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December 6, 1994


Appeal from Circuit Court of Sangamon County. No. 92MR124. Honorable Leo J. Zappa, Judge Presiding.

As Corrected March 31, 1995.

Justice Steigmann delivered the opinion of the court: Honorable Robert J. Steigmann, J., Honorable James A. Knecht, P.j., Honorable Robert W. Cook, J., Concurring

The opinion of the court was delivered by: Steigmann

JUSTICE STEIGMANN delivered the opinion of the court:

In July 1989, the Illinois Department of Revenue (Department) issued notices of penalty liability (NPLs) to plaintiff, Carl E. Branson, and his wife, Bonnie Branson, as responsible parties pursuant to section 13 1/2 of the Retailers' Occupation Tax Act (Act) (Ill. Rev. Stat. 1991, ch. 120, par. 452 1/2). The penalties assessed related to unpaid taxes, interest, and penalties owed by Carbon, Inc. (Carbon), which operated Branson's Family Restaurant, from June 1986 through the restaurant's closing in January 1987. An administrative law Judge (ALJ) recommended upholding the penalty assessment against plaintiff and recommended dismissing the assessment against Bonnie. The Department accepted both of the ALJ's recommendations.

On appeal to the circuit court, the court ruled that plaintiff had the responsibility for filing corporate tax returns and paying the taxes due, but because the Department failed to prove plaintiff wilfully failed to pay the taxes, the court reversed the Department's determination of plaintiff's liability. The Department appeals, arguing that it established a prima facie case of plaintiff's wilfulness in failing to pay the sales taxes, and that plaintiff failed to negate that proof.

We affirm in part and reverse in part.


At the hearing before the ALJ, the Department offered into evidence its group exhibit No. 1 under the certification of records signed by the Department's Director. The exhibit consisted of (1) NPL No. 1881 issued July 31, 1989, to Bonnie showing a total liability of $26,372.11; (2) NPL No. 1880 issued on July 31, 1989, to plaintiff showing a total liability of $26,372.11; (3) United States Post Office return receipt cards signed by plaintiff; (4) a protest letter dated August 10, 1989, signed by William P. Gavin for both plaintiff and Bonnie; (5) notice of hearing dated February 15, 1989, setting the matters for hearing; (6) a discontinuation of tax form signed by plaintiff in his capacity as president of Carbon dated March 30, 1987, and received by the Department on April 12, 1987; and (7) an Illinois business taxpayers' application for registration naming plaintiff as president and Bonnie as secretary, signed by plaintiff.

Plaintiff and Bonnie objected to the admission of this group exhibit because the certification of records did not specifically identify the documents within the exhibit purportedly being certified. The ALJ overruled their objection and admitted the exhibit into evidence in its entirety. Plaintiff then moved to dismiss the Department's case on the ground that the Department did not prove the essential elements of a prima facie case, but the ALJ denied the motion.

In 1986 and 1987, plaintiff worked at both the Carbon restaurant and another restaurant owned by a separate corporation. Until February 1986, he was shareholder, officer, and director of both corporations and kept the corporate records. After February 1986, he became sole shareholder, officer, and director of Carbon.

Plaintiff was in charge of quality control of the food, quality of help, managers, and overseeing the operation of the Carbon restaurant, which was open 24 hours a day. He hired Marion Comp as bookkeeper for Carbon just prior to the incorporation of Carbon in late 1985. Comp's duties consisted of paying bills, making bank deposits, and tallying daily receipts.

In order to pay the retailers' occupation tax (sales tax), the restaurant kept a daily log, which totaled all receipts. These daily logs were forwarded to the TACS Company (TACS), an accounting firm, to prepare tax forms, and then returned to Comp, who in turn presented them to plaintiff for his signature. Comp wrote the checks to pay the taxes, and plaintiff introduced a photocopy of a check to the Department for such taxes signed by Marion Comp, dated in December 1985.

In early December 1986, plaintiff discovered problems with Carbon's corporate finances. Comp was on vacation, and plaintiff attempted to pay the daily bills. Although the corporate checkbook showed a positive cash amount, the bank informed him of an overdraft. Carbon continued to function as a corporation 30 to 40 days thereafter until January 25, 1987.

The Department does not dispute that plaintiff did not know, prior to January 25, 1987, that Illinois sales tax had not been paid nor returns filed. Plaintiff testified that he never chose one creditor to pay before the State. He discovered sales tax was owed to the State when confronted by a revenue agent after the Carbon restaurant ceased operations. Carbon had no funds ...

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