Austin Liquor Mart, Inc. v. Department of Revenue

MR. CHIEF JUSTICE UNDERWOOD

delivered the opinion of the court:

At the end of July, 1969, plaintiff, Austin Liquor Mart, Inc., submitted its books and records for the three-year period August 1, 1966, to July 31, 1969, to the Department of Revenue, herein referred to as defendant, for audit and inspection, seeking a release from liability under the Retailers’ Occupation Tax Act (Ill.Rev.Stat. 1967, ch. 120, par. 440 et seq.) for such period in order to sell one of a chain of retail liquor stores which it owned and operated in Cook County. On August 19, 1969, defendant issued a Notice of Tax Liability in the amount of $15,194.28, which amount was paid by the plaintiff the following day without protest.

On November 24, defendant issued a <subpoena duces tecum directing plaintiff to produce all of its books and records for the period January 1, 1967, to November 24, 1969, at the defendant’s Chicago office on December 1. Plaintiff’s attorney appeared on December 1 and filed a motion to quash the subpoena which was taken under advisement by the hearing officer. On December 2 a second subpoena duces tecum issued requiring the production of plaintiff’s books and records for the same period at a December 5 hearing and again plaintiff’s attorney appeared and moved to quash the subpoena. This motion was also taken under advisement. Both motions to quash were denied on December 8 in a letter designating the subpoenas as first and second demands for books and records. On December 12 certain of plaintiff’s officers were arrested, apparently for failure to comply with the subpoena.

Also on December 12 plaintiff filed an emergency petition with the circuit court of Cook County seeking a mandatory injunction to prevent further investigation of plaintiff’s books and records for the period August 1, 1966, to July 31, 1969, since a final assessment of tax liability for this period had been issued and paid in full.

Defendant filed its answer and counterclaim on January 14, 1970, alleging on information and belief that plaintiff had not delivered all of its books and records for audit and had failed to report the total amount of gross receipts for the period in question. Defendant further alleged that plaintiff did not file annual information returns for this period as required by statute. (Ill.Rev.Stat. 1967, ch.120, par.442.) Defendant requested the court to compel production of plaintiff’s books and records for reassessment and to enjoin plaintiff from operating its business because of its failure to file annual information returns. Plaintiff’s reply and answer to the counterclaim were filed on March 5 and defendant filed a reply on March 18.

The only evidence introduced at the March 24 trial was a copy of the Notice of Tax Liability and proof of payment in full on the day after its issuance. Defendant sought to call plaintiff’s president as an adverse witness (Ill.Rev.Stat. 1967, ch. 110 par. 60; 43 Ill.2d R. 237), but he was not present in the courtroom and the court refused to have him produced as a witness. No other evidence was submitted. The court held that defendant was estopped from further investigation of plaintiff’s books and records for the period in question when it issued the assessment of tax liability for that period and accepted payment. The court also found defendant’s counterclaim to be insufficient, holding that a request for injunctive relief cannot be supported by allegations on information and belief.

On March 30, defendant filed a motion for leave to amend its answer and counterclaim alleging that representations previously made on information and belief were in fact based upon its knowledge and possession of plaintiff’s Federal income tax returns obtained pursuant to a compact between the Governor of Illinois and the Regional Director of the Internal Revenue Service. The court took the matter under advisement and on May 5 denied defendant’s motion, denied as too late a request to make an offer of proof of the evidence which would be submitted were the amendment allowed, and then signed the decree prepared and submitted by plaintiff.

The basic issue presented is whether defendant may be estopped from reexamining plaintiff’s books and records for the period in question because of its previous assessment and acceptance of payment for that period.

Plaintiff cites section 443 of the Retailers’ Occupation Tax Act (Ill.Rev.Stat. 1969, ch. 120, par. 443) which provides in part: “If a protest to the notice of tax liability and a request for hearing thereon is not filed within 20 days after such notice, such notice of tax liability shall become final without the necessity of a final assessment being issued and shall be deemed to be a final assessment.”

Plaintiff contends that a “final assessment” is equally binding on both parties and once the notice of tax liability becomes final and the assessment is paid, defendant is barred from further investigation. We do not agree. It is firmly established that where the public revenues are involved, public policy ordinarily forbids the application of estoppel to the State. Department of Revenue v. Barding, 33 Ill.2d 235; Skillet Fork River Outlet Union Drainage Dist. v. Central Lumber Co., 31 Ill.2d 312; People v. Chas. Levy Circulating Co., 17 Ill.2d 168; Clare v. Bell, 378 Ill. 128; People v. Women’s Athletic Club, 360 Ill. 577; 1 A.L.R.2d 338.) “It seems to be universally recognized that, generally, a State cannot be estopped by the acts and conduct of its officers or agents in the performance of the governmental function of collecting taxes legally due. *** United States v. Globe Indemnity Co., 94 F.2d 576 (C.A. 2); Olson Const. Co. v. State Tax Com., 12 Utah 2d 42, 361 P.2d 1112; Henderson v. Gill, 229 N.C. 313, 49 S.E.2d 754; Michigan Sportservice, Inc. v. Nims, 319 Mich. 561, 30 N.W.2d 281; Claiborne Sales Co. v. Collector of Revenue, 233 La. 1061, 99 So.2d 345; Commonwealth v. Western Md. R.R. Co., 377 Pa. 312, 105 A.2d 336; 31 C.J.S., Estoppel, sec. 138; 19 Am. Jur., Estoppel, Sec. 166; Bigelow, Estoppel (6th Ed.), p. 372; 1 Cooley Taxation, p. 159. Cf. Gontrum v. Mayor & City Council of Baltimore, 182 Md. 370, 35 A.2d 128.” (Comptroller of Treasury v. Atlas General Industries, 234 Md. 77, 198 A.2d 86, 90.) “The government is not estopped by previous acts or conduct of its agents with reference to the determination of tax liabilities or by failure to collect the tax, nor will the mistakes or misinformation of its officers estop it from collecting the tax. State Tax Commission v. Johnson, 75 Idaho, 105, 269 P.2d 1080; Fitzpatrick v. State Tax Commission, 15 Utah 2d 29, 386 P.2d 896; Tennessee Trailways, Inc. v. Butler, 215 Tenn. 136, 373 S.W.2d 201; Good Will Industries of Southern Calif. v. Los Angeles Co., 117 Cal.App.2d 19, 254 P.2d 877; Claiborne Sales Co. v. Collector of Revenue, 233 La. 1061, 99 So.2d 345; Duhame v. State Tax Commission, 65 Ariz. 268, 179 P.2d 252.” State v. Adams, 90 Idaho 195, 409 P.2d 415, 419; 31 C.J.S., Estoppel, sec. 147.

