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September 23, 1994


Appeal from the Circuit Court of Peoria County. No. 91-CH-119. Honorable John A. Barra, Judge, Presiding.

Present - Honorable Peg Breslin, Justice, Honorable Tom M. Lytton, Justice, Honorable Tobias Barry, Justice.

The opinion of the court was delivered by: Barry

JUSTICE BARRY delivered the opinion of the court.

Plaintiff, Caterpillar Finance Corporation (CFC) is a foreign corporation incorporated in Delaware with its principal place of business in Peoria, Illinois. CFC brought this tax protest action upon paying its annual franchise tax. CFC contended that it had reduced its paid-in-capital from $56,000,000 to $1,000 by a liquidation distribution, thus reducing its franchise tax from $56,000 to $25. The Secretary of State rejected this reduction and CFC paid the franchise tax, pursuant to the Secretary's determination, under protest. In the resulting action filed by CFC, the circuit court of Peoria County granted CFC's motion for summary judgment construing the Business Corporation Act of 1983 (Ill. Rev. Stat. 1991, ch. 32 par. 14.25(a)) to allow such reductions in paid-in-capital and ordered the State of Treasurer of the State Illinois to refund $55,975 to CFC. The Secretary of the State of Illinois, the Treasurer of the State of Illinois and the Department of Business Services for the State of Illinois appeal.

Pursuant to the Business Corporation Act of 1983 (Ill. Rev. Stat. 1991, ch. 32, par. 15.35, 15.65) (the Act), both domestic and foreign corporations must pay an annual franchise tax for the privilege of transacting business in Illinois. The franchise tax is due when the corporation must file its annual report, which is during the 60-day time period preceding the first day of the corporation's anniversary month. (Ill. Rev. Stat. 1991, ch. 32 par. 15.35, 15.65, 14.10.) A corporation's anniversary month is the month in which the certificate of authority was issued. (Ill. Rev. Stat. 1991, ch. 32 par. 1.80(n)(2), (o).) A foreign corporation's franchise tax is based upon the amount of paid-in capital represented in Illinois on the last day of the third month preceding its anniversary month. (Ill. Rev. Stat. 1991, ch. 32 par. 15.70.) The annual franchise tax is computed at a rate of 1/10 of 1% of the paid-in capital allocated to Illinois subject to a $25 minimum and a $1 million maximum. (Ill. Rev. Stat. 1991, ch. 32 par. 15.75.) In order to reduce a corporation's franchise tax where its paid-in capital has been reduced in accordance with the Act, a corporation must file the appropriate report of the transaction with the Secretary of State. (Ill. Rev. Stat. 1991, ch. 32 par. 14.25.)

As aforesaid, the subject of this appeal is CFC's annual franchise tax which was due by June 1, 1991. CFC's anniversary month was June, thus, its franchise tax was calculated based on its paid-in capital as of March 31, 1991.

On December 14, 1990, CFC adopted a "Plan of Liquidation" providing for: 1.) Complete liquidation free from federal tax; 2.) First distribution of all its shares of Caterpillar of Canada, Ltd. to its shareholder, Caterpillar, Inc., to be accomplished prior to December 31, 1990; 3.) All remaining net assets to be distributed to its shareholder, Caterpillar, Inc., in the month of December, 1991. Having failed to meet its December 31, 1990 deadline, CFC made the first liquidating distribution of the shares of Caterpillar of Canada to its shareholders in March of 1991 and did not cancel its shares until December of 1991. CFC alleges that through this liquidation action it reduced its paid-in capital from $56 million to $1,000.

On May 24, 1991, CFC submitted a Report of Reduction of Paid-In Capital to the Secretary of State, stating that the alleged reduction in paid-in capital was due to the liquidation distribution. The report did not set forth a reduction in the number of CFC shares of stock. Based on the alleged reduction of paid-in capital to $1,000, CFC tendered the minimum $25 as its annual franchise tax.

On June 6, 1991, the Secretary of State's Department of Business Services (Department) returned CFC's 1991 annual report and report of reduction of paid-in capital along with the check submitted by CFC. The Department sent Caterpillar, Inc. letters on July 6 and July 9, 1991 which explained that pursuant to sections 1.80(j) and 9.05 of the Act, "the only basis for reducing the paid-in capital of a corporation is through the reacquisition and cancellation of some of its issued shares," and recalculated CFC's franchise tax at $56,000 plus the $15 filing fee. CFC paid the franchise tax and filing fee at $56,015 under protest on July 30, 1991.

On August 28, 1991, CFC filed a two-count Verified Complaint Under the Public Monies Act against George Ryan as the Secretary of State, Patrick Quinn as the Treasurer of the State of Illinois and the Department of Business Services for the State of Illinois. Count I of the complaint stated CFC's March, 1991 liquidation distribution asserting that CFC's paid-in capital was reduced from $56 million to $1,000 resulting in a $25 annual franchise tax owed. Count I also sought an order requiring the Secretary of State to accept and file CFC's original 1991 Annual Report, calculate CFC's franchise tax based on $1,000 of paid-in capital and requiring the Secretary and Treasurer to return to CFC, $55,975 of the franchise tax paid under protest plus interest. Count II of the complaint alleged that CFC is entitled to a correction of its paid-in capital represented in Illinois from 100% to 2.677%, which would reduce CFC's franchise tax owed for the year 1991 to $1,499. CFC also filed a Motion for Preliminary Injunction on August 28, 1991, asking the court to enjoin the Secretary of State, Treasurer and the Department from transferring the funds paid by CFC from the special protest fund to the general revenue fund of Illinois. The circuit court granted CFC's motion for a preliminary injunction the same day.

On September 27, 1991, the State defendants (State) filed an answer. In response to Count I of CFC's complaint, the State contended that CFC did not properly reduce its paid-in capital because it failed to reacquire or cancel any of its shares, and the provision of the act that permitted such liquidation distributions had been repealed in 1987. In response to Count II of CFC's complaint, the State's answer stated that CFC's correction statement could not be filed without the proper supporting documentation.

On July 17, 1992, CFC filed a Motion for Summary Judgment and the State filed a response to CFC's motion for summary judgment and a cross-motion for summary judgment on September 9, 1992. On April 1, 1993, the circuit court issued a Memorandum of Decision finding that under the Act, CFC properly reduced its paid-in capitalto $1,000 as of March, 1991 although CFC's shares were not cancelled until December, 1991.

The issue before this appellate court is whether the Business Corporation Act of 1983 authorizes a foreign corporation conducting business in Illinois to reduce its paid-in capital, and consequently, its franchise tax, through a liquidating distribution prior to the cancellation of the corporation's shares of stock. We find that the Act does not authorize such reductions in paid-in capital, and accordingly, we reverse the decision of the circuit court.

In construing the relevant statutory provisions of the Act, it is our goal to ascertain and give effect to the intent of the legislature. ( Granite City Division of National Steel Co. v. Illinois Pollution Control Board (1993), 155 Ill. 2d 149, 181, 613 N.E.2d 719, 733, 184 Ill. Dec. 402.) A statute should be interpreted as a whole, and each individual provision should be construed in relation to the other sections of the statute and according to the statute's general purpose. ( City of Peoria v. Illinois Commerce Comm'n (1985), 132 Ill. App. 3d 835, 837, 477 N.E.2d 749, 750, 87 Ill. Dec. 623.) In cases of doubt, taxing statutes are strongly ...

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