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10/23/97 MILWAUKEE SAFEGUARD INSURANCE COMPANY ET

October 23, 1997

MILWAUKEE SAFEGUARD INSURANCE COMPANY ET AL., APPELLEES,
v.
STEPHEN F. SELCKE, DIRECTOR OF INSURANCE, ET AL., APPELLANTS.



Appeal from the Circuit Court of Cook County. Case Numbers: TR93CH9266, TR93CH9268, TR93L50663, TR93L50665, TR93L50674, TR93L50699, TR93L50972, TR93L50974, TR93L50976, TR93L50988, TR93L51000, TR93L51038, TR93L51040, TR93L51042, TR93L51066, TR93L51373, TR93L51377, TR94L50629, TR93CH9267, TR93CH9269, TR93L50664, TR93L50668, TR93L50698, TR93L50971, TR93L50973, TR93L50975, TR93L50977, TR93L50999, TR93L51001, TR93L51039, TR93L51041, TR93L51057, TR93L51371, TR93L51374, TR94L50419, TR94L50915. Hon. Randye A. Kogan, Trial Judge.

The Honorable Justice Heiple delivered the opinion of the court. Justice Bilandic, dissenting. Chief Justice Freeman and Justice McMORROW join in this dissent.

The opinion of the court was delivered by: Heiple

The Honorable Justice HEIPLE delivered the opinion of the court:

Defendants, the Director of Insurance and the Treasurer of the State of Illinois, contend that the circuit court erred in declaring unconstitutional section 409 of the Illinois Insurance Code (215 ILCS 5/409 (West 1992)), which imposes an annual privilege tax on foreign or alien insurance companies. For the reasons that follow, we affirm the circuit court's judgment.

FACTUAL AND PROCEDURAL HISTORY

Plaintiffs are insurance companies doing business in Illinois but incorporated in other states. As foreign companies, plaintiffs are required by section 409 of the Illinois Insurance Code (the Code) to pay a tax equal to 2% of their net premium income "for the privilege of doing business in this State." 215 ILCS 5/409(1) (West 1992). Plaintiffs each paid the privilege tax under protest. See 30 ILCS 230/2a.1 (West 1992). They then brought numerous suits alleging that the privilege tax is facially unconstitutional under the uniformity clause of the Illinois Constitution of 1970 (Ill. Const. 1970, art. IX, § 2) and the equal protection clauses of the Illinois Constitution (Ill. Const. 1970, art. I, § 2) and the United States Constitution (U.S. Const., amend. XIV). Plaintiffs sought a refund of payments they had made under the privilege tax. *fn1 The circuit court consolidated the suits.

Plaintiffs then successfully moved for partial summary judgment. In a memorandum decision, the circuit court declared that section 409 of the Code violates the uniformity clause of the Illinois Constitution (Ill. Const. 1970, art. IX, § 2) because it exempts domestic insurance companies who meet certain qualifications from payment of the privilege tax, but requires foreign companies who meet those same qualifications to pay the tax. The court held that this requirement violates the uniformity clause because it is not rationally related to any real and substantial difference between foreign and domestic insurance companies. The court also ruled that section 409 violates the equal protection clauses of the Illinois Constitution (Ill. Const. 1970, art. I, § 2) and the United States Constitution (U.S. Const., amend. XIV).

ANALYSIS

A trial court may render summary judgment if the record shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. 735 ILCS 5/2-1005(c) (West 1992)). In an appeal from a grant of summary judgment, we conduct a de novo review. Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 390, 189 Ill. Dec. 756, 620 N.E.2d 1073 (1993).

Article IX, section 2, of the Illinois Constitution provides as follows:

"In any law classifying the subjects or objects of non-property taxes or fees, the classes shall be reasonable and the subjects and objects within each class shall be taxed uniformly. Exemptions, deductions, credits, refunds and other allowances shall be reasonable." Ill. Const. 1970, art. IX, § 2.

To survive scrutiny under the uniformity clause, a nonproperty tax classification must (1) be based on a real and substantial difference between the people taxed and those not taxed, and (2) bear some reasonable relationship to the object of the legislation or to public policy. Allegro Services, Ltd. v. Metropolitan Pier & Exposition Authority, 172 Ill. 2d 243, 250, 216 Ill. Dec. 689, 665 N.E.2d 1246 (1996); Searle Pharmaceuticals, Inc. v. Department of Revenue, 117 Ill. 2d 454, 468, 512 N.E.2d 1240, 111 Ill. Dec. 603 (1987).

The party attacking a tax classification is not required to negate every conceivable basis which might support it. Searle, 117 Ill. 2d at 468. Rather, upon a good-faith uniformity challenge, the taxing body bears the initial burden of producing a justification for the classifications. The party challenging the classification then has the burden of persuading the court that the justification offered is unsupported by the facts or insufficient as a matter of law. Allegro Services, 172 Ill. 2d at 255; Geja's Cafe v. Metropolitan Pier & Exposition Authority, 153 Ill. 2d 239, 248-49, 180 Ill. Dec. 135, 606 N.E.2d 1212 (1992).

Section 409 of the Code provides in pertinent part:

"(1) Every foreign or alien company doing an insurance business in this State, except fraternal benefit societies, shall, for the privilege of doing business in this State *** pay to the Director of the State treasury a State tax equal to 2 per cent of the net taxable premium income *** . Every domestic insurance company, except a fraternal benefit society, which fails to comply with all the requirements of subsection (4) of this Section must pay to the Director for payment into the State Treasury a State tax equal to 2 per cent of the net taxable premium income *** .

(4) A domestic company must pay the State tax in subsection (1) of this Section unless:

(a) it maintains its principal place of business in this State; and

(b) it maintains in this State officers and personnel knowledgeable of and responsible for the company's operation, books, records, administration, and annual statement; and

(c) it conducts in this State substantially all of its underwriting, policy issuing, and serving operations relating to Illinois policyholders and certificate holders; and

(d) it complies with the provisions of Section 133(2) of this Code." *fn2 215 ILCS 5/409 (West 1992).

Section 2 of the Code defines a "domestic company" as a company incorporated or organized under the laws of Illinois, and a "foreign company" as a company incorporated or organized under the laws of any state of the United States other than Illinois. 215 ILCS 5/2(f), (g) (West 1992).

The circuit court held that section 409 violates the uniformity clause because it allows domestic companies to avoid payment of the privilege tax if they meet the requirements contained in paragraph (4), but does not allow foreign companies to ...


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