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07/18/89 the Department of Revenue v. Corrosion Systems

July 18, 1989






541 N.E.2d 858, 185 Ill. App. 3d 580, 133 Ill. Dec. 647 1989.IL.1115

Appeal from the Circuit Court of Sangamon County; the Hon. C. Joseph Cavanagh, Judge, presiding.


JUSTICE LUND delivered the opinion of the court. KNECHT and SPITZ, JJ., concur.


The Illinois Department of Revenue (Department) filed a complaint against Corrosion Systems, Inc. (Corrosion Systems), and its principal financial officer, Marshall Fisk, requesting the payment of unpaid taxes, due under the Use Tax Act (Ill. Rev. Stat. 1987, ch. 120, pars. 439.1 through 439.22). A judgment was entered against the corporation, but the corporation was found to be insolvent. The Department then sought payment from Fisk. The Department filed a motion for summary judgment, which was granted by the circuit court of Sangamon County. Fisk appeals.

The facts are not in dispute. Corrosion Systems is a Missouri corporation making retail sales to Illinois customers. Corrosion Systems registered as a voluntary compliance tax collector of use taxes with the Department, thereby obligating itself to collect use taxes for the State of Illinois. The Department performed an audit of Corrosion Systems' books and records for the period of January 1977 through April 1980. A notice of tax liability was issued on June 18, 1980, in the amount of $21,724.08, representing tax deficiencies and delinquencies, penalties, and interest due through June 30, 1980. An administrative hearing was held at the corporation's request, after which the Department issued a revised final assessment showing a total due through May 31, 1982, of $27,109.38. On June 8, 1984, the Department filed the complaint in the instant case to collect the final assessment from the corporation and Fisk. On April 8, 1986, a judgment was entered by the circuit court against the corporation in the amount of $42,149.29. No appeal was taken from that judgment.

The Department then pursued its remedy against Fisk. In his responses to the Department's requests for admissions, Fisk acknowledged that the corporation was defunct and unable to pay the judgment against it; that Fisk was a stockholder, director, vice-president, and secretary of the corporation during the period from January 1977 through April 1980; that during the same period, Fisk did withdraw funds from the corporation's bank account and pay debts and/or bills owed by the corporation to its various creditors; that the corporation had charged and collected Illinois taxes "when they were due," although Fisk believed "most were tax exempt." Fisk knew of and had failed to satisfy the Department's claim against the corporation. Although Fisk denied that he had prepared the corporation's tax returns, the signature of "M. Fisk" appears on three such returns filed on behalf of the corporation. In further requests for admissions, Fisk did not deny that he was authorized to, and did, in fact, sign those returns. On October 5, 1988, the circuit court allowed the Department's motion for summary judgment against Fisk.

Fisk argues summary judgment should not have been granted the Department on the facts of this case. He argues the record does not conclusively show he wilfully failed to pay the taxes that were assessed against Corrosion Systems.

The focus of this appeal is on section 13 1/2 of the Retailers' Occupation Tax Act (Act) (Ill. Rev. Stat. 1979, ch. 120, par. 452 1/2). Although the instant case involves use taxes, section 12 of the Use Tax Act (Ill. Rev. Stat. 1979, ch. 120, par. 439.12) incorporates section 13 1/2 of the Act. Section 13 1/2 of the Act (Ill. Rev. Stat. 1979, ch. 120, par. 452 1/2) allows the Department to collect taxes owed by a corporation from a responsible corporate officer should the corporation be unable to make payment:

"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." (Emphasis added.)

Case law has given a broad interpretation to the words "wilfully fails." In Department of Revenue v. Joseph Bublick & Sons, Inc. (1977), 68 Ill. 2d 568, 577, 369 N.E.2d 1279, 1283, the supreme court stated a wilful failure under section 13 1/2 of the Act was a voluntary, conscious, and intentional failure. In Department of Revenue v. Heartland Investments, Inc. (1985), 106 Ill. 2d 19, 30, 476 N.E.2d 413, 418, the supreme court appeared to adopt the Federal standard that "in a civil action, wilful conduct does not require bad purpose or intent to defraud the government."

It is clear that where the corporation collects taxes while doing business, but the moneys are spent on other corporate obligations, the courts will find a wilful failure to pay taxes. In Heartland, the supreme court held that a corporate financial officer was liable, as a matter of law, for the unpaid corporate taxes when the taxes were collected but the moneys were applied to other business ...

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