In view of the strong public policy manifested by the cited cases against estopping the State in matters relating to the collection of taxes, we cannot, in the absence of compelling language, accept the wording at section 443 as evidencing a legislative intent to bar further investigation by the State when persuaded that such examination is necessary. It seems to us not unlikely that the “final assessment” provision of section 443 was intended to_ simplify administrative procedure by making an unprotested notice of tax liability the equivalent of a final assessment, as to the taxpayer, for the subsequent collection purposes referred to in other statutory provisions.

Relying upon Hickey v. Illinois Central R.R. Co., 35 Ill. 2d 427, in which this court recognized that situations may arise which justify invoking the doctrine of estoppel against the State even when acting in its governmental capacity, plaintiff contends that the positive acts of defendant, and plaintiff’s detrimental reliance thereon, compel application of estoppel in this case. While it is true that the State has no absolute immunity from the application of equitable principles, our opinion in Hickey reaffirms the general rule that the State cannot be estopped in the exercise of its power of taxation or the collection of revenue unless necessary to prevent fraud and injustice.

It was only in the context of the “extraordinary circumstances” present in Hickey that we held the State was precluded by basic concepts of right and justice from asserting its claim in that case, and we find no similarly compelling circumstances here.

Our holding that payment by a taxpayer of a prior assessment covering the same period of time is not a bar to subsequent investigation does not, however, leave the taxpayer without protection. Even in areas where the need is as compelling as is the necessity for public revenue the court may inquire as to the reasons underlying the request for examination and issuance of the subpoena. The language of the Supreme Court in United States v. Powell, 379 U.S. 48, 58, 13 L.Ed.2d 112, 120, 85 S.Ct. 248, 255, is appropriate here: “It is the court’s process which is invoked to enforce the administrative summons and a court may not permit its process to be abused. Such an abuse would take place if the summons had been issued for an improper purpose, such as to harass the taxpayer or to put pressure on him to settle a collateral dispute, or for any other purpose reflecting on the good faith of the particular investigation.” In such hearing we believe, as the Supreme Court stated in Powell, that the burden is upon the taxpayer to show an abuse of the court’s process. Accordingly, the judgment of the circuit court of Cook County enjoining defendant’s further investigation of plaintiff’s books and records for the period August 1, 1966, to July 31, 1969, is reversed.

Defendant contends that the trial court erred in dismissing its counterclaim on the ground that an injunction cannot be supported by allegations on mere information and belief, since the sole basis upon which defendant sought to enjoin plaintiff from doing business was plaintiff’s admitted failure to file annual information returns as required by section 442 of the Act. (Ill.Rev.Stat. 1967, ch. 120, par. 442.) The procedure for dealing with violations of the Act is set out in section 441(b). (Ill.Rev.Stat. 1967, ch. 120, par. 441(b).) The first sentence of this section provides: “The Department may, after notice and a hearing as provided herein, revoke the certificate of registration of any person who violates any of the provisions of this Act.” The last paragraph of section 441(b)(in 1967) provided: “The Department may, by application to any circuit court or to any judge thereof, obtain an injunction restraining any person who engages in the business of selling tangible personal property at retail in this State without a certificate of registration (either because his certificate of registration has been revoked or because of a failure to obtain a certificate of registration in the first instance) from engaging in such business until such person shall comply with this Act and qualify for and obtain a certificate of registration. Upon refusal or neglect to obey the order of the court or judge, said court or judge may compel obedience thereof by proceedings for contempt.”

Defendant’s attempt to restrain plaintiff from engaging in business without a prior revocation of plaintiff’s certificate of registration following notice and hearing was thus unauthorized by the Act and the order dismissing the counterclaim was therefore correct.

Finally, defendant contends that the trial court erred in denying defendant’s motion for leave to file an amendment to its answer and countercomplaint made prior to signing of the final decree on May 5. The trial court has a broad discretion with respect to allowance of amendments to pleadings prior to the entry of final judgment, and the refusal to permit an amendment is not prejudicial error unless there has been a manifest abuse of such discretion. (Old Salem Chautauqua Ass’n v. Assembly of God, 13 Ill. 2d 258; Deasey v. City of Chicago, 412 Ill. 151.) However, since defendant has failed to incorporate the proffered amendment into the record on appeal, we are unable to determine whether a manifest abuse of discretion was here present. Lowrey v. Malkowski, 20 Ill. 2d 280, 285.

Since the trial court proceeded in a mistaken belief that the burden was upon the State to establish fraud by the taxpayer as a condition precedent to examination of the books for the previously audited period, we believe fundamental fairness to the State and taxpayer require remanding this cause to the trial court for further proceedings in accordance with this opinion. The judgment of the circuit court of Cook County is accordingly affirmed in part and reversed in part, and the cause is remanded with directions.

Affirmed in part and reversed in part and remanded, with directions.