Nalco NDC LLC v. Judy Barr Topinka ( 2007 )

No. 2--05--1206 Filed: 6-15-07
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
______________________________________________________________________________
NDC LLC, d/b/a Nalco NDC LLC, ) Appeal from the Circuit Court
) of Du Page County.
Plaintiff-Appellee, )
)
v. ) No. 04--L--620
)
JUDY BAAR TOPINKA, as Treasurer of )
the State of Illinois, and JESSE WHITE, as )
Secretary of State of Illinois, ) Honorable
) Edward R. Duncan, Jr.,
Defendants-Appellants. ) Judge, Presiding.
______________________________________________________________________________
PRESIDING JUSTICE GROMETER delivered the opinion of the court:
This appeal involves a dispute as to the amount, if any, of additional franchise tax due under
the Illinois Business Corporation Act of 1983 (Business Corporation Act) (805 ILCS 5/1.01 et seq.
(West 2004)) as a result of the merger of Nalco Neighborhood Development Corporation
(Neighborhood) into plaintiff, NDC LLC, d/b/a Nalco NDC LLC (NDC or plaintiff). NDC filed a
multiple-count complaint against defendants, Judy Baar Topinka, as Treasurer of the State of Illinois
(Treasurer), and Jesse White, as Secretary of State of Illinois (Secretary), pursuant to the State
Officers and Employees Money Disposition Act (Protest Act) (30 ILCS 230/1 et seq. (West 2004)),
seeking, inter alia, reimbursement of additional franchise taxes paid, under protest, on
Neighborhood's behalf. Defendants appeal from the order of the circuit court of Du Page County
No. 2--05--1206
granting plaintiff's motion for summary judgment. For the reasons set forth below, we affirm in part,
reverse in part, and remand with directions.
I. BACKGROUND
The following facts are taken from the pleadings, depositions, affidavits, and exhibits
contained in the record on appeal. Prior to March 2004, Neighborhood was a Delaware corporation
authorized to do business in Illinois. Neighborhood was a subsidiary of Nalco Company and had
its principal place of business in Naperville, Illinois. Beginning in October 2003, Neighborhood
underwent a corporate reorganization. Before the reorganization, Neighborhood had reported to the
Secretary paid-in capital in the amount of $509,997, represented by 20 shares of $1 par value
common stock. As part of the reorganization, Neighborhood cancelled all of its then-outstanding
20 shares of $1 par value common stock and authorized the issuance of 40,000 shares of new $0.01
par value common stock. On or about October 31, 2003, Neighborhood issued 10 shares of $0.01
par value common stock in exchange for the 20 shares of the outstanding $1 par value common
stock. On November 4, 2003, Neighborhood issued 6,036.46 shares of its $0.01 par value common
stock in exchange for consideration in the amount of $301,823,000. On November 11, 2003,
Neighborhood issued 22,650 shares of its $0.01 par value common stock in exchange for
consideration in the amount of $1,132,867,759. As a result of these transactions, Neighborhood's
paid-in capital increased from $509,997 to $1,435,200,756. In furtherance of the corporate
reorganization, on March 29, 2004, Neighborhood was merged into NDC, a newly formed Delaware
limited liability company. NDC, whose principal place of business was also in Naperville, was
created immediately prior to the merger and pursuant to an "Agreement and Plan of Merger" between
NDC and Neighborhood. On March 29, 2004, Neighborhood and NDC filed with the appropriate
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Delaware authority a "Certificate of Merger of Nalco Neighborhood Development Corp. into NDC
LLC" (Certificate).
On March 30, 2004, the Certificate was submitted to the Secretary's Department of Business
Services (Department). An employee of the Department issued a handwritten note indicating that
the Department would not accept the Certificate until form BCA--14.30 was filed, showing any
changes to Neighborhood's paid-in capital that had occurred since the filing of Neighborhood's last
annual report. Form BCA--14.30, captioned "Cumulative Report of changes [sic] in Issued Shares
and Paid-In Capital," requires the payment of additional franchise tax if the cumulative change to
paid-in capital during certain specified reporting periods is positive. See
www.cyberdriveillinois.com/publications/pdf_publications/bca1430.pdf. Early in May, NDC
prepared a draft of form BCA--14.30, in the name of Neighborhood, showing the changes that had
occurred to Neighborhood's paid-in capital, including the increases and the decreases in paid-in
capital resulting from the reorganization and merger. A net decrease in paid-in capital was reported
on the draft form, resulting in no franchise tax due and owing. Pursuant to an informal practice,
NDC tendered the draft to the Department. At that time, Robert Durchholz, the head of the
Department's corporate division, told NDC that the proposed reduction in paid-in capital did not
comply with the Business Corporation Act. Thereafter, a representative of NDC met with Durchholz
to discuss the proposed filing. Durchholz stated that the form would not be approved for filing as
long as it showed a reduction in paid-in capital resulting from the merger.
On May 28, 2004, NDC tendered for filing under protest form BCA--14.30, showing the
changes to Neighborhood's paid-in capital from April 1, 2003, through and including March 29,
2004, the date of the merger, but not including the effect of the merger itself. NDC indicated on the
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form that it was being "filed under protest because taxpayer is entitled, and should have been
allowed, to report a reduction in paid-in capital on this form in the amount of $1,435,200,756."
NDC included a statutory "Notice of Payment Under Protest" and a corresponding check in the
amount of $2,152,041, which included a $5 filing fee. See 30 ILCS 230/2a.1 (West 2004). Later
that day, Durchholz rejected in writing the form and payment, stating that the form would not be
accepted unless the protest language were removed and the $5 filing fee were omitted from the
protested payment. Whereupon, NDC tendered for filing the same form without the protest language
as well as a check for $2,152,041, of which $2,152,036 (the disputed tax) was paid under protest
pursuant to the Protest Act. Durchholz approved the form for filing on May 28, 2004, and accepted
the "Notice of Payment Under Protest" and corresponding retendered check. NDC's payment was
placed by the Treasurer in a special fund known as the "protest fund" for 30 days from the date of
payment under protest, pending entry of an order for injunctive relief. See 30 ILCS 230/2a (West
2004).
On June 11, 2004, NDC filed a four-count complaint in the circuit court of Du Page County.
The complaint, which named the Treasurer and the Secretary as defendants, sought a preliminary
injunction restraining the transfer of the disputed tax from the protest fund until the entry of a final
order or judgment in this action. NDC also sought a determination by the court as to the proper
disposition of such monies. According to NDC, the reduction in paid-in capital Neighborhood
experienced when it was merged into NDC could be used to offset increases in Neighborhood's paid-
in capital resulting from the reorganization occurring during the same taxable period. See 805 ILCS
5/14.30 (West 2004). Plaintiff also argued that (1) the franchise tax was improperly imposed on
NDC, which, as a limited liability company, was not subject to the tax, and (2) the Secretary's
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interpretation and application of the Business Corporation Act violated the uniformity clause of the
Illinois Constitution of 1970 (Ill. Const. 1970, art. IX, §2) and/or the equal protection clauses of the
United States and Illinois Constitutions (U.S. Const., amend XIV; Ill. Const. 1970, art. I, §2). On
June 15, 2004, the trial court entered a preliminary injunction enjoining the Treasurer from
transferring out of the protest fund the money paid by NDC under protest.
On October 15, 2004, defendants filed a motion to dismiss NDC's complaint pursuant to
sections 2--619(a)(1) and 2--619(a)(9) of the Code of Civil Procedure (735 ILCS 5/2--619(a)(1),
(a)(9) (West 2004)). In their motion, defendants argued that (1) the matter was not ripe because the
Secretary had not "given written notice of any disapproval as to Neighborhood's filing" and (2)
plaintiff 's payment of the disputed tax was voluntary. The trial court denied defendants' motion to
dismiss. Subsequently, the parties filed cross-motions for summary judgment. On November 4,
2005, the trial court granted plaintiff's motion for summary judgment and denied defendants' motion.
Thereafter, defendants filed a timely notice of appeal.
