dissenting:
The majority opinion in this case usurps the function of the Illinois General Assembly. Not liking the result of the unambiguous language of the Illinois Income Tax Act, this court chooses to rewrite the statute (Ill. Rev. Stat. 1977, ch. 120, par. 1 — 101 et seq.).
■ The problem arises in this way. The Illinois income tax is based on the Federal income tax return filed by the taxpayer. The Illinois tax rate is applied to the taxable income as shown on the Federal return. That is both simple and straight-forward. The Illinois law provides for an addition to the taxable income figure before applying the rate, however, in one circumstance. That is, since the interest income earned from State and municipal bonds is excluded from the Federal tax return, Illinois law requires that such bond interest be added in before computing the Illinois income tax. Nothing complicated there.
What is the problem in this case?
The plaintiffs in this case are banks. They regularly buy and sell State and municipal bonds as part of their banking investments. Because of the nature of the bond market, they often pay more than par value for bonds. The additional sum is called a premium. When market interest rates drop below the stated interest on the bond, the bond itself sells at a premium above par. When market interest rates rise above the stated interest on the bond, the bond sells at a discount below par.
In filing and paying their Illinois income tax, the banks in this case reduced their bond interest income on State and municipal bonds by taking the amount of the bond premium, amortizing that premium, and then deducting it from the interest earned before reporting that interest.
The State argues that such deduction is not permitted by the Illinois Income Tax Act. The State is correct. The deduction is not in the law. This court has chosen to modify the statute by engrafting the claimed deduction into the law. The law does not countenance such an invasion of the legislative function by the judiciary. The doctrine of separation of powers militates against it. If this addendum is correct, why not reduce the rate of tax as well?
No one can dispute that good accounting principles would dictate amortization of bond premiums. That is well and good. Regrettably, however, good accounting principles have nothing to do with the problem. What we have here is nothing more than the simple matter of applying a tax rate to defined income. That is all. Concepts of good accounting principles cannot be used to change the result. As an indication of where the majority’s position could take us, it might also be argued that the banks should be allowed to deduct not only bond premiums but other overhead factors as well. Why not deduct utility costs, employee salaries and postage from bond interest earned? Would not that also be good cost accounting?
Having said that, I would add that the banks in this case make a plausible argument for amending the law. That amendment, however, should be made by the Illinois General Assembly. It cannot lawfully be made by this court.
Accordingly, I dissent.