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Dtct, Inc., Taylor Mcd, Inc., and Bdjk Taylor, Inc v. the City of Chicago Department of Revenue

February 18, 2011

DTCT, INC., TAYLOR MCD, INC., AND BDJK TAYLOR, INC.;
LOFTON AND LOFTON MANAGEMENT, INC.;
V. OVIEDO, INC., MIDAN INC., AND LOTE, INC.,
PLAINTIFFS-APPELLANTS,
v.
THE CITY OF CHICAGO DEPARTMENT OF REVENUE, AND BEA REYNA-HICKEY, IN HER OFFICIAL CAPACITY AS DIRECTOR OF THE CHICAGO DEPARTMENT OF
REVENUE,
DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County No. 08 L 51004, 08 L 51005, 08 L51156 Honorable Lawrence O'Gara, Judge Presiding.

The opinion of the court was delivered by: Justice Cahill

Consolidated

JUSTICE CAHILL delivered the judgment of the court, with opinion. Justice McBride concurred in the judgment and opinion.

Presiding Justice Garcia dissented, with opinion.

OPINION

This consolidated appeal arises from three actions for administrative review of a tax assessment imposed by the City of Chicago department of revenue (Department) against a group of corporations under the employer's expense tax (employer's tax) (Chicago Municipal Code §3-20-030 (eff. July 1, 1995)). In each case, the assessment was based on the Department's finding that, under the language of the tax ordinance, it could combine the employees of commonly owned though separately incorporated McDonald's restaurants. The tax applies only to businesses with 50 or more full-time employees and charges the employer $4 per month for each such employee. The City of Chicago department of administrative hearings upheld the assessment, finding that the corporations were properly combined. The circuit court affirmed that decision. Plaintiffs appeal, contending the ordinance does not permit the corporations to be combined to calculate the tax. We affirm.

Section 3-20-030(A) of the Code imposes a tax on: "every employer who, in connection with the employer's business, engages, hires, employs, or contracts with 50 or more individuals as commission merchants and full-time employees, or any combination thereof, to perform work or render services in whole or in part within the city of Chicago." Chicago Municipal Code §3-20-030(A) (eff. July 1, 1995).

The ordinance defines "employer" as "any person that employs one or more employees performing services in whole or in part within the city of Chicago." Chicago Municipal Code §3-20-020(I) (eff. July 1, 1995). The term "business" is defined in the ordinance as:

"any activity, enterprise, profession, trade or undertaking of any nature conducted or engaged in, or ordinarily conducted or engaged in, with the object of gain, benefit or advantages, whether direct or indirect, to the employer or to another or others. The term shall include entities which are subsidiary or independent, conducting operations for the benefit of others and at no benefit to themselves, nonprofit businesses and trade associations." Chicago Municipal Code §3-20-020(B) (eff July 1, 1995).

On February 7, 2005, the Department issued a tax assessment against three separate corporations, DTCT, Inc., Taylor MCD, Inc., and BDJK Taylor, Inc. (collectively DTCT), each operating a McDonald's restaurant in different locations. The corporations are wholly owned by Derrick and Cheryl Taylor. The Taylors control every aspect of the operation of each restaurant, including the payment of employees' wages. The tax assessment showed DTCT owed $17,411.57 in tax, penalties and interest for failure to pay the employer's tax for the period of October 2001 through June 2004. The assessment was based on the Department's finding that under the language of section 3-20-030(A) of the Chicago Municipal Code (Code) (Chicago Municipal Code §3-20-030(A) (eff. July 1, 1995)), it could combine employees working at the three franchises.

On the same date, the Department made a similar finding with respect to Lofton & Lofton Management, Inc., Lofton & Lofton Management II, Inc., Lofton Management Four, Inc., and Lofton & Lofton Management V, Inc. (collectively Lofton), each of which also operates a McDonald's restaurant in different locations. The corporations are wholly owned by Ronnie and Lillian Lofton. The Loftons control every significant aspect of the operation of each restaurant, including the payment of employees' wages. The assessment alleged that Lofton owed $44,934.66 in tax, penalties and interest for failure to pay the tax for the period of July 1997 though June 2004.

On April 4, 2005, the Department made a similar finding with respect to V. Oviedo, Inc., Midan, Inc., and Lote, Inc. (collectively Oviedo), each of which also operates a McDonald's restaurant in different locations. The corporations are wholly owned by Virginia Ojeda and her son. Ojeda controls every significant aspect of the operation of each of the restaurants, including the payment of employees' wages. The assessment alleged that Oviedo owed $38,856.43 in tax, penalties and interest for failure to pay the employer's tax for the period of January 1999 through June 2004.

DTCT, Lofton and Oviedo (collectively plaintiffs) separately filed protests to the assessments with the City of Chicago department of administrative hearings. After hearings, the administrative law judge (ALJ) entered a written order in each case, finding that consolidation was proper under the ordinance. The ALJ rejected the argument that the ordinance use of the word "employer" in the singular showed a legislative intent that the corporations could not be combined. The ALJ relied instead on the term "business" used and defined in the ordinance as "entities which are subsidiary or independent, conducting operations for the benefit of others and at no benefit to themselves" (Chicago Municipal Code §3-20-020(B) (eff. July 1, 1995)). The ALJ then concluded that because the corporations were a "unitary business group," under the Department's 2005 Employer's Expense Tax Ruling No. 2 (2005 ruling), they were properly consolidated. The ALJ rejected the argument that a 1997 information bulletin issued by the Department stated that the corporations could not be consolidated. The ALJ upheld the assessment against DTCT and Lofton and corrected Oviedo's liability to $13,428.

DTCT, Lofton and Oviedo filed separate complaints for administrative review in the circuit court. Following hearings, the court affirmed the decisions of the ALJ. DTCT (No. 1-09-2272), Lofton (No. 1-09-2274) and Oviedo (No. 1-09-2275) separately appealed and we consolidated the actions for review.

Under the Administrative Review Law (735 ILCS 5/3-101 et seq. (West 2004)), we review the administrative decision and not the circuit court's ruling. West Belmont, L.L.C. v. City of Chicago, 349 Ill. App. 3d 46, 49, 811 N.E.2d 220 (2004). Because the Department's interpretation of a municipal ordinance is a question of law, our review is de novo. West Belmont, 349 Ill. App. 3d at 49. A taxpayer bears the burden of proving it is entitled to an exemption from a tax. West Belmont, 349 Ill. App. 3d at 49.

Plaintiffs contend that the plain language of section 3-20-030(A) of the Code (Chicago Municipal Code ยง3-20-030(A) (eff. July 1, 1995)) prohibits consolidation of separate corporate entities. They claim that the ordinance identifies "employer" in the singular, evidence that the city did not intend to combine employers to reach the 50-employee threshold. Plaintiffs maintain that the ALJ erred in relying on the term "business" as used and defined in the ordinance because the term is overly broad and leads to absurd results. Plaintiffs argue that "any ...


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