II. ANALYSIS
A. Exhaustion of Administrative Remedies
On appeal, defendants first argue that this matter is not ripe for judicial review because
plaintiff did not exhaust its administrative remedies. Defendants concede that where there is a notice
of assessment regarding funds due the State of Illinois, the Protest Act "potentially" provides an
alternate mechanism of review, apart from the administrative process. It is the position of
defendants, however, that this case involves, not the assessment of a tax, but the discretion of the
Secretary to accept a particular form for filing. Since the Secretary never issued to plaintiff an
assessment of funds due, defendants conclude that plaintiff should not be allowed to invoke the
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Protest Act as a way to circumvent the Administrative Review Law (735 ILCS 5/3--101 et seq. (West
2004)).
Plaintiff responds that defendants waived their exhaustion claim by expressly representing
to the trial court at the hearing on their motion to dismiss that they were not arguing exhaustion of
administrative remedies. Waiver aside, plaintiff asserts that this case involves the payment of a
disputed tax. According to plaintiff, the Illinois Supreme Court has expressly held that the Protest
Act provides an alternative to the Administrative Review Law for seeking judicial review of such
matters. Additionally, plaintiff contends that by paying the additional franchise tax under protest,
it notified the Secretary that it disputed the payment of the tax, and the Secretary, by filing the form
BCA--14.30 plaintiff tendered, determined that plaintiff did in fact owe the tax. Our review is de
novo. National City Corp. & Subsidiaries v. Department of Revenue, 366 Ill. App. 3d 37, 39 (2006)
(concluding that issues involving statutory interpretation, a ruling on a motion to dismiss, and
ripeness are reviewed de novo).
Initially, we address plaintiff's suggestion that defendants waived their exhaustion claim.
Defendants' initial argument focuses on exhaustion of administrative remedies. It has been held that
"[t]he principles of ripeness and exhaustion of remedies are closely related in that both involve the
general issue of the prematurity of the action." Schwanke, Schwanke & Associates v. Martin, 241
Ill. App. 3d 738, 748 (1992). The issue of ripeness is a question of subject matter jurisdiction. See
Village of Maywood Board of Fire & Police Commissioners v. Department of Human Rights, 296
Ill. App. 3d 570, 575 (1998). Ergo, the issue of exhaustion of remedies must also present a question
of subject matter jurisdiction. See Jagielnik v. Board of Trustees of Police Pension Fund, 211 Ill.
App. 3d 26, 32 (1991); see also Gerardi v. City of Bridgeport, 99 Conn. App. 315, 317, 913 A.2d
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1076, 1079 (2007) (noting that exhaustion of administrative remedies implicates subject matter
jurisdiction), quoting Neiman v. Yale University, 270 Conn. 244, 250, 851 A.2d 1165, 1169 (2004);
Blue Cross Blue Shield of Texas v. Duenez, 201 S.W.3d 674, 675 (Tex. 2006); Green v. City of St.
Louis, 870 S.W.2d 794, 796 (Mo. 1994). Our supreme court has often held that issues of subject
matter jurisdiction may not be waived. Segers v. Industrial Comm'n, 191 Ill. 2d 421, 427 (2000);
Currie v. Lao, 148 Ill. 2d 151, 157 (1992); Smith v. Jones, 113 Ill. 2d 126, 130 (1986). Accordingly,
we will address this issue.
The Administrative Review Law applies to and governs "every action to review judicially
a final decision of any administrative agency where the Act creating or conferring power on such
agency, by express reference, adopts the provisions of *** this Act." 735 ILCS 5/3--102 (West
2004). As the aforementioned passage suggests, the Administrative Review Law requires a "final"
agency determination before judicial review may commence. Absent a final agency determination,
the trial court lacks jurisdiction to consider the matter. Jagielnik, 211 Ill. App. 3d at 32.
The Business Corporation Act adopts the Administrative Review Law. 805 ILCS 5/1.45
(West 2004). However, by its express terms, the scope of section 1.45 is limited to situations in
which the Secretary "revoke[s] the certificate of authority to transact business in this State of any
foreign corporation" or "fail[s] to approve any articles of incorporation, amendment, merger,
consolidation, dissolution, petition for reduction or refund, or any other document required by [the
Business Corporation Act] to be approved by the Secretary *** before same shall be filed in his or
her office." (Emphasis added.) 805 ILCS 5/1.45 (West 2004); see also Roanoke Agency, Inc. v.
Edgar, 101 Ill. 2d 315, 317 (1984); Investors Syndicate of America, Inc. v. Hughes, 378 Ill. 413, 417
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(1941).1 The former situation is not at issue here. In a case in which the Secretary fails to approve
a filing, he must, within 10 days of delivery, give written notice of the disapproval, specifying the
reasons therefor. 805 ILCS 5/1.45 (West 2004). The Secretary's decision is then subject to judicial
review under the Administrative Review Law. 805 ILCS 5/1.45 (West 2004).
In this case, pursuant to an informal practice of the Department, NDC, acting on
Neighborhood's behalf, tendered to the Secretary a draft of form BCA--14.30. The draft showed a
net decrease in paid-in capital. At that time, Durchholz told NDC that the proposed reduction in
paid-in capital did not comply with the Business Corporation Act. Thereafter, a representative of
1
We note that where the legislature has intended all decisions of a governmental entity to
be subject to administrative review, it has so stated. See, e.g., 15 ILCS 310/9b (West 2004) ("All
final administrative decisions of the Merit Commission shall be subject to judicial review pursuant
to the provisions of the Administrative Review Law"); 20 ILCS 415/11a (West 2004) ("All final
administrative decisions of the Civil Service Commission hereunder shall be subject to judicial
review pursuant to the provisions of the Administrative Review Law"); 20 ILCS 2610/14 (West
2004) ("The provisions of the Administrative Review Law, and all amendments and modifications
thereof, and the rules adopted pursuant thereto, shall apply to and govern all proceedings for the
judicial review of any order of the Board rendered pursuant to the provisions of this Section"); 225
ILCS 37/120 (West 2004) ("All final administrative decisions of the Department are subject to
judicial review under the Administrative Review Law and its rules"); 820 ILCS 125/13 (West 2004)
("All final administrative decisions of the Department hereunder shall be subject to judicial review
pursuant to the provisions of the Administrative Review Law, and all amendments and modifications
thereof and the rules adopted pursuant thereto").
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NDC met with Durchholz to discuss the proposed filing. Durchholz stated that the form would not
be approved for filing as long as it showed a reduction in paid-in capital resulting from the merger.
NDC then tendered the form with the changes suggested by Durchholz. However, NDC indicated
on the face of the form that it was being filed under protest. Attached to the form was a statutory
"Notice of Payment Under Protest" and a corresponding check in the amount of $2,152,041, which
included a $5 filing fee. In response, Durchholz issued a written statement on the Secretary's
letterhead, rejecting the form and the payment. Durchholz explained that the form would not be
accepted unless the protest language were removed and the $5 filing fee were omitted from the
protested payment. NDC revised the form to comport with Durchholz's request. It then tendered
the revised form to the Secretary together with a check for $2,152,041, of which $2,152,036 was paid
under protest pursuant to the Protest Act. A stamp bearing the word "filed," the date of May 28,
2004, and the Secretary's name appear on the revised form. In addition, the Secretary accepted the
"Notice of Payment Under Protest" and corresponding retendered check. These acts of the Secretary
indicate that he "approved" the revised form for filing. See 805 ILCS 5/1.10(e)(3) (West 2004)
(requiring the Secretary to find that a document "conforms to law" before filing it). Stated
differently, because the Secretary did not "fail to approve" the form tendered by plaintiff, plaintiff
was not required to exhaust its administrative remedies before seeking relief in the circuit court.
Our conclusion is supported by the Protest Act (30 ILCS 230/1 et seq. (West 2004)) and the
cases interpreting that statute. The Protest Act applies to, among others, the "officers of the
Executive Department of the State Government" (30 ILCS 230/1 (West 2004)), including the
Secretary (see Ill. Const. 1970, art. V, §1 (listing the Secretary as a member of the executive
branch)). See E & E Hauling, Inc. v. Ryan, 306 Ill. App. 3d 131 (1999); Venture Stores, Inc. v.
