APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. HONORABLE EARL ARKISS, JUDGE PRESIDING.
Petition for Leave to Appeal Denied December 6, 1995.
Presiding Justice Hoffman delivered the opinion of the court: Cahill and Theis, JJ., concur.
The opinion of the court was delivered by: Hoffman
PRESIDING JUSTICE HOFFMAN delivered the opinion of the court:
The plaintiffs, Communications & Cable of Chicago, South Chicago Cable, and LaSalle Tele-Communications, collectively doing business as Chicago Cable, sought declaratory and injunctive relief against the defendants, the Chicago Department of Revenue, and its acting director, Judith Rice, on the basis that they assessed an unauthorized transaction tax against the plaintiffs. (Chicago Municipal Code § 3-32-010 et seq. (1992).) The complaint was dismissed for lack of equity jurisdiction and the plaintiffs now appeal, contending (1) the complaint states a claim for equity jurisdiction on the basis that the tax as applied was unauthorized by law and an unconstitutional tax on exempt property (Ill. Const. 1970, art. VII, § 6(e)(2)); and (2) equity should have assumed jurisdiction over the plaintiffs' estoppel claim based upon principles of fundamental fairness and due process.
The defendants moved to dismiss the plaintiffs' original complaint under Code of Civil Procedure section 2-615 (735 ILCS 5/2-615 (West 1992)), alleging lack of equity jurisdiction based upon the plaintiffs' failure to exhaust administrative remedies. The trial court granted the defendants' motion and dismissed the complaint with prejudice on March 30, 1994. On April 29, 1994, the plaintiffs requested leave to file an amended complaint in order to plead additional facts in support of their claims. The plaintiffs also submitted a Motion for Reconsideration and Vacation of the order dismissing their original complaint. On May 20, 1994, the court issued an order that denied reconsideration of the dismissal, and simultaneously granted the plaintiffs leave to file their amended complaint and then dismissed it for lack of equity jurisdiction. The instant appeal is from the orders of March 30, 1994, and May 20, 1994.*
The plaintiffs were in the business of providing cable television services to homes within the City of Chicago. The amended complaint alleged that on November 1, 1993, the defendants issued a notice of tax liability against the plaintiffs seeking a total of over 4.6 million dollars in unpaid transaction taxes, penalties and interest, for the period of January 1, 1985, through December 31, 1992. The tax pertained to telecommunications converters and remote control devices (remotes) that were furnished by the plaintiffs to some of their customers. The plaintiffs installed the converters near customers' television sets to enable reception of cable transmissions. The remotes were provided as a means to activate or control the converters. The plaintiffs asserted that the tax was unauthorized under the Chicago Transaction Tax Ordinance (Chicago Municipal Code § 3-32-010, et seq. (Ordinance)), and section 6(e)(2) of the Illinois Constitution (Ill. Const. 1970, art. VII, § 6(e)(2)), because the devices were an "integral and incidental" part of its cable services, and had no independent value to consumers apart from the services provided. The cost of the devices to customers constituted a "minor and incidental portion" of the price of the services. In particular, the plaintiffs alleged that during the time period covered by the assessment, the charge for converters was two dollars during some months and no charge during the remaining months, amounting to less than ten percent of the total cost of cable services. Similarly, the charge for remotes was two dollars during some months and zero for others. Count I of the complaint sought a declaration that imposition of the transaction tax with regard to the plaintiffs' converters and remotes was invalid and unenforceable as contrary to the Ordinance. Count II requested a declaration that the tax as applied to the plaintiffs violated Article VII, section 6(e) of the Illinois Constitution (Ill. Const. 1970, art. VII, § 6(e)), as a tax on service occupations. Count III sought a declaration that the defendants were estopped from asserting liability against the plaintiffs because following a 1988 audit, the defendants represented to the plaintiffs that the converters were not subject to the transaction tax. Count IV sought a declaration that the statute of limitations bars the assessment of any taxes between January 1, 1985, and December 31, 1986. Count V requested a declaration that the plaintiffs' claimed penalties were invalid under the Ordinance and due process clauses of the Illinois and United States Constitutions. Count VI sought a declaration that the plaintiff, LaSalle Tele-Communications, Inc., was not subject to the transaction tax with regard to leased computer equipment. Count VII sought to enjoin the defendants from assessing and collecting the tax, alleging that the administrative hearing procedure violated due process. The trial court dismissed the amended complaint on the basis that the plaintiffs failed to exhaust administrative remedies, and it is from this decision that the plaintiffs appeal.
On appeal, the plaintiffs do not dispute that they failed to pursue all administrative procedures available to contest the tax. However, citing the doctrine established in Owens-Illinois Glass Co. v. McKibbin (1943), 385 Ill. 245, 52 N.E.2d 177, they maintain that equity jurisdiction lies regardless of this failure, because the assessment as applied to them amounted to an unauthorized and unconstitutional tax.
