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Arangold Corporation v. Zehnder

April 12, 2002

ARANGOLD CORPORATION, D/B/A ARANGO CIGAR COMPANY, PLAINTIFF-APPELLANT,
v.
KENNETH ZEHNDER, AS DIRECTOR OF THE ILLINOIS DEPARTMENT OF REVENUE; JUDY BAAR TOPINKA, AS TREASURER OF THE STATE OF ILLINOIS; AND THE DEPARTMENT OF REVENUE, DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County. No. 99 L 51215 (formerly 95 L 50989) Honorable John A. Ward, Judge Presiding.

The opinion of the court was delivered by: Justice Greiman

UNPUBLISHED

This is an appeal from a decision of the circuit court upholding the constitutionality of the Tobacco Products Act of 1995 (Act) (35 ILCS 143/10-1 et seq. (West 1996)). The Act imposes a tax on various tobacco products other than cigarettes such as cigars and chewing tobacco and allocates the revenues to the state's Long-Term Care Provider Fund. See 35 ILCS 143/10-10 (West 1996). Plaintiff Arangold Corporation (Arangold) is an Illinois corporation doing business as a wholesale tobacco distributor subject to the tax. Defendants are the Illinois Department of Revenue (Department), Kenneth Zehnder, then-director of the Department, and State Treasurer Judy Baar Topinka.

In November of 1995, plaintiff filed a four-count complaint challenging the validity of the Act. Counts I and II of the complaint alleged that the Act violated the due process and equal protection clauses of the United States and Illinois Constitutions. U.S. Const. amend. XIV; Ill. Const. 1970, art. I, §2. Count III alleged that the Act violated the uniformity clause of the Illinois Constitution. Ill. Const. 1970, art. IX, §2. Count IV alleged that the Act violated the Illinois Constitution's prohibition on special legislation. Ill. Const. 1970, art. IV, §13. In July 1996, Arangold moved for summary judgment on all four counts of its complaint, which was denied.

Meanwhile, on June 27, 1997, Arangold amended its complaint to challenge Public Act 89-21 (Pub. Act 89-21, eff. June 6, 1995, July 1, 1995, January 1, 1996), the legislative enactment that included the Act, as violating the single subject rule of the Illinois Constitution (Ill. Const. 1970, art. IV, §8(d)). Arangold moved for summary judgment on its single subject claim, and on April 9, 1998, the circuit court granted the motion and issued a decision invalidating Public Act 89-21. The defendants appealed that decision directly to the Illinois Supreme Court under Supreme Court Rule 302 (134 Ill. 2d R. 302).

Before the supreme court, the parties argued the single subject rule, as well as the due process clause and the uniformity clause. On July 1, 1999, the court reversed the trial court's judgment, concluding that Public Act 89-21 did not violate the single subject rule. See Arangold Corp. v. Zehnder, 187 Ill. 2d 341, 356 (1999). However, the court declined to rule on the other challenges to the Act and instead remanded the case for further proceedings. Zehnder, 187 Ill. 2d at 360.

In March of 2000, defendants filed a motion for summary judgment on the due process, equal protection, special legislation, and uniformity counts. The trial court heard oral arguments in April of 2000 and, on March 14, 2001, granted defendants' motion. This appeal followed. However, on appeal, Arangold has abandoned its equal protection and special legislation claims and has dropped its argument that the Act unreasonably discriminates between different classes of competing tobacco distributors. For the following reasons, we affirm.

The Act imposes a tax on any person engaged in business as a distributor of tobacco products in Illinois at the rate of 18% of the wholesale price of the tobacco products sold or otherwise disposed of in Illinois. "Tobacco products" are defined under the Act to include cigars, pipe tobacco, snuff, chewing tobacco, and other types of noncigarette tobacco products. 35 ILCS 143/10-5 (West 1996). However, it explicitly excludes "cigarettes or tobacco purchased for the manufacture of cigarettes by cigarette distributors and manufacturers." 35 ILCS 143/10-5 (West 1996).

In addition, the Act expressly designates how revenues under the Act are to be used. Section 10-10 provides: "All monies received by the Department [of Revenue] under this Act shall be paid into the Long-Term Care Provider Fund of the State Treasury." 35 ILCS 143/10-10 (West 1996). The Long-Term Care Provider Fund (Fund) receives and distributes monies to skilled or intermediate nursing facilities under Title XIX of the Social Security Act (known as the Medicaid program) and in accordance with article V-B of the Public Aid Code (305 ILCS 5/5B-1 et seq. (West 1996)). See 305 ILCS 5/5B-8 (West 1996). Both the Medicaid program and the medical assistance article of the Public Aid Code are intended to provide care for people whose income and resources are inadequate to meet their medical needs.

However, not all of the monies in the Fund come from tax revenues under the Act. The Fund is also supported by matching federal funds (305 ILCS 5/5B-8(c)(2) (West 2000)), any balance in the Medicaid Long-Term Care Provider Participation Fund (305 ILCS 5/12-5 (West 2000)), certain proceeds in the Cigarette Tax Act (35 ILCS 130/2 (West 2000)), and Cigarette Use Tax Act (35 ILCS 135/35 (West 2000)), and occasional transfers from the General Revenue Fund. For the 1996 fiscal year, revenues from the Act supplied $9,904,390.72 of the $423,777,581.28 placed in the Fund, or approximately 2%.