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Ryan, 286 Ill. App. 3d 673 (1997). The Protest Act provides a mechanism for a party to challenge
the propriety of money paid to the State of Illinois. To do so, the party must tender the money under
protest. 30 ILCS 230/2a, 2a.1 (West 2004). The recipient of funds paid under protest must then
notify the Treasurer. 30 ILCS 230/2a (West 2004). The Treasurer then places the money in a special
fund known as the "protest fund." 30 ILCS 230/2a (West 2004). At the end of 30 days after
payment, the money may be transferred out of the protest fund and deposited into the appropriate
fund in which it would have been placed had there been payment without protest, unless the party
making the payment under protest has filed a complaint and secured a temporary restraining order
or a preliminary injunction restraining the transfer of the money. 30 ILCS 230/2a (West 2004).
Once a temporary restraining order or preliminary injunction is issued, the money must remain in
the protest fund until the final judgment of the circuit court. 30 ILCS 230/2a (West 2004). In this
case, it is undisputed that plaintiff followed the procedure outlined in the Protest Act.
In Chicago & Illinois Midland Ry. Co. v. Department of Revenue, 63 Ill. 2d 474, 478 (1976),
the supreme court held that a taxpayer may seek under the Protest Act a judicial determination of the
propriety of a disputed tax without first exhausting its administrative remedies. In that case, the
Department of Revenue informed the taxpayer that an audit of its books showed a use tax deficiency.
The taxpayer paid the tax under protest before it received a formal notice of tax liability. It then
sought a temporary injunction and a judicial determination of the dispute, pursuant to the Protest Act.
The defendants argued that the Department of Revenue, rather than the circuit court, should
determine the disposition of the protested funds because the taxpayer had not exhausted its
administrative remedies. The supreme court disagreed, stating that the Protest Act allowed courts
"to consider the merits of a claim in those cases where no final administrative decision has been
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made" and that the Protest Act gives taxpayers "an alternative to the departmental hearings
reviewable under the Administrative Review Act." Chicago & Illinois Midland Ry., 63 Ill. 2d at
482, 484.
Chicago & Illinois Midland Ry. has yet to be overturned. Indeed, its continuing vitality was
recently confirmed in National City, 366 Ill. App. 3d 37. At issue in National City was whether the
taxpayer was required to exhaust its administrative remedies prior to filing a cause of action under
the Protest Act when challenging its income tax liability. National City, 366 Ill. App. 3d at 38. In
National City, the Department of Revenue sent the taxpayer a notice of proposed deficiency after
auditing its tax return. In a letter accompanying the notice, the Department of Revenue advised the
taxpayer that it could pay the deficiency under protest, but that, in any case, it must pay the entire
tax and any interest within six days. The taxpayer paid the deficiency under protest and filed a
complaint pursuant to the Protest Act, seeking to enjoin the Department of Revenue from
transferring from the protest fund the money paid under protest. The Department of Revenue filed
a motion to dismiss the complaint. The trial court denied the motion to dismiss and entered a
preliminary injunction. The Department of Revenue appealed, arguing that the taxpayer's complaint
was not ripe for adjudication because it had not yet issued a final notice of deficiency subject to
judicial review.
In addressing the Department of Revenue's argument, the court examined the statutes and
regulations governing protested tax liabilities and examined previous decisions interpreting the
Protest Act. The court agreed that the Department of Revenue had not issued a final decision subject
to administrative review. National City, 366 Ill. App. 3d at 42. Yet, the court pointed out, the
taxpayer brought its action pursuant to the Protest Act, not the Administrative Review Law, and the
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Protest Act does not, on its face, require the issuance of a final notice of deficiency for a taxpayer
to avail itself of the statute's provisions. National City, 366 Ill. App. 3d at 43. Therefore, the court
determined that the informal notice of proposed tax liability was sufficient to confer jurisdiction
under the Protest Act because the notice alerted the taxpayer of the Department of Revenue's belief
that the taxpayer owed taxes on income the taxpayer believed was not taxable. National City, 366
Ill. App. 3d at 46-47.
While neither Chicago & Illinois Midland Ry. nor National City involved the payment of a
franchise tax, the courts of this state have adjudicated franchise tax disputes under the Protest Act.
For instance, in Venture Stores, Inc., 286 Ill. App. 3d at 676, the taxpayer, who was contesting a
payment of the franchise tax, was permitted to proceed under the Protest Act despite the absence of
a formal assessment. In that case, the taxpayer reported to the Secretary a reduction in paid-in
capital. The taxpayer tendered its franchise tax based on the reduced paid-in capital. The Secretary's
office refused to approve the reduction in paid-in capital. As a result, the taxpayer paid under protest
the amount required by the Secretary, in accordance with the Protest Act. The matter was resolved
by the circuit court even though the Secretary did not issue an assessment. Similarly, in Jewel Tea
Co. v. Rowe, 414 Ill. 495, 496-99 (1953), the taxpayer reported a net increase in stated capital and
paid-in surplus of $2,500,000. The taxpayer based on the net increase its calculation of the
additional franchise tax due. The Secretary refused to accept the taxpayer's report on the basis that
the version of the Business Corporation Act then in effect required that a reduction in the amount
of stated capital and paid-in surplus be reported separately from an increase in the amount of stated
capital and paid-in surplus. As a consequence of the Secretary's interpretation, the taxpayer was
required to report a net increase in stated capital and paid-in surplus of $7,500,000. The taxpayer
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tendered, under protest, a check to the Secretary for additional franchise tax based on the increase
of $7,500,000. The taxpayer then filed suit in the circuit court "to restrain payment into the State
treasury and to secure a refund of the disputed amount." Jewel Tea Co., 414 Ill. at 496. Likewise,
courts in several other cases, including the following, have permitted the taxpayer to adjudicate a
franchise tax dispute under the Protest Act: (1) Illinois Bell Telephone Co. v. Powell, 48 Ill. 2d 375
(1971); (2) United States Borax & Chemical Corp. v. Carpentier, 14 Ill. 2d 111 (1958); (3) E & E
Hauling, 306 Ill. App. 3d 131; (4) Caterpillar Finance Corp. v. Ryan, 266 Ill. App. 3d 312 (1994);
(5) Allstate Enterprises Stock Fund, Inc. v. Lewis, 36 Ill. App. 3d 154 (1976); and (6) Yellow
Equipment & Terminals, Inc. v. Lewis, 35 Ill. App. 3d 875 (1976).
Defendants attempt to distinguish all of the aforementioned cases. Defendants first point out
that none of the cases reviewing franchise tax matters under the Protest Act addressed a "ripeness"
argument. Thus, defendants reason that those decisions cannot speak to the matters raised in this
appeal. However, an appellate court has an independent duty to insure that jurisdiction is proper
regardless of whether either party has raised the issue on appeal. See People v. Aldama, 366 Ill.
App. 3d 724, 725 (2006); National City, 366 Ill. App. 3d at 46. The fact that none of these courts
discussed the jurisdictional issue does not mean that they did not sua sponte determine that
jurisdiction was proper.
Defendants also note that both Chicago & Illinois Midland Ry. and National City involved
the payment of use and income taxes to the Department of Revenue, not the payment of a franchise
tax to the Secretary. Relying principally upon Libby, McNeill & Libby v. Stratton, 359 Ill. 398, 401
(1935), defendants posit that this difference is significant because, unlike the Department of
Revenue, the Secretary does not have the authority to assess and levy taxes and the Secretary's duties
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with respect to the collection of franchise taxes are merely ministerial. We find defendants' reliance
on Libby misplaced. In Libby, the taxpayer challenged the imposition of a franchise tax, under an
earlier version of the Protest Act. In addressing the issue, the supreme court did state that a franchise
tax is "regarded as being imposed directly by the legislature and an assessment is neither necessary
nor possible" and that the duties of the Secretary in collecting such tax were "purely ministerial."
Libby, 359 Ill. at 401. Despite these findings, the supreme court allowed the taxpayer to challenge
the imposition of the franchise tax, concluding that the Protest Act "authorize[d]" the proceeding.
