Appeal from the Circuit Court of Cook County, Illinois, County Department, Law Division, Tax and Miscellaneous Remedies Section Honorable John A. Ward, Judge Presiding.
The opinion of the court was delivered by: Justice Karnezis
Plaintiff, ChiCorp, Inc. (ChiCorp), appeals from an order of the circuit court granting a motion to dismiss filed by defendants, the Illinois Department of Revenue; Glen L. Bower, as Director of the Illinois Department of Revenue; and Judith Baar Topinka, as Treasurer of the State of Illinois (collectively, the Department). The Department's motion was brought pursuant to section 2-619(a)(9) of the Code of Civil Procedure (735 ILCS 5/2-619(a)(9) (West 2000)) and alleged ChiCorp's complaint was moot. On appeal, ChiCorp argues the circuit court erred in granting the Department's motion to dismiss because its complaint was not moot and, in the alternative, the circuit court should have applied the public interest exception. We affirm.
The following pertinent facts were set forth in ChiCorp's complaint. ChiCorp is a registered securities broker that buys and sells various types of securities, including bills, bonds and notes issued by the United States Treasury (U.S. obligations). Prior to 1996, several Illinois statutes provided the gain realized from the sale of certain state bonds was exempt from state income tax, whereas the gain from the sale of their federal counterparts was not. Seeking to remedy this disparity, the Illinois legislature enacted Public Act 89-460, effective May 24, 1996. The introduction to the Act provided, in part:
"Any statutory provision purporting to exempt from taxation any gain realized on the sale or exchange of any bond or note issued under the laws of this State discriminates against those holders of obligations of the United States who are subject to Illinois income tax on gain realized on the sale or exchange of the obligations, and the statutory provision is therefore in violation of the Constitution of the United States and invalid;
It is therefore the intent of the General Assembly that the amendments contained in * * * this Act do not merely repeal those statutory provisions that purport to exempt gain on the sale or exchange of an obligation and that are held invalid in this Act, but these amendments are declaratory of existing law [.]" Pub. Act 89-460, eff. May 24, 1996.
Prior to the enactment of Public Act 89-460, ChiCorp excluded from its state income tax the gain on the sale of U.S. obligations for the tax years ending March 31, 1996, and December 31, 1996. ChiCorp believed that if the gain on the sale of various state bonds was exempt from state taxation, then the gain on the sale of U.S. obligations was also exempt. During the tax year that ended March 31, 1996, ChiCorp sold U.S. obligations at a total gain of $73,934,473. During the tax year that ended December 31, 1996, ChiCorp sold U.S. obligations at a total gain of $48,069,692.
The Department audited ChiCorp's state income tax returns for the above tax years and determined ChiCorp owed an additional $1,019,656, plus $233,133 in statutory interest. Still believing it did not owe the money, ChiCorp paid the amount into the Department's "protest fund," as provided in section 2a of the State Officers and Employees Money Disposition Act (30 ILCS 230/2a (West 2000)), also known as the Protest Act. Pursuant to the Act, ChiCorp filed a complaint in the circuit court against the Department, seeking the return of the money. The complaint alleged that because Illinois had exempted from taxation the gain on the sale of certain state bonds, ChiCorp was entitled to subtract the gains from the sale of U.S. obligations in computing its base income for the tax years ending March 31, 1996, and December 31, 1996. The complaint further alleged the provisions in Public Act 89-460 that purported to eliminate the Illinois income tax exemptions for gains on the sale of exempt Illinois obligations were unconstitutional and void.
Specifically, the complaint sought: an order finding ChiCorp was entitled to subtract gains from the sale of U.S. obligations in computing its base income for the tax years ending March 31, 1996, and December 31, 1996; an order directing the Department to return the tax and interest paid under protest; an order finding the provisions of Public Act 89-460 that eliminated the exemption for certain state bonds unconstitutional, and as such, void and unenforceable; and an order finding the Department had not legally remedied and could not legally remedy the discrimination against holders of U.S. obligations prior to 1996 by collecting additional tax from taxpayers who sold exempt Illinois obligations at a gain.
The Department moved to dismiss the complaint pursuant to section 2-619 of the Code of Civil Procedure. The Department filed a brief in support of the motion, which maintained that it would return the money paid into the protest fund, plus interest, and would not attempt to recover those funds in the future from ChiCorp. The Department, however, refused to concede the merits of the case. The brief concluded there was no longer a justiciable issue and the matter was moot. An affidavit from Michael Scaduto, manager of the audit bureau of the Department, was attached. Scaduto averred the assessment issued to ChiCorp was only a "proposed" assessment and was not a final notice such as a notice of deficiency. He further averred the Department was under instructions not to issue any notices of deficiency on the question of gain on the sale of U.S. obligations and ultimately the Department would not have assessed the tax.
The circuit court granted the Department's motion, finding the complaint moot. The court's order provided the funds paid into the protest fund, plus statutory interest, were to be returned to ChiCorp, but stayed the order pending this appeal.
ChiCorp contends its complaint is not moot because the Protest Act provides for a judicial determination of the correctness of tax claims, independent of the Department's decision not to assess the tax. ChiCorp further argues the circuit court misunderstood the Protest Act when it determined ChiCorp's remedy was limited to the proper disposition of the money in the protest fund. ChiCorp maintains that returning the money without conceding the merits of the case has not decided the question of whether ChiCorp was "properly" entitled to the money.
The Department maintains ChiCorp's relief under the Protest Act is limited to a determination of the proper disposition of the money in the protest fund, and because the Department has agreed to return the money, ChiCorp's complaint is moot.
Initially we note the Department maintains ChiCorp has raised the above arguments for the first time on appeal and they are waived. The Department alleges ChiCorp's arguments in the circuit court were based on the exception to the mootness doctrine, whereas on appeal ChiCorp argues for the first time its complaint is not moot. ChiCorp disagrees and argues it has ...