With regard to the plaintiff's uniformity clause challenge, *fn1 the parties offered competing articles, affidavits, and purported admissions of the defendants following their failure to answer a request to admit evidence. Essentially, this evidence was submitted to inform the court on the issues of whether the tobacco products subject to the Act cause or are associated with circulatory diseases, respiratory diseases, and cancer, and whether persons afflicted with those diseases commonly are affiliated with or benefit from long-term health care. Not surprisingly, the parties were in unwavering disagreement as to the answers to those questions.

However, on March 14, 2001, the court entered a decision and judgment order granting the defendants' motion for summary judgment on Arangold's two remaining claims and upholding the constitutionality of the Act. Before addressing the merits of those claims, the court made two preliminary observations. First, it characterized Arangold's response to the defendants' motion as "an anachronism." It noted:

"In most recent litigation involving tobacco products, the tobacco industry has taken the tack that the use of tobacco is dangerous, so directly connected to disease, and such a clear and apparent cause of millions of deaths, that every person should be charged with that general knowledge for purposes of deciding such issues as whether the dangers of tobacco are open and obvious (e.g., McKay v. Republic Tobacco, [No. 00- 2366] (E.D. Penn., February 13, 2001); Gibbs v. Republic Tobacco, 119 F. Supp. 2d 1288 (Mid. Dist. Fl., 2000)), and whether there existed common knowledge of deleterious effects of tobacco when [an] individual harmed from tobacco began use decades earlier (e.g., Glassner v. R.J. Reynolds and Phillip Morris, Inc., 223 F. 3d 343 (6th Cir., 2000)).

Here, however, the plaintiff is not trying to still the claim of a product liability or personal injury suit brought by a person afflicted with lung cancer or pulmonary disease, but rather is trying to advance its constitutional claims that the Act is void. Since these claims depend on a showing that there is no relationship between the tobacco use and nursing home admissions, the plaintiff has reverted to the litigation tact of the past by arguing, literally, that tobacco is no more dangerous to health than refined sugar, red meat, or commercial whole milk.

The second observation is that resolution of a constitutional challenge to a taxing statute often does not hinge on the competing affidavits of the parties or on such factors as responses to requests to admit facts. *** [L]egislative enactments are entitled to considerable deference by the courts and, to this end, are cloaked in a presumption of constitutionality. Under the rational basis test which is most often used to measure the constitutionality of a tax classification, 'legislative choice is not subject to courtroom fact-finding and may be based on rational speculation unsupported by evidence or empirical data.' Federal Communications Comm'n v. Beach Communications, Inc., [508 U.S. 307, 315, 124 L. Ed. 2d 211, 222,] 113 S. Ct. 2096[, 2102] (1993); and Nordlinger v. Hahn, [505 U.S. 1, 15, 120 L. Ed. 2d 1, 15-16,] 112 S. Ct. 2326, 2334 (1992). In general terms, this cloak may be removed only upon a failure of the taxing authority to propose a justification for the tax classifications or, if a justification is provided, proof by the party challenging the tax that the proposed justification is unsupported by the facts or insufficient as a matter of law. Milwaukee Safeguard Insurance Co. v. Selcke, 179 Ill. 2d 94, 98-99 (1997). The net result of these standards is that summary judgment in favor of the defendants is not precluded simply because the plaintiff has produced affidavits to support the notion that the Tax is unrelated to its purpose and that there have been certain facts admitted by the defendants."

Looking first to Arangold's uniformity claim, the court stated it was unavailing, as the defendants had offered an adequate justification for the tax that was directly related to the legislation's purpose: "tobacco use causes disease in users and the object of the Act is to provide funding for those users who become in need of long term care and can't themselves afford such care."

The court then addressed Arangold's argument that defendants' justification lacked a factual basis because it singled out distributors of tobacco products for a tax designed to fund nursing home care for the poor. It noted that plaintiff had conceded that "(1) the defendants submitted evidence showing a causal relationship between consumption of tobacco products and 'a higher incidence of certain cancers, circulatory and respiratory diseases'; and (2) that the National Nursing Home Survey, which was submitted to the court by the plaintiff, does indicate 'an incidence of cancers and circulatory and respiratory diseases among nursing home residents.' "

Accordingly, the court rejected Arangold's argument that the General Assembly was not entitled to infer a relationship between the two groups, deeming plaintiff's argument to be "far too fine given the considerable measure of deference which must be allowed legislative classifications." Ultimately, in finding the classification rational, it focused especially on data from the National Nursing Home Survey that established that one of every third admission to nursing homes is due to diseases commonly associated with the use of tobacco products. Such a statistic, it concluded, rendered the rationality of the classification in the Act "unassailable."

Lastly, the court rejected Arangold's due process claim that the Act's tax of a narrow group of taxpayers to fund a general welfare program of the State was "inherently unreasonable." In its argument, Arangold focused on two decisions, Crocker v. Finley, 99 Ill. 2d 444 (1984), and Boynton v. Kusper, 112 Ill. 2d 356 (1986). In those cases, the supreme court invalidated fees charged to file divorce actions and to obtain marriage licenses, respectively, which were to be used to prevent domestic violence. Specifically, the supreme court found that the relationship between the exercise of the rights that were taxed in each case and the goal of preventing domestic violence was too remote. Conversely, the trial court in the present case found those cases to be inapposite. Here, it claimed, because Arangold had no right equivalent to the right to marry or divorce ...


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