Libby, 359 Ill. at 399. The court explained that the matter was before it due to a "difference of
opinion as to the proper interpretation of the applicable law" and that absent this dispute the taxpayer
"would have paid the tax upon figures submitted by itself." Libby, 359 Ill. at 401. The court added
that "[w]hen that difference arose, the [taxpayer] chose to take advantage of the act of the legislature
intended for its benefit. It paid the entire amount and pursued the equitable remedy, thus risking no
penalties and being assured of a judicial determination of its contentions." Libby, 359 Ill. at 401.
The same can be said in this case. Plaintiff paid the tax under protest and pursued relief under the
Protest Act. Thus, contrary to defendant's argument, Libby actually supports plaintiff's use of the
Protest Act in this case.
Defendants add that because the funds in dispute relate to a ministerial function of the
Secretary, "the only option under the Protest Act is to hold those funds until the ministerial issues
are resolved in the proper administrative context. Then, and only then, can the action under the
Protest Act be resolved." A similar argument was rejected by our supreme court in Chicago &
Illinois Midland Ry. As noted previously, in that case, the supreme court permitted the taxpayer to
seek under the Protest Act a judicial determination of the propriety of a disputed tax without first
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exhausting its administrative remedies. Chicago & Illinois Midland Ry., 63 Ill. 2d at 478. In so
holding, the court acknowledged that allowing a willing taxpayer to pay under protest and avoid the
applicable administrative procedures was "to some degree inconsistent with the spirit of the
Administrative Review Act." Chicago & Illinois Midland Ry., 63 Ill. 2d at 483-84. However, the
court pointed out that the legislature had repealed an amendment to the Protest Act, which had
limited the scope of the statute to enjoining transfer of protested funds into the state treasury while
requiring the merits of the case to be decided through an administrative hearing process. Chicago
& Illinois Midland Ry., 63 Ill. 2d at 481-84. According to the court, the legislature's action evinced
its intent "to provide, for the taxpayer willing to pay his taxes under protest, an alternative to the
departmental hearings reviewable under the Administrative Review Act." Chicago & Illinois
Midland Ry., 63 Ill. 2d at 484. Where a statute has been judicially construed and the legislature does
not thereafter amend the statute, it will be presumed that the court's interpretation of the statute was
consistent with the legislature's intent. Wakulich v. Mraz, 203 Ill. 2d 223, 233 (2003); Carrera v.
Smith, 305 Ill. App. 3d 1079, 1082 (1999). Chicago & Illinois Midland Ry. was decided more than
30 years ago, and the legislature has yet to substantively alter the language of the Protest Act
interpreted by the supreme court therein. The legislature's failure to act evinces its tacit assent to our
supreme court's interpretation.2
2
That the legislature intended the Protest Act to apply to the franchise tax is further
illustrated by an examination of section 2a.1 of the Protest Act itself (30 ILCS 230/2a.1 (West
2004)). Section 2a.1 sets forth the form for providing notice of payment under protest. The sample
form included in that section expressly references the franchise tax. 30 ILCS 230/2a.1 (West 2004).
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Defendants next assert that the Protest Act may not be used where there is no notice of
"assessment" regarding money due to the State of Illinois, because application of the Protest Act is
limited to " 'questions which must be decided *** in determining the proper disposition' " of money
paid under protest. ChiCorp, Inc. v. Bower, 336 Ill. App. 3d 132, 137 (2002), quoting 30 ILCS
230/2a (West 2004). Initially, we question whether an "assessment" is necessary to invoke the
Protest Act. In Wexler v. Wirtz Corp., 211 Ill. 2d 18, 25 (2004), the supreme court stated that the
Protest Act "allows taxpayers to recover voluntary tax payments if certain procedures are followed."
(Emphasis added.) Thus, defendants' insistence on an assessment is dubious. In any event, this case
does involve the proper disposition of money. As defendants admit elsewhere in their brief,
"[i]nherent in filing form 14.30 is the obligation to pay the tax." See 805 ILCS 5/1.10(e)(3) (West
2004). In this case, plaintiff paid the additional franchise tax under protest. Plaintiff then followed
the procedure required by the Protest Act. It filed suit questioning its liability for the tax. Thus, this
case does involve a determination regarding the proper disposition of money paid under protest. In
particular, the parties dispute whether, under the facts of this case, section 14.30 of the Business
Corporation Act allows plaintiff to net cumulative changes in paid-in capital.
Defendants also direct us to National Marine, Inc. v. Illinois Environmental Protection
Agency, 159 Ill. 2d 381 (1994). According to defendants, the situation in this appeal is "analogous"
to the facts in National Marine, in which the supreme court found the plaintiff's claim not ripe for
judicial review. In National Marine, the Illinois Environmental Protection Agency (IEPA) issued
a notice informing the plaintiff that it was potentially liable for a " 'release or a substantial threat of
a release of a hazardous substance or pesticide.' " National Marine, 159 Ill. 2d at 383. In response,
the plaintiff brought suit against the IEPA, seeking declaratory and injunctive relief and the issuance
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of a writ of certiorari. The IEPA moved to dismiss the plaintiff's complaint. The trial court granted
the IEPA's motion to dismiss, on the grounds that the plaintiff's cause of action was premature and
the plaintiff failed to exhaust the administrative remedies available to it under the Environmental
Protection Act. A majority of the appellate court found that the trial court erred in dismissing the
plaintiff's common-law claim for a writ of certiorari. See National Marine, Inc. v. Environmental
Protection Agency, 232 Ill. App. 3d 847, 852 (1992). The supreme court disagreed with the
appellate court and affirmed the decision of the trial court. National Marine, 159 Ill. 2d at 393.
The supreme court held that the plaintiff's claim did not constitute a controversy that was ripe
for judicial resolution. National Marine, 159 Ill. 2d at 388. The court noted that the IEPA's main
functions were investigative and prosecutorial, not adjudicative. National Marine, 159 Ill. 2d at 387.
As such, the court found that the notice issued by the IEPA to the plaintiff was "a preliminary notice
of potential liability and constitute[d] merely a preliminary step in the [IEPA's] investigation of
possible violations of the [Environmental Protection] Act." (Emphasis added.) National Marine, 159
Ill. 2d at 389. Thus, it was not a final agency action ripe for judicial review. The court explained:
"Notifying a party that is subject to an investigation which may potentially lead to the
institution of an action against that party does not create a claim capable of judicial
resolution. [Citations.] The *** notice neither determines nor adjudicates the liability,
rights, duties or obligations of the party subject to it. It merely puts the party 'on notice' that
it may be potentially liable under *** the [Environmental Protection] Act and requests that
the party take certain response or remedial actions. [Citation.] The party may then undertake
the response action requested, may meet and attempt to settle with the [IEPA], or may choose
to ignore the notice entirely. [Citation.] Issuance of the *** notice is preliminary to any
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final determination of liability by an adjudicative body and neither disposes of the
proceedings nor adjudicates legal duties or rights. As such, the issuance of [the] *** notice
is an interlocutory action and has no legal effect in and of itself. [Citation.]" National
Marine, 159 Ill. 2d at 389.
The court concluded that no "actual controversy" existed because no legal liability was imposed on
the plaintiff via the notice issued by the IEPA. National Marine, 159 Ill. 2d at 390. Indeed, the court
pointed out that it was entirely possible that the IEPA would not initiate a cost-recovery/enforcement
proceeding against the plaintiff. National Marine, 159 Ill. 2d at 390. In addition, the court
determined that allowing judicial review of the notice issued to the plaintiff by the IEPA would
substantially thwart the legislative purpose of the Environmental Protection Act, which envisions
expedient containment of environmental pollution, by delaying the cleanup process. National
Marine, 159 Ill. 2d at 392-93.
We do not find National Marine dispositive of the issue presented in this case. Importantly,
National Marine does not involve a question regarding the propriety of money paid to the state under
the Protest Act. In fact, because no payment was made in that case, the Protest Act could not be
invoked. Defendants acknowledge as much, but insist that the court's discussion of the issue of
ripeness is instructive and provides valuable guidance. Defendants argue that like the notice from
the IEPA in National Marine, the two written letters from the Department in this case neither
determined nor adjudicated plaintiff's liability, rights, duties, or obligations. Instead, the letters
placed plaintiff "on notice" that the form BCA--14.30 plaintiff tendered would not be accepted for
filing in the proposed format. Defendants reason that, as such, the letters were preliminary to any
final determination by the Secretary and did not create a matter ripe for judicial determination. The
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problem we see with defendants' position is that this case does not involve the rejection of the
corporate form tendered by plaintiff. To the contrary, the Secretary accepted the form tendered by
plaintiff along with its payment under protest. It is the payment, and more specifically, the parties'
interpretation of the statute requiring payment, that is at issue here.