In general, equity will not assume jurisdiction to provide tax relief where there is an adequate remedy at law. ( Owens, 385 Ill. at 252.) Owens established two exceptions to this rule, however, where a tax is alleged to be unauthorized by law or levied upon property exempt from taxation. ( Owens, 385 Ill. 2d at 252; Santiago v. Kusper (1990), 133 Ill. 2d 318, 324, 549 N.E.2d 1251, 140 Ill. Dec. 379; West Suburban Hospital Medical Center v. Hynes (1988), 173 Ill. App. 3d 847, 853, 527 N.E.2d 1086, 123 Ill. Dec. 448.) These exceptions constitute independent bases for equitable redress under which the taxpayer may seek injunctive relief without first exhausting legal remedies or demonstrating the existence of special circumstances. Owens, 385 Ill. at 252-56, 52 N.E.2d 177; Illinois Bell Telephone Co. v. Allphin (1975), 60 Ill. 2d 350, 358-59, 326 N.E.2d 737.
In order to sufficiently claim that a tax is "unauthorized by law" under Owens, the complaint must allege that the tax itself was invalid, or that the assessor lacked authority or discretion to impose the tax as applied to the taxpayers. (See Santiago, 133 Ill. 2d 318, 140 Ill. Dec. 379, 549 N.E.2d 1251; Illinois Bell, 60 Ill. 2d 350, 326 N.E.2d 737.) Equitable relief is not available where the claim merely alleges procedural errors or irregularities in the assessment process. North Pier Terminal Co. v. Tully (1976), 62 Ill. 2d 540, 343 N.E.2d 507; Hodge v. Glaze (1961), 22 Ill. 2d 294, 174 N.E.2d 873 (no equity jurisdiction where complaint alleged failure to follow statutes in arriving at muliplier used to calculate otherwise lawful tax); Lackey v. Pulaski Drainage District (1954), 4 Ill. 2d 72, 75, 122 N.E.2d 257 (plaintiffs not challenging validity of property tax itself, but instead claiming it was based upon allegedly void annexation proceedings); accord, Inolex Corp. v. Rosewell (1978), 72 Ill. 2d 198, 380 N.E.2d 775, 20 Ill. Dec. 566; see also LaSalle National Bank v. County of Cook (1974), 57 Ill. 2d 318, 312 N.E.2d 252 (claim concerned not validity of tax but that it was assessed at too high a rate).
In response to the plaintiffs' argument, the defendants initially point out that the Owens doctrine was restricted in the Illinois Bell case, where the court held that equity will not intervene in disputes in which the claimant may seek review from the Department of Revenue's determination under the Administrative Review Act. (735 ILCS 5/3-101 et seq. (West 1992) (hereinafter Act); Illinois Bell, 60 Ill. 2d 350, 326 N.E.2d 737.) The defendants urge that this court likewise "eliminate the Owens exceptions" for tax cases such as the one at bar, which are not covered by the Act. The defendants maintain that the plaintiffs have an adequate remedy at law in the form of certiorari review from the Department of Revenue's administrative determinations.
We note, however, that certiorari has been an available means of redress since long prior to Illinois Bell, and yet the court there limited the Owens doctrine only for cases covered under the Act. The Owens rule clearly remains intact for tax claims in which the taxpayer may not seek review under the Act. (See, e.g., Santiago, 133 Ill. 2d 318, 140 Ill. Dec. 379, 549 N.E.2d 1251; Snow v. Dixon (1977), 66 Ill. 2d 443, 452-53, 362 N.E.2d 1052, 6 Ill. Dec. 230; West Suburban Hospital, 173 Ill. App. 3d at 853.) Where a tax is unauthorized by law, the taxpayer may proceed with equitable redress regardless of the availability of a complete and adequate legal remedy. ( Lackey, 4 Ill. 2d at 78.) It is beyond question that this court is not at liberty to alter or disregard this precedent. See Rickey v. Chicago Transit Authority (1983), 98 Ill. 2d 546, 457 N.E.2d 1, 75 Ill. Dec. 211.
The plaintiffs contend that their complaint sufficiently alleged that the tax was unauthorized under section 3-32-030 of the Ordinance (Chicago Municipal Code § 3-32-030), and also that it was an impermissible tax on occupations prohibited under section 6(e)(2) of the Illinois Constitution. (Ill. Const. 1970, art. VII, § 6(e)(2).) Construing all well-pled allegations of the complaint as true (see Illinois Bell, 60 Ill. 2d at 359), we agree with both arguments. We address the constitutional claim first.
As effective at the time in question, section 3-32-030 of the Ordinance broadly authorized a tax on transactions "consummated in the City of Chicago involving the lease or rental of any personal property". (Chicago Municipal Code § 3-32-030(A), formerly § 200.12(A).) Section 6(e)(2) of the Illinois ...