No. 2--99--1427 

_________________________________________________________________

	IN THE

	APPELLATE COURT OF ILLINOIS	

	SECOND DISTRICT

_________________________________________________________________

JACK and MARGARET CAVENEY,     ) Appeal from the Circuit Court

                               ) of Du Page County.

     Plaintiffs-Appellees,     )

                               )

v.                             ) No. 98--TX--006     

                               )          

GLEN L. BOWER, Director of the ) 

Department of Revenue; JUDY	 )                  

BAAR TOPINKA, Treasurer of  	 )

the State of Illinois; and  	 )

the DEPARTMENT OF REVENUE,	 ) Honorable

                               ) John W. Darrah,

 	Defendants-Appellants.    ) Judge, Presiding.

_________________________________________________________________

	JUSTICE McLAREN delivered the opinion of the court:

	Defendants, Glen L. Bower, Judy Baar Topinka, and the Illinois

Department of Revenue (collectively, the State), filed an appeal

from the trial court's grant of summary judgment in favor of

plaintiffs, Jack and Margaret Caveney.  We affirmed the trial

court's ruling in Caveney v. Bower, 319 Ill. App. 3d 13 (2001).  On June 6, 2001, our supreme court denied defendants' petition for

leave to appeal.  However, in the exercise of its supervisory

authority, our supreme court vacated this court's judgment and

remanded the cause to this court for additional consideration in

light of its decision in Commonwealth Edison Co. v. Will County Collector, 196 Ill. 2d 27 (2001).  After due consideration of the court's decision in Commonwealth Edison Co., we affirm the judgment of the circuit court.  

	The Caveneys are shareholders in Panduit Corporation.  For the

tax years ending December 31, 1993, 1994, and 1995, Panduit elected

to be treated as a subchapter S corporation for federal and state

income tax purposes.  See 26 U.S.C.A. §1362 (West 1988); 35 ILCS

5/1501(a)(28) (West 1998).  During the tax years in question,  the

Caveneys claimed a research and development tax credit against

their Illinois income tax liability, pursuant to section 201(k) of

the Illinois Income Tax Act (the Act) (35 ILCS 5/201(k) (West

1996)), for research and development expenditures made by Panduit. 

The State disallowed the claims and calculated back taxes and

interest owed in the amount of $1,091,131.60.  The Caveneys paid

this sum under protest, then filed suit under the State Officers

and Employees Money Disposition Act, seeking an order requiring 

defendants to return the sum paid under protest.  See 30 ILCS 230/1

et seq. (West 1998).  The parties filed cross-motions for summary judgment.  The trial court granted the Caveneys' motion and entered

judgment for the Caveneys.  Defendants appealed the trial court's

judgment.  

	The Caveneys argued that a 1999 amendment to section 201(k),

part of Public Act 91--644 (Pub. Act 91--644, eff. August 26,

1999), applied to their case and allowed them to take research and

development credits for the tax years 1993-95.  At the time the

Caveneys claimed the tax credit, the Act provided in relevant part:

		"Beginning with tax years ending after July 1, 1990, a

taxpayer shall be allowed a credit against the tax imposed by

subsections (a) and (b) of this Section for increasing

research activities in this State.  The credit allowed against the tax imposed by subsections (a) and (b) shall be equal to

61⁄2% of the qualifying expenditures for increasing research

activities in this State.

		For purposes of this subsection, 'qualifying

expenditures' means the qualifying expenditures as defined for

the federal credit for increasing research activities which

would be allowable under Section 41 of the Internal Revenue

Code and which are conducted in this State, 'qualifying

expenditures for increasing research activities in this State'

means the excess of qualifying expenditures for the taxable

year in which incurred over qualifying expenditures for the

base period, 'qualifying expenditures for the base period'

means the average of the qualifying expenditures for each year

in the base period, and 'base period' means the 3 taxable

years immediately preceding the taxable year for which the

determination is being made."  35 ILCS 5/201(k) (West 1992). 