Finally, defendants assert that allowing judicial review of the matter raised in this appeal
would undermine the statutory scheme enacted by the legislature whereby the Secretary is charged
with overseeing corporate filings, discourage resolution of disputes that can be efficiently addressed
by administrative review, and open the floodgates to unnecessary litigation. While we appreciate
defendants' concerns, we believe that they are more appropriately addressed to the legislature. In
sum, this controversy involves an interpretation of whether the disputed tax was due under the
Business Corporation Act. The taxpayer in this case paid the disputed tax under protest. Under such
circumstances, our supreme court has permitted a taxpayer to seek under the Protest Act a judicial
determination of the propriety of a disputed tax without first exhausting its administrative remedies.
Chicago & Illinois Midland Ry., 63 Ill. 2d at 478. Thus, a justiciable controversy of the type
contemplated by the Protest Act existed, and the trial court correctly denied defendants' motion to
dismiss.
B. Propriety of Additional Franchise Tax
Having decided that the Protest Act was the proper avenue for plaintiff to challenge the
payment of the additional franchise tax, we turn to the principal issue on appeal, i.e., whether the
relevant provisions of the Business Corporation Act permit a corporation to net a decrease in paid-in
capital resulting from a merger against an increase in paid-in capital resulting from a prior corporate
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reorganization for purposes of calculating an additional franchise tax. The trial court ruled in
plaintiff's favor, holding that it could net these two transactions. The result of the trial court's finding
is that no additional franchise tax was due. Before addressing the parties' relative positions on this
matter, we find it helpful to briefly review the relevant provisions of the Business Corporation Act.
Under the Business Corporation Act, "domestic" corporations and "foreign" corporations
doing business in Illinois are subject to a franchise tax for the privilege of transacting business in this
state. 805 ILCS 5/15.35, 15.65 (West 2004). With certain exceptions not relevant here, the Business
Corporation Act defines a foreign corporation as a for-profit corporation organized under laws other
than the laws of Illinois. 805 ILCS 5/1.80(b) (West 2004). By this definition, Neighborhood, having
been organized under the laws of Delaware, was a foreign corporation.
Foreign corporations are required to pay "initial," "annual," and "additional" franchise taxes.
805 ILCS 5/15.65 (West 2004). The "initial" franchise tax is payable at the time the foreign
corporation files its application for authority to transact business in Illinois (805 ILCS 5/15.65(a)
(West 2004)) and is based on the corporation's paid-in capital as disclosed by said application (805
ILCS 5/15.70(a) (West 2004)). The "annual" franchise tax is payable each year when the corporation
files its annual report (805 ILCS 5/15.65(d) (West 2004)) and is based on the corporation's paid-in
capital on the last day of the third month preceding the corporation's "anniversary month" (805 ILCS
5/15.70(d) (West 2004)).3
3
With respect to a foreign corporation, the Business Corporation Act defines the date of
filing the application for authority to transact business in Illinois as the "anniversary" and the month
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Section 14.30 of the Business Corporation Act (805 ILCS 5/14.30 (West 2004)) requires a
corporation to file a cumulative report of changes in the number of issued shares or the amount of
paid-in capital not otherwise reported. Subsections (a)(1) through (a)(4) of section 14.30 (805 ILCS
5/14.30(a)(1) through (a)(4) (West 2004)) list the various periods for which a report is required. The
same section also provides that the report shall net decreases against increases that occur during the
"same taxable period." 805 ILCS 5/14.30(c) (West 2004). In relation to the report required under
section 14.30, section 15.65(b) of the Business Corporation Act (805 ILCS 5/15.65(b) (West 2004))
requires a foreign corporation to pay a corresponding "additional franchise tax at the time of filing
*** a report of cumulative changes in paid-in capital or a report of an exchange or reclassification
of shares, whenever any such report discloses an increase in its paid-in capital over the amount
thereof last reported in any document, other than an annual report."
It is the payment of the "additional" franchise tax that is at issue in this case. In particular,
the parties dispute whether, in the case of a statutory merger, the Business Corporation Act considers
the effect of the merger in calculating the additional franchise tax due. In arguing that the Secretary
correctly calculated the additional franchise tax, defendants rely principally on section 14.30 of the
Business Corporation Act. According to defendants, the decrease in paid-in capital resulting from
Neighborhood's merger into NDC did not occur in the "same taxable period" as the increase in paid-
in capital attributable to the corporate reorganization, as required by section 14.30(c) (805 ILCS
in which the anniversary of the corporation occurs as the "anniversary month." 805 ILCS
5/1.80(n)(2), (o) (West 2004).
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5/14.30(c) (West 2004)). Defendants contend that the "same taxable period" referenced in section
14.30(c) refers to the time frames set forth in subsections (a)(1) through (a)(4) of section 14.30 (805
ILCS 5/14.30(a)(1) through (a)(4) (West 2004)). Relevant here, defendants argue that subsection
(a)(3) (805 ILCS 5/14.30(a)(3) (West 2004)) is applicable to this case. Defendants interpret
subsection (a)(3) (805 ILCS 5/14.30(a)(3) (West 2004)) as requiring the calculation of the additional
franchise tax based on the increase in Neighborhood's paid-in capital from the date of its last annual
report up to, but not including, the effect of the merger. Applying this interpretation to the case at
hand, defendants calculate that Neighborhood accrued a positive change in its paid-in capital as a
result of the corporate reorganization, resulting in additional franchise tax due.
Plaintiff responds that the phrase "taxable period" referenced in section 14.30(c) is defined
in section 1.80(w) of the Business Corporation Act (805 ILCS 5/1.80(w) (West 2004)) as the "12-
month period commencing with the first day of the second month preceding the corporation's
anniversary month in the preceding year and prior to the first day of the second month immediately
preceding its anniversary month in the current year." Plaintiff urges that under this definition,
subsection (a)(3) of section 14.30 requires the effect of a merger to be included in determining any
change in issued shares or paid-in capital for the purpose of calculating the additional franchise tax
due. In this case, therefore, the merger offset any increase in paid-in capital attributable to the
corporate reorganization. Plaintiff concludes that since Neighborhood did not experience a net
increase in its paid-in capital as a result of these transactions, no additional franchise tax could be
legally imposed.
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The standard of review from an order granting summary judgment is de novo. Blair v.
Nevada Landing Partnership, 369 Ill. App. 3d 318, 322 (2006). In addition, the principal issues we
are asked to resolve involve matters of statutory construction. We review issues of statutory
construction de novo. E & E Hauling, 306 Ill. App. 3d at 136. The primary rule of statutory
construction is to ascertain and give effect to the intent of the legislature. MD Electrical Contractors,
Inc. v. Abrams, 369 Ill. App. 3d 309, 312 (2006). As a general rule, the statutory language is the best
evidence of the legislature's intent, and such language should be given its plain and ordinary
meaning. Travelers Casualty & Surety Co. v. A.G. Carlson, Inc., 368 Ill. App. 3d 519, 526 (2006).
In interpreting a statute, we must construe words and phrases in light of other relevant portions of
the statute so that, if possible, no term is rendered superfluous or meaningless. West Suburban Bank
v. City of West Chicago, 366 Ill. App. 3d 1137, 1140 (2006). Moreover,"[a] court is not permitted
to ignore the plain meaning of the statute by reading into it exceptions, limitations, or conditions that
the legislature did not express." Forest Preserve District of Du Page County v. Loren & Gisela
Brown Family Trust, 323 Ill. App. 3d 686, 692 (2001). "Only where the language of the statute is
ambiguous may the court resort to other aids of statutory construction." People v. Glisson, 202 Ill.
