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November 30, 1995


Appeal from the Appellate Court for the Fourth District; heard in that court on appeal from the Circuit Court of Sangamon County, the Hon. Leo J. Zappa, Judge, presiding.

The Honorable Justice McMORROW delivered the opinion of the court: Chief Justice Bilandic and Justice Harrison took no part in the consideration or decision of this case.

The opinion of the court was delivered by: Mcmorrow

JUSTICE McMORROW delivered the opinion of the court:

In this appeal we are asked to decide whether a notice of tax penalty liability and the certified record of the Department of Revenue (Department) are sufficient to establish a prima facie case of willful failure to pay retailers' occupation taxes pursuant to section 13 1/2 of the Retailers' Occupation Tax Act (Act) (Ill. Rev. Stat. 1991, ch. 120, par. 452 1/2 (repealed effective January 1, 1994; replacement provision enacted as section 3-7 of the Uniform Penalty and Interest Act, 35 ILCS 735/3-7)).

Following an administrative hearing, the Department confirmed a tax penalty against plaintiff, Carl E. Branson, for willful failure to remit retailers' occupation taxes collected by the restaurant he operated. The circuit court reversed, holding that the record was devoid of proof that plaintiff's failure to remit the taxes was willful. The appellate court affirmed in part and reversed in part, holding that while the Department's records established a prima facie tax penalty claim, plaintiff successfully rebutted the Department's case for tax liability for certain months of the period in issue. (268 Ill. App. 3d 818.) Plaintiff subsequently petitioned this court for leave to appeal, arguing that the Fourth District's ruling in the case at bar conflicts with that of the First District in Griffith v. Department of Revenue (1994), 266 Ill. App. 3d 838. Griffith held that a prima facie case against an individual for willful failure to pay retailers' occupation taxes requires affirmative evidence of willfulness apart from or in addition to the Department's notice of penalty liability and certified record. We granted plaintiff's petition for leave to appeal (145 Ill. 2d R. 315).


In July 1989 the Department issued a notice of penalty liability to plaintiff, the sole shareholder, officer, and director of Carbon, Inc., an Illinois corporation. Carbon, Inc., operated Branson's Family Restaurant in Carbondale, Illinois, from late 1985 until it discontinued doing business in January 1987. The corporation had collected the taxes from its customers but failed to remit the collected taxes to the State. The amount of tax penalty assessed against plaintiff was $26,372.11, representing the company's unpaid retailers' occupation taxes due under the Act for the last eight months of the company's operation, June 1986 through January 1987, plus interest and penalties collectable under section 13 1/2. Plaintiff protested the notice of penalty liability and in April 1991 the Department heldan administrative hearing regarding the penalty assessment.

At the hearing, the Department introduced certain documents along with the Director's certification of records. These documents, which were offered as prima facie evidence of the correctness of the tax penalty, included: a copy of the notice of penalty liability, the Director's signed form certifying the records; plaintiff's letter protesting the notice of penalty liability, a discontinuation of tax form for Carbon, Inc., signed by plaintiff; and an "Illinois business taxpayer application for registration" form for the restaurant owned by Carbon, Inc.

Plaintiff moved to dismiss the Department's claim on the ground that the certified record did not establish a prima facie case for the tax penalty because proof of the essential element of willfulness was lacking. Without evidence of willfulness attributable to him, plaintiff argued, he could not be held personally liable for the unpaid corporate taxes. The administrative law judge denied plaintiff's motion to dismiss but remarked that her denial of the motion did not mean she was not cognizant of "the weakness of the Department's case."

Thereafter, plaintiff presented documentary evidence and testimony to support the defense that his failure to remit the taxes was not willful. This evidence may be summarized as follows. Plaintiff, who was in charge of the day-to-day operations of the restaurant, knew he had an obligation to file monthly retailers' occupation tax returns and remit the collected taxes from his customers. In late 1985, plaintiff hired a bookkeeper, Marion Comp, to keep the books and financial records of Carbon, Inc., the entity operating Branson's Family Restaurant. As part of her employment duties Comp sent the restaurant's daily receipts to an accounting firm. That firm prepared the retailers' occupation taxreturns for Carbon, Inc., and sent them to Comp. She presented the returns to Branson for his signature. Comp wrote the checks representing the collected retailers' occupation taxes and remitted the checks, along with the tax returns, to the Department of Revenue.

The restaurant, which was located near Southern Illinois University, suffered cash flow problems during the summer of 1986 when the large student population staying on campus dwindled. In the fall, however, the situation seemingly improved. In December 1986, while Comp was on vacation, plaintiff took over the responsibility of paying the daily bills out of Carbon, Inc.'s checkbook. At that time the ledger indicated a positive balance. However, a bank official notified plaintiff in December 1986 that Carbon, Inc.'s checking account was overdrawn. At this same time some of the restaurant's suppliers began to complain that Carbon, Inc.'s payment checks were being returned for lack of sufficient funds. Plaintiff then discovered a drawer full of unpaid bills. He learned that the restaurant's rent had not been paid for three months. Plaintiff testified that he did not look for or find unfiled retailers' occupation tax returns or other evidence that taxes had not been paid. Carbon, Inc., functioned for a short time thereafter. Plaintiff paid suppliers of Carbon, Inc., on a cash basis after learning that the corporate account was overdrawn. He used personal funds to insure that the employees were paid. According to plaintiff, when the restaurant ceased doing business, on January 25, 1987, plaintiff did not know that there existed an outstanding retailers' occupation tax liability for the eight-month period spanning June 1986 through January 1987. An agent of the Department of Revenue informed plaintiff of the tax deficiency. Plaintiff testified that until the time the agent spoke to him he believed that the taxes had been paid. Plaintiff testified that he never intended to prefer any creditors over the State.

The administrative law judge who presided at the hearing before the Department of Revenue concluded that there was sufficient evidence in the record to demonstrate that, "based upon the relatively liberal construction of wilful as interpreted by the courts of Illinois," plaintiff had voluntarily or intentionally violated his duty to remit the retailers' occupation taxes. The Director accepted the administrative law judge's recommended disposition and finalized the tax penalty. Subsequently, plaintiff filed a timely complaint for administrative review in the circuit court.

The circuit court entered an order setting aside the Department's decision on the ground that it was against the manifest weight of the evidence. The court's order stated that the Department's certified evidence, "although flimsy," was sufficient to prove the amount of liability for unpaid taxes but was not sufficient to show that plaintiff "acted in a wilful manner." The court held that the "record is void of any testimony or documentary evidence" to establish plaintiff's willful failure to pay.

The Department appealed the ruling of the circuit court to the appellate court, which affirmed in part and reversed in part. (268 Ill. App. 3d 818.) The appellate court held that the Department's record established a prima facie case supporting the section 13 1/2 tax penalty. However, the court further held that plaintiff had successfully rebutted the inference of willful refusal to remit taxes for certain months of the period in question, i.e., the months before plaintiff took over the daily bookkeeping duties and began to pay creditors cash out of the ...

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