Appeal from the Circuit Court of Winnebago County. No. 94-CH-107. Honorable Gerald F. Grubb, Judge, Presiding.
Released for Publication July 8, 1996.
Presiding Justice McLAREN delivered the opinion of the court: Geiger and Hutchinson, JJ., concur.
The opinion of the court was delivered by: Mclaren
PRESIDING JUSTICE McLAREN delivered the opinion of the court:
Defendant, the Illinois Department of Revenue (the Department), appeals the entry of summary judgment for plaintiff, John R. Cook III, in plaintiff's action seeking a declaration that the Department cannot enforce any tax liability of a partnership against plaintiff, and seeking to enjoin the Department from recovering any tax liability from plaintiff. The issues for review are whether the State may enforce against a partner a tax levied against a partnership when the partner was not named in the proceeding; and whether the trial court erred in requiring the Department to pay plaintiff's costs. We vacate that portion of the judgment assessing costs and affirm the remainder.
The parties stipulated to the following facts. Magic Waters, Limited (Magic Waters), was a limited partnership which was formed in January 1983 and was dissolved on December 31, 1987. Plaintiff was a general partner of Magic Waters from January 31, 1983, until September 18, 1987. On October 31, 1986, Magic Waters filed for chapter 11 bankruptcy. On April 29, 1987, while a stay was in effect, the Department filed a proof of claim for taxes in the bankruptcy proceeding. The proof of claim alleged taxes, interest, and penalties due totalling $53,579. On June 29, 1987, also while the stay was in effect, the Department issued a notice of tax liability to Magic Waters, under its taxpayer identification number, claiming taxes, interest, and penalties due totalling $58,229.77. These taxes were claimed to be occupation and use taxes levied on Magic Waters' purchases from January 1984 through October 1986. On July 10, 1987, Magic Waters timely protested the notice of tax liability. On September 10, 1987, the Department acknowledged Magic Waters' protest; however, the claim was not called for a hearing or otherwise resolved in the bankruptcy proceeding. On May 3, 1988, the trustee in bankruptcy determined that Magic Waters had no assets. The bankruptcy estate was closed on March 15, 1989.
On February 1, 1994, the Department issued a final assessment to Magic Waters, claiming taxes, interest, and penalties due totalling $93,559.83. Based on the final assessment against Magic Waters, the Department issued a 10-day demand, dated April 6, 1994, to plaintiff (but listing Magic Waters' taxpayer number), claiming a total due of $94,007.51. The 10-day demand demanded that plaintiff pay the amount by April 16, 1994. The Department never issued a notice of tax liability to plaintiff in his individual capacity, nor did it issue a final assessment to plaintiff in his individual capacity. However, on July 6, 1987, plaintiff received a copy and was aware of the contents of the notice of tax liability issued to Magic Waters.
In its written order entering summary judgment, the trial court found that the 10-day demand was based on section 5f of the Retailers' Occupation Tax Act (Retailers' Tax Act) (35 ILCS 120/1 et seq. (West 1994)), which allows the Department to make a demand that a tax debt under the Retailers' Tax Act and the Use Tax Act (35 ILCS 105/1 et seq. (West 1994)) be paid within 10 days. 35 ILCS 120/5f (West 1994). The 10-day demand was further based on the final assessment. The trial court found that the final assessment was obtained only against Magic Waters. The plaintiff was never issued a notice of tax liability or made a party to a final assessment, and plaintiff had no notice of, or opportunity for, a hearing concerning his individual liability for the retailers' occupation or use taxes of Magic Waters. The Department was therefore precluded from issuing a 10-day demand to plaintiff individually so that the 10-day demand issued to plaintiff was void. Because the Department never issued a notice of tax liability against plaintiff in his individual capacity or obtained a final assessment against him individually based on the tax liability of Magic Waters, the trial court found that the Department never obtained an encumbrance in the nature of a judgment lien which it could enforce against plaintiff individually.
The court also concluded that the Department was time-barred from issuing any notice of tax liability which could lead to the issuance of a final assessment against plaintiff individually. It therefore granted plaintiff's motion for summary judgment and for judgment on the pleadings; it declared that plaintiff had no liability for any tax of Magic Waters; it permanently enjoined the Department from levying or attempting to levy on any of plaintiff's property and from collecting or attempting to collect any tax of Magic Waters from plaintiff; and it ordered the Department to pay plaintiff's costs. The Department timely appealed.
We first address the second issue contending that the trial court erred in ordering the Department to pay plaintiff's court costs. Plaintiff concedes the error. Because there is no statutory provision authorizing the imposition of costs under these circumstances, we agree that that part of the order must be vacated. See Department of Revenue v. Appellate Court, 67 Ill. 2d 392, 396-98, 367 N.E.2d 1302, 10 Ill. Dec. 536 (1977).
The remaining issue is whether the court erred in entering summary judgment for plaintiff. As there is no question of material fact, we need only determine whether the trial court correctly ruled, as a matter of law, that plaintiff had no liability for Magic Waters' tax liability. We review the entry of summary judgment de novo. In re Estate of Hoover, 155 Ill. 2d 402, 411, 185 Ill. Dec. 866, 615 N.E.2d 736 (1993).
The Department contends that, under the Use Tax Act and the Retailers' Tax Act, it was entitled to collect the tax from plaintiff. The provisions of the Retailers' Tax Act apply to the Use Tax Act. 35 ILCS 105/12 (West 1994).
Under the Retailers' Tax Act, a taxpayer must collect a tax and remit it to the Department. 35 ILCS 120/3 (West 1994). Where the taxpayer files a return, and the amount of tax computed by the Department is greater than the amount due under the return, the Department is authorized to collect the unpaid taxes, plus interest and penalties. 35 ILCS 120/4 (West 1994). If the tax computed by the Department is greater than the amount of tax due under the return as filed, the Department issues a notice of tax liability to the taxpayer for the amount of tax claimed. 35 ILCS 120/4 (West 1994).
The taxpayer may contest the notice by filing a protest and requesting a hearing. If a protest is not filed within the requisite period, the notice becomes final without the issuance of a final assessment and shall be deemed a final assessment. 35 ILCS 120/4 (West 1994). A final assessment is subject to judicial review in accordance with the Administrative Review Law (735 ILCS 5/3--101 et seq. (West 1994)). 35 ILCS 120/12 (West 1994). After the final assessment has been issued, the Department may collect the ...