2d 499, 505 (2002). "A statute is ambiguous if it is capable of two reasonable and conflicting
interpretations." Paciga v. Property Tax Appeal Board, 322 Ill. App. 3d 157, 161 (2001).
Our analysis focuses on section 14.30 of the Business Corporation Act (805 ILCS 5/14.30
(West 2004)). That provision provides in relevant part:
"§14.30. Cumulative report of changes in issued shares or paid-in capital.
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(a) Each domestic corporation and each foreign corporation authorized to transact
business in this State that effects any change in the number of issued shares or the amount
of paid-in capital that has not theretofore been reported in any report other than an annual
report, interim annual report, or final transition annual report, shall execute and file, in
accordance with Section 1.10 of this Act, a report with respect to the changes in its issued
shares or paid-in capital:
(1) that have occurred subsequent to the last day of the third month preceding
its anniversary month in the preceding year and prior to the first day of the second
month immediately preceding its anniversary month in the current year; or
(2) in the case of a corporation that has established an extended filing month,
that have occurred during its fiscal year; or
(3) in the case of a statutory merger or consolidation or an amendment to the
corporation's articles of incorporation that affects the number of issued shares or the
amount of paid-in capital, that have occurred between the last day of the third month
immediately preceding its anniversary month and the date of the merger,
consolidation, or amendment or, in the case of a corporation that has established an
extended filing month, that have occurred between the first day of its fiscal year and
the date of the merger, consolidation, or amendment; or
(4) in the case of a statutory merger or consolidation or an amendment to the
corporation's articles of incorporation that affects the number of issued shares or the
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amount of paid-in capital, that have occurred between the date of the merger,
consolidation, or amendment (but not including the merger, consolidation, or
amendment) and the first day of the second month immediately preceding its
anniversary month in the current year, or in the case of a corporation that has
established an extended filing month, that have occurred between the date of the
merger, consolidation, or amendment (but not including the merger, consolidation
or amendment) and the last day of its fiscal year.
***
(c) The report shall net decreases against increases that occur during the same taxable
period." 805 ILCS 5/14.30 (West 2004).
The trial court held that application of subsection (a)(3) of section 14.30 (805 ILCS 5/14.30(a)(3)
(West 2004)) required the report to account for a reduction in paid-in capital on the "merger date."
In support of this finding, the court noted that the parenthetical in subsection (a)(4) of section 14.30
(805 ILCS 5/14.30(a)(4) (West 2004)) specifically excludes the merger in calculating the additional
franchise tax. The court reasoned, therefore, that if the legislature had also intended to exclude the
effect of the merger in computing the additional franchise tax under subsection (a)(3), it would have
explicitly said so.
The parties first direct our attention to subsection (c) of section 14.30, questioning what the
legislature meant when it drafted that provision to read that the cumulative report of changes in
issued shares or paid-in capital "shall net decreases against increases that occur during the same
taxable period." (Emphasis added.) 805 ILCS 5/14.30(c) (West 2004). Defendants acknowledge
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that the phrase "taxable period" is defined in section 1.80(w) of the Business Corporation Act (805
ILCS 5/1.80(w) (West 2004)), as plaintiff notes.4 However, defendants argue that that definition
does not apply to the phrase as it is used in section 14.30(c). Defendants point out that with respect
to section 14.30(c), the phrase "taxable period" does not stand alone. Rather, it is modified by the
word "same." Defendants reason that by modifying the phrase "taxable period" in this manner, the
legislature must have intended some meaning distinct from the definition given to the phrase in
section 1.80(w). In support of this position, defendants note that where the legislature intended to
use the term "taxable period" as defined in section 1.80(w), it did so without modifying the phrase.5
4
Relevant here, section 1.80(w) defines the phrase "taxable period" as the "12-month period
commencing with the first day of the second month preceding the corporation's anniversary month
in the preceding year and prior to the first day of the second month immediately preceding its
anniversary month in the current year." 805 ILCS 5/1.80(w) (West 2004). The same provision states
that for a corporation that has established an extended filing month, "taxable period" means the "12-
month period ending with the last day of its fiscal year immediately preceding the extended filing
month." 805 ILCS 5/1.80(w) (West 2004). Neighborhood has not established an extended filing
month, and its "anniversary month" is June. Thus, Neighborhood's "taxable period" is from April
1 of a given year through March 31 of the subsequent year.
5
The statutory references that defendants provide for this position refer to "taxable year,"
not "taxable period." See 805 ILCS 5/9.05(e), 14.01(a), 14.25(d), 14.30(f) (West 2004). The
Business Corporation Act distinguishes these two phrases. Compare 805 ILCS 5/1.80(q) (West
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Plaintiff simply responds that the definition of "taxable period" in section 1.80(w) applies to section
14.30(c).
Examining the plain language of subsection (c) of section 14.30 of the Business Corporation
Act (805 ILCS 5/14.30(c) (West 2004)), we agree with plaintiff that the phrase "taxable period" in
section 14.30(c) has a meaning consistent with the definition of that phrase in subsection (w) of
section 1.80 of the Business Corporation Act (805 ILCS 5/1.80(w) (West 2004)). Section 14.30(c)
requires the report to "net decreases against increases that occur during the same taxable period."
The word "same" has been defined to mean "[t]he very thing mentioned or described." Black's Law
Dictionary 1341 (7th ed. 1999). Contrary to defendants' argument, the modifier "same" does not
refer to the time frames referenced in subsections (a)(1) through (a)(4) of section 14.30 of the
Business Corporation Act (805 ILCS 5/14.30(a)(1) through (a)(4) (West 2004)). Rather, it refers to
the taxable period during which the decrease occurred and the taxable period during which the
increase occurred. To net a decrease against an increase, both of these events must occur within the
"same" "taxable period," i.e., the "taxable period" defined by section 1.80(w) of the Business
Corporation Act.
2004) (defining "taxable year") with 805 ILCS 5/1.80(w) (West 2004) (defining "taxable period").
Nevertheless, our research has revealed at least two subsections of the Business Corporation Act in
which the phrase "taxable period" is used without modification. See 805 ILCS 5/15.40(f), 15.70(f)
(West 2004).
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Moreover, to the extent that the phrase "taxable period" is capable of two reasonable and
conflicting interpretations, a brief examination of the legislative history of the statutory provisions
relevant to our analysis resolves any ambiguity. The definition of "taxable period" contained in
section 1.80(w) of the Business Corporation Act (805 ILCS 5/1.80(w) (West 2004)) was added by
Public Act 87--516 (Pub. Act 87--516, eff. September 13, 1991 (amending Ill. Rev. Stat. 1989, ch.
32, par. 1.80)). Prior to the enactment of Public Act 87--516, section 14.30 of the Business
Corporation Act required the cumulative report to net "decreases against increases, which occur
during the same taxable year." (Emphasis added.) Ill. Rev. Stat. 1989, ch. 32, par. 14.30(a).
However, the phrase "taxable period" was substituted for the term "taxable year" by Public Act 87--
516. See Pub. Act 87--516, eff. September 13, 1991 (amending Ill. Rev. Stat. 1989, ch. 32, par.
14.30); 805 ILCS 5/14.30(c) (West 2004). In other words, the legislature substituted the phrase
"taxable period" in section 14.30 for the phrase "taxable year" with the same public act that added
the definition for the phrase "taxable period" to the Business Corporation Act. These actions dispel
any notion that the legislature intended the term "taxable period" to have any meaning other than the
one ascribed to it by section 1.80(w) of the Business Corporation Act.
Despite our conclusion, we agree with defendants that the increase in paid-in capital as a
result of Neighborhood's corporate reorganization did not occur during the "same" "taxable period"
as the decrease in paid-in capital attributable to the merger. Indeed, we find that neither of the
foregoing changes in Neighborhood's paid-in capital occurred during any "taxable period" as that
phrase is defined in section 1.80(w) of the Business Corporation Act. Rather, as we discuss more
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thoroughly below, each change occurred during a separate reportable period as defined in the various
provisions of the Business Corporation Act.
