late return on September 1, 1981, for the month of July 1981 and a late return on October 1, 1981, for the month of August 1981, but the corporation's checks were returned for insufficient funds, and the amounts due for those two months were never paid. On December 1, 1982, the Illinois Secretary of State revoked the corporation's authority to transact business in Illinois because it failed to file an annual report and pay an annual franchise tax. The corporation was ultimately dissolved by the Delaware Secretary of State on March 1, 1983.

On August 15, 1983, the Department filed a complaint against both Country Gardens, Inc., and the defendant corporate officers to collect the unpaid retailers' occupation taxes, plus accrued interest and penalties. Count I sought recovery of the taxes from the corporation pursuant to section 5 of the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1983, ch. 120, par. 444). Counts II through IV, in the alternative, alleged that the respective corporate officer defendants had wilfully failed to provide for payment of the corporation's taxes, and that those defendants should be held individually liable for the taxes under section 13 1/2 of the Act (Ill. Rev. Stat. 1983, ch. 120, par. 452 1/2).

Summary judgment was granted in favor of the Department and against Country Gardens, Inc., under count I on July 13, 1984, and the Department was awarded the sum of $102,968.05. On May 9, 1985, however, the court granted summary judgment on counts II through IV in favor of the corporate officer defendants and against the Department. As grounds for its summary-judgment order, the circuit court held that the Department's claim was time barred because it failed to obtain judgment against the defendant corporate officers within the two-year limitations period specified by the 1981 amendment to section 13 1/2. The court further held that the limitations provision of section 13 1/2, as amended, was procedural rather than substantive in nature and therefore applied retroactively to bar liability by the defendant corporate officers even for taxes which accrued before the amendment took effect. The trial court's order of May 9, 1985, is now before us for review.

The Department contends that the circuit court's interpretation of section 13 1/2 was erroneous and that the limitations period of that statute was satisfied when it commenced its action against the defendant corporate officers within the two-year period, even though their liability was not reduced to judgment within that time. The Department further argues that even if the statute, as amended, required that judgment be obtained within the limitations period, it should not have been applied retroactively so as to bar collection of tax liabilities accruing before the effective date of the statute's amendment in 1981.

• 1 As this court has recently noted, the fundamental rule of statutory interpretation is to ascertain the intent of the legislature and give it effect. (Bauer v. H.H. Hall Construction co. (1986), 140 Ill. App.3d 1025, 1027, 489 N.E.2d 31, 32.) Legislative intent is determined primarily through consideration of the statutory language. (140 Ill. App.3d 1025, 1027, 489 N.E.2d 31, 32.) A court will examine the entire statute, and every part or section should be construed in connection with every other part or section so as to create a harmonious whole. (140 Ill. App.3d 1025, 1028, 489 N.E.2d 31, 33.) At the same time, a court will also seek to determine the objective the statute sought to accomplish and the evils it desired to remedy. Springfield v. Board of Election Commissioners (1985), 105 Ill.2d 336, 341, 473 N.E.2d 1313, 1315.

• 2 Section 13 1/2 provides an exception to the general rule that officers or employees of a corporation are not individually liable for corporate debts or tax obligations (see Department of Revenue v. Joseph Bublick & Sons, Inc. (1977), 68 Ill.2d 568, 577-78, 369 N.E.2d 1279, 1284 (Moran, J., concurring)) and allows for the collection of retailers' occupation tax against such officers or employees when the corporation liable for the tax is unable to pay. The purpose of this statute is to provide "`responsibility for the stewardship of the funds collected from the public for the State.'" (Department of Revenue v. Heartland Investments, Inc. (1985), 106 Ill.2d 19, 28, 476 N.E.2d 413, 417, quoting Department of Revenue v. Joseph Bublick & Sons, Inc. (1977), 68 Ill.2d 568, 576, 369 N.E.2d 1279.) Without it, corporate officers could employ those funds to pay corporate obligations as well as salaries and bonuses to employees, and thus make recovery of the funds from a defunct corporation an impossibility. Department of Revenue v. Joseph Bublick & Sons, Inc. (1977), 68 Ill.2d 568, 575-76, 369 N.E.2d 1279, 1283.

Pursuant to section 13 1/2, the Department must first bring proper proceedings to collect the tax against the corporation and, after a determination that the corporation is unable to pay the tax, must then prove that the officers or employees responsible for the payment of the tax due wilfully failed to make such payment. Section 5 of the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1983, ch. 120, par. 444), authorizing the initial action to collect the unpaid tax against the corporation, essentially provides that such actions shall be instituted: (a) within two years after the date any court proceedings to review the Department's final tax assessment have terminated or the time for such review has passed without court proceedings being instituted, or (b) within two years after the date any return is filed with the Department in cases "where the return constitutes the basis for the suit for unpaid taxes, or a portion thereof, or a penalty provided for in this Act, or interest." By contrast, until its amendment, effective October 28, 1981, section 13 1/2 provided no particular limitations period within which an action had to be commenced against corporate officers or employees after the corporation's liability was established. In this regard, it paralleled the original version of section 6672 of the Internal Revenue Code of 1954 (26 U.S.C.A. sec. 6672 (West 1967)), a comparable Federal statute which our supreme court has referred to in construing section 13 1/2 of the Retailers' Occupation Tax Act. See Department of Revenue v. Heartland Investments, Inc. (1985), 106 Ill.2d 19, 29, 476 N.E.2d 413, 417; Department of Revenue v. Joseph Bublick & Sons, Inc. (1977), 68 Ill.2d 568, 576, 369 N.E.2d 1279, 1283; see also Rosenberg v. United States (2d Cir. 1964), 327 F.2d 362, 365 (construing predecessor statute to section 6672).

Prior to its amendment in 1981, section 13 1/2 stated simply:

"Any officer or employee of any corporation subject to the provisions of this Act who has the control, supervision or responsibility of filing returns and making payment of the amount of tax herein imposed in accordance with Section 3 of this Act and who wilfully fails to file such return or to make such payment to the Department shall be personally liable for such amounts, including interest and penalties thereon, in the event that after proper proceedings for the collection of such amounts, as provided in said Act, such corporation is unable to pay such amounts to the department; and the personal liability of such officer or employee as provided herein shall survive the dissolution of the corporation." Ill. Rev. Stat. 1979, ch. 120, par. 452 1/2.

Under the 1981 amendment, the period in the last line of section 13 1/2 after the word "corporation" was changed to a semicolon, and the following language was added:

"however, upon the expiration of 2 years after the date all proceedings in court for the review of any final or revised final assessments which constitute the basis of such liability have terminated or the time for the taking thereof has expired without such proceedings being instituted or upon the expiration of 2 years after the date any return is filed with the Department in cases where the return constitutes the basis of such liability, no officer or employee of the subject corporation shall be liable (except for such liability already reduced to judgment against ...


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