As noted above, subsection (a) of section 14.30 provides in relevant part that "[e]ach ***
foreign corporation authorized to transact business in this State that effects any change in the number
of issued shares or the amount of paid-in capital that has not theretofore been reported *** shall
execute and file *** a report with respect to the changes in its issued shares or paid-in capital." 805
ILCS 5/14.30(a) (West 2004). The statute then lists four separate events that trigger the filing of a
report. Subsection (a)(1) requires a report for changes that have occurred "subsequent to the last day
of the third month preceding [the corporation's] anniversary month in the preceding year and prior
to the first day of the second month immediately preceding [the corporation's] anniversary month
in the current year." 805 ILCS 5/14.30(a)(1) (West 2004). While the language of subsection (a)(1)
is not identical to the language defining the phrase "taxable period" in section 1.80(w) (805 ILCS
5/1.80(w) (West 2004)), the time period these two provisions describe is the same. With respect to
a corporation that has established an extended filing month, subsection (a)(2) requires a report for
changes that have occurred "during its fiscal year." 805 ILCS 5/14.30(a)(2) (West 2004). Again,
this time period corresponds with the time period outlined in section 1.80(w) for a corporation opting
to establish an extended filing month. Because changes pursuant to subsections (a)(1) and (a)(2)
occur during a "taxable period" as defined by the legislature in section 1.80(w) of the Business
Corporation Act, any report filed pursuant to subsection (a)(1) or (a)(2) may net decreases against
increases that occur during the "same taxable period." 805 ILCS 5/14.30(c) (West 2004).
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Subsections (a)(3) and (a)(4) both apply to a corporation undergoing a statutory merger.
Subsection (a)(3) requires a report for changes that have occurred "between the last day of the third
month immediately preceding its anniversary month and the date of the merger." 805 ILCS
5/14.30(a)(3) (West 2004). Subsection (a)(4) requires a report for changes that have occurred
"between the date of the merger *** (but not including the merger ***) and the first day of the
second month immediately preceding [the corporation's] anniversary month in the current year."
805 ILCS 5/14.30(a)(4) (West 2004). Neither of the reporting periods set forth in subsection (a)(3)
or (a)(4) constitutes an entire "taxable period" as that phrase is defined in section 1.80(w) of the
Business Corporation Act. As a result, we hold that neither a corporation filing a report in
accordance with subsection (a)(3) nor a corporation filing a report in accordance with subsection
(a)(4) may net decreases against increases as a result of a statutory merger. Applying the foregoing
analysis to this case, we conclude that the merger of Neighborhood into NDC did not effect a
reportable decrease in Neighborhood's paid-in capital for purposes of calculating the additional
franchise tax due as a result of the cumulative change in issued shares or paid-in capital.
Plaintiff claims that such an interpretation means that decreases in paid-in capital resulting
from a statutory merger can never be reported. We disagree. Our decision says nothing about
whether such decreases may be reported. Rather, our holding is that any decreases in paid-in capital
resulting from a statutory merger may not be used to offset increases in paid-in capital for purposes
of calculating the additional franchise tax, because such changes do not occur during a "taxable
period" as that phrase is defined in section 1.80(w) of the Business Corporation Act (805 ILCS
5/1.80(w) (West 2004)).
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In addition, the trial court's and plaintiff's interpretation of section 14.30(a)(3) would frustrate
the purpose of the franchise tax. The tax is imposed for the privilege of transacting business in
Illinois. 805 ILCS 5/15.35, 15.65 (West 2004). The trial court's and plaintiff's interpretation of
subsection (a)(3) would render that provision meaningless, as any net increase in a corporation's
paid-in capital from the last day of the third month immediately preceding a corporation's
anniversary month up to the effective time of a merger would be eliminated upon merger. In this
case, Neighborhood experienced changes in its issued shares and its paid-in capital on October 31,
2003, November 4, 2003, and November 11, 2003. If we were to permit Neighborhood to eliminate
its paid-in capital upon the merger, the net increases it experienced during its corporate existence
would be left untaxed.
Our conclusion that the legislature did not intend a corporation involved in a statutory merger
to net any decreases in issued shares or paid-in capital against any increases in issued shares or paid-
in capital is supported by House Bill 5631 (92d Ill. Gen. Assem., House Bill 5631, 2002 Sess.).
Although this legislation never became law, it provides insight on the issue at hand. House Bill 5631
sought to amend various provisions of the Business Corporation Act. In particular, the bill sought
to add article 15A, entitled "Franchise Tax," to the Business Corporation Act. Relevant here, section
15A.55 would have provided:
"Sec. 15A.55. Final taxable period. A corporation that dissolves, liquidates,
withdraws from this State, or has its corporate existence terminated in a merger or
consolidation shall not be obligated to pay any franchise tax for the period existing from the
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end of its immediately preceding taxable period to the date of the liquidation, dissolution,
withdrawal, or termination." 92 Ill. Gen. Assem., House Bill 5631, 2002 Sess.
The same bill sought to amend section 14.30 of the Business Corporation Act by adding subsection
(g). Subsection (g) would have provided that section 14.30 "shall not apply to any franchise tax due
for any taxable period ending on or after December 31, 2002 to which Article 15A applies." 92 Ill.
Gen. Assem., House Bill 5631, 2002 Sess.
It is well settled that when a statute is amended, it is presumed that the legislature meant to
change the law as it formerly existed. Board of Trustees of Southern Illinois University v.
Department of Human Rights, 159 Ill. 2d 206, 213 (1994); Puleo v. Topel, 368 Ill. App. 3d 63, 67
(2006); In re Marriage of Schmitt, 321 Ill. App. 3d 360, 366 (2001). Although House Bill 5631
never became law, we view the proposed section 15A.55 of the Business Corporation Act as an
attempt by the legislature to change existing law regarding whether a corporation involved in a
statutory merger is required to pay additional franchise tax between the end of its previous taxable
period and the date of the merger. See People v. Holloway, 177 Ill. 2d 1, 11 (1997) (noting that
legislature's attempt to amend law could be viewed as an attempt to change existing law). In
conclusion, because neither the increase in Neighborhood's paid-in capital as a result of its corporate
reorganization nor the decrease in Neighborhood's paid-in capital as a result of its merger into NDC
occurred during a "taxable period" as defined in section 1.80(w) of the Business Corporation Act,
these two changes may not be netted under section 14.30(c) for the purpose of calculating the
additional franchise tax.
3. Obligation of NDC to Pay Franchise Tax
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Plaintiff argues that the application of section 14.30 to NDC constitutes the unlawful
imposition of a tax on a limited liability company. Plaintiff asserts that the Business Corporation
Act imposes franchise taxes only on corporations and that there is no provision under the Business
Corporation Act that permits the imposition of a tax on a limited liability company, such as NDC.
We are unpersuaded by plaintiff's argument. Both Neighborhood and NDC were organized under
the laws of Delaware. Delaware law provides for the merger of a domestic corporation into a
domestic limited liability company. Del. Code Ann. tit. 8, §264(a) (West 2004) ("Any 1 or more
corporations of this State may merge or consolidate with 1 or more limited liability companies, of
this State"); see also Del. Code Ann. tit. 6, §18--209(b) (West 2004). With respect to such mergers,
Delaware law provides that "all debts, liabilities and duties of each of the said domestic limited
liability companies and other business entities that have merged or consolidated shall thenceforth
attach to the surviving or resulting domestic limited liability company or other business entity, and
may be enforced against it to the same extent as if said debts, liabilities and duties had been incurred
or contracted by it." Del. Code Ann. tit. 6, §18--209(g) (West 2004); see also Del. Code Ann. tit.
8, §259(a) (West 2004). In this case, therefore, NDC, as the surviving domestic limited liability
company, is responsible for the additional franchise tax due as a result of the increase in
Neighborhood's paid-in capital prior to the merger.
Anticipating such a finding, plaintiff counters that "there was no outstanding tax obligation
due at the time of the merger, and thus no liability from which to succeed." In support of its position,
plaintiff posits the following. Section 15.65(b) of the Business Corporation Act (805 ILCS
5/15.65(b) (West 2004)) "imposes an additional franchise tax on corporations 'at the time of filing
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*** a report of cumulative changes in paid-in capital *** whenever any such report discloses an
increase in its paid-in capital over the amount thereof last reported.' " (Emphasis in original.)
Further, section 14.30(b) (805 ILCS 5/14.30(b) (West 2004)) provides in relevant part that the
corporation shall file the cumulative report of changes in issued shares or paid-in capital, "not later
than the time of filing *** the certified copy of merger of a foreign corporation." The filing of the
certified copy of merger in Illinois can take place only after the merger has been completed in the
foreign jurisdiction and a certified copy of merger is obtained. Neighborhood ceased to exist under
Delaware law at the effective time of the merger (Del. Code Ann. tit. 8, §259(a) (West 2004)). Since
form BCA--14.30 was not due to be filed until after Neighborhood ceased to exist, no liability could
be imposed under section 15.65(b). Plaintiff adds that although this process normally poses no
problem because the surviving entity is usually another corporation, in this instance, NDC, a limited
liability company, was the only entity in existence at the only time the tax could be imposed. We
disagree with plaintiff's analysis.
Initially, we point out that plaintiff's reliance on Delaware law for the proposition that for the
purposes of Illinois law Neighborhood ceased to exist at the effective time of the merger is
misplaced. With respect to the merger of a Delaware corporation into a Delaware limited liability
company, Delaware law provides in relevant part that "[w]hen any merger or consolidation shall
have become effective under this chapter, for all purposes of the laws of this State the separate
existence of all the constituent corporations *** shall cease." (Emphasis added.) Del. Code Ann.
tit. 8, §259(a) (West 2004). Thus, the non-surviving corporation in a merger under Delaware law
ceases to exist for the purposes of the laws of Delaware only. Relevant here, in Illinois a merger
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involving a corporation becomes effective only "upon filing of the articles of merger, consolidation
or exchange by the Secretary of State." 805 ILCS 5/11.40 (West 2004). In this case, the Secretary
refused to file the certificate of merger until after plaintiff submitted form BCA--14.30. Therefore,
plaintiff's argument that no liability could be imposed under section 15.65(b) because form BCA--
14.30 was not due to be filed until after Neighborhood ceased to exist is flawed.
Relying on section 15.65(b) of the Business Corporation Act (805 ILCS 5/15.65(b) (West
2004)), plaintiff continues that "[i]t is no defense to assert that the activities by which the tax is
measured occurred while Neighborhood was in existence. The General Assembly chose to defer
actual imposition of the tax until a later time." We reject this argument. Despite plaintiff's
suggestion to the contrary, section 15.65(b) does not dictate when the tax is "imposed." Rather, that
provision indicates when the tax must be paid. The tax accrues when a change in paid-in capital
occurs. Under the factual scenario in this case, Neighborhood experienced several increases in paid-
in capital during the relevant reporting period. When these changes in paid-in capital occurred, the
additional franchise tax accrued. However, the tax did not become payable until the certified copy
of merger was filed with the Secretary. 805 ILCS 5/14.30(b), 15.65(b)(3) (West 2004).
4. Constitutionality Challenge
Plaintiff also complains that the Secretary's construction of section 14.30 of the Business
Corporation Act (805 ILCS 5/14.30 (West 2004)) in the present case violates the uniformity clause
of the Illinois Constitution (Ill. Const. 1970, art. IX, §2) and the equal protection clauses of the
federal and state constitutions (U.S. Const., amend. IV; Ill. Const. 1970, art. I, §2). The uniformity
clause provides that "[i]n any law classifying the subjects or objects of non-property taxes or fees,
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the classes shall be reasonable and the subjects and objects within each class shall be taxed
uniformly. Exemptions, deductions, credits, refunds and other allowances shall be reasonable." Ill.
Const. 1970, art. IX, §2. Our supreme court has stated that if a tax is constitutional under the
uniformity clause, it "inherently fulfills the requirements of *** equal protection." Geja's Cafe v.
Metropolitan Pier & Exposition Authority, 153 Ill. 2d 239, 247 (1992). As such, we confine our
discussion to whether the Secretary's interpretation of section 14.30 of the Business Corporation Act
violates the uniformity clause of the Illinois Constitution.
With respect to a challenge under the uniformity clause, our supreme court recently stated:
"To survive scrutiny under the uniformity clause, a nonproperty tax classification
must (1) be based on a real and substantial difference between the people taxed and those not
taxed, and (2) bear some reasonable relationship to the object of the legislation or to public
policy. [Citation.] The uniformity clause was intended to be a broader limitation on
legislative power to classify for nonproperty tax purposes than the limitation of the equal
protection clause [citation] and was meant to insure that taxpayers would receive added
protection in the state constitution based upon a standard of reasonableness that is more
rigorous than that contained in the federal constitution [citation]. The party attacking a tax
classification is not required to negate every conceivable basis that might support it.
[Citation.] When faced with a good-faith uniformity challenge, the taxing body bears the
initial burden of producing a justification for the classification. The challenging party then
has the burden of persuading the court that the taxing body's explanation is insufficient as
a matter of law or unsupported by the facts. [Citations.] Despite the more stringent standard
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under the uniformity clause, the scope of a court's inquiry is 'relatively narrow.' [Citation.]
'[I]n a uniformity clause challenge the court is not required to have proof of perfect
rationality as to each and every taxpayer. The uniformity clause was not designed as a
straitjacket for the General Assembly. Rather, the uniformity clause was designed to enforce
minimum standards of reasonableness and fairness as between groups of taxpayers.'
[Citation.]" Arangold Corp. v. Zehnder, 204 Ill. 2d 142, 153 (2003).
Applying the foregoing principles to this case, we are unpersuaded by plaintiff's uniformity clause
challenge.
Plaintiff contends that under the Secretary's construction of section 14.30 of the Business
Corporation Act, a corporation that experiences a reduction in paid-in capital resulting from a
statutory merger is not permitted to use such a reduction to offset any increases in paid-in capital
occurring during the same taxable period, but a corporation not involved in a statutory merger may
net decreases in paid-in capital against increases in paid-in capital occurring during the same taxable
period. Plaintiff insists, however, that for purposes of the franchise tax there is no difference
between the two classifications. We disagree, as the two classes plaintiff compares are the
proverbial apples and oranges. As discussed above, a corporation involved in a statutory merger
does not have an entire taxable period in which to offset increases in paid-in capital with decreases
in paid-in capital. Yet, the tax is assessed uniformly as to this class. See Grenier & Co. v.
Stevenson, 42 Ill. 2d 289, 291 (1969) ("The only rule of uniformity required with respect to taxes
on franchises is that they shall be uniform upon the class on which they operate"). Thus, plaintiff's
attempt to compare the additional franchise tax imposed upon a corporation involved in a statutory
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merger with the additional franchise tax assessed upon a corporation that experiences a change in
paid-in capital during an entire taxable period is unavailing.
In addition, we find that payment of the additional franchise tax in a case of a statutory
merger bears some reasonable relationship to the object of the legislation. Defendants assert that the
purpose of the additional franchise tax is to tax changes in a corporation's paid-in capital during a
period of time when the corporation enjoyed the fruits of transacting business in Illinois. See 805
ILCS 5/15.65 (West 2004) ("For the privilege of exercising its authority to transact business in this
State *** each foreign corporation shall pay to the Secretary of State the following franchise taxes");
see also 805 ILCS 5/15.35 (West 2004) (requiring payment of franchise taxes by domestic
corporations). We agree. As we explained earlier, if we were to adopt plaintiff's position, an
increase in a corporation's paid-in capital would be left untaxed.
III. CONCLUSION
For the aforementioned reasons, we conclude that the Protest Act was the proper mechanism
to challenge the imposition of the additional franchise tax at issue in this dispute. Therefore, we
affirm that portion of the trial court's decision allowing NDC's claim to proceed under that statute.
However, we find that the trial court erred in concluding that section 14.30 of the Business
Corporation Act did not require the Secretary to collect the additional franchise tax under the facts
of this case. Accordingly, we reverse the judgment of the circuit court of Du Page County granting
plaintiff's motion for summary judgment. We remand this cause for entry of an order granting
summary judgment in defendants' favor.
Affirmed in part and reversed in part; cause remanded with directions.
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HUTCHINSON and CALLUM, JJ., concur.
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