	However, in 1999, the General Assembly added the following

language to section 201(k) of the Act:

	"For partners, shareholders of subchapter S corporations, and

owners of limited liability companies, if the liability

company is treated as a partnership for purposes of federal

and State income taxation, there shall be allowed a credit

under this subsection to be determined in accordance with the

determination of income and distributive share of income under

Sections 702 and 704 and subchapter S of the Internal Revenue

Code.

	* * *

		No inference shall be drawn from this amendatory Act of

the 91st General Assembly in construing this Section for

taxable years beginning before January 1, 1999."  35 ILCS

5/201(k) (West Supp. 1999).

	The legislature amended the Act so that the research and

development credit clearly applies to shareholders of subchapter S

corporations, such as the Caveneys.  In this court's opinion in

Caveney v. Bower, 319 Ill. App. 3d 13 (2001) (CavenyCaveney I), we held that under First of America Trust Co. v. Armstead, 171 Ill. 2d 282, 289 (1996), the applicable law is the law in effect at the time of

the court's decision on appeal and that the Department had no

"vested right" in the application of the earlier statute. 

	In Commonwealth Edison, our supreme court settled any conflict concerning the application of statutory amendments to existing

controversies by adopting the analysis of the United States Supreme

Court in Landgraf v. USI Film Products, 511 U.S. 244, 128 L. Ed. 2d 229, 114 S. Ct. 1483 (1994).  The court explained the Landgraf approach as follows:

		"Under the Landgraf test, if the legislature has clearly indicated what the temporal reach of an amended statute should

be, then, absent a constitutional prohibition, that expression

of legislative intent must be given effect.  However, when the

legislature has not indicated what the reach of a statute

should be, then the court must determine whether applying the

statute would have a retroactive impact, i.e., 'whether it would impair rights a party possessed when he acted, increase

a party's liability for past conduct, or impose new duties with respect to transactions already completed.' [Citation.] 

If there would be no retroactive impact, as that term is

defined by the court, then the amended law may be applied. 

[Citation.]  If, however, applying the amended version of the

law would have a retroactive impact, then the court must

presume that the legislature did not intend that it be so

applied."  Commonwealth Edison, 196 Ill. 2d at 38-39. 

	This approach employs a three-step analysis. Initially, the

court must determine whether the legislature has expressly

prescribed the statute's proper reach.  If there would be no

retroactive impact, the amended law may be applied.  If it would

have a retroactive impact, the new law will not be applied.

	When the legislature amended Illinois Income Tax Act section

201(k) to permit shareholders of Subchapter S corporations to claim

research credits on their individual income tax return, it stated

that "no inference" should be drawn from the adoption of the

amendatory act. The State does not argue that the no-inference

language specifically defines the reach of the amendment, although

it does contend that the phrase shows an intent not to apply the

amendment retroactively.  Therefore, we must determine whether the application of the amendment would have a retroactive impact.

	There are no hard and fast rules for determining whether a

statute would have a "retroactive impact," as referenced in

Commonwealth Edison.  However, this term is more meaningful than the simplistic view set forth by the Department, wherein any new

statute that is applied to years prior to its adoption is

considered to have a retroactive effect.  In Landgraf, adopted by our supreme court in Commonwealth Edison, the court traced the meaning of the term "retroactive effect" from its earliest usage to

the present.  The court quoted with approval an 1814 decision by

Justice Story, which stated as follows:

		" '[E]very statute, which takes away or impairs vested rights

acquired under existing laws, or creates a new obligation,

imposes a new duty, or attaches a new disability, in respect

to transactions or considerations already past, must be deemed

retrospective....' [Citation.]"  Landgraf, 511 U.S. at 269, 128 L. Ed. 2d at 254, 114 S. Ct. at 1499.

	The court went on to conclude that a statute would have a

"retroactive effect" when "it would impair rights a party possessed

when he acted, increase a party's liability for past conduct, or

impose new duties with respect to transactions already completed." 

Landgraf, 511 U.S. at 280, 128 L. Ed. 2d at 261-62, 114 S. Ct. at 1505.  Based on this analysis, it is clear that the concept of

vested rights is important in determining whether the application

of a new statute to past events would have a retroactive effect. 

By reaffirming the prevailing definition of "retroactive effect"

and equating it to the "impairment of vested rights," the decision

of our supreme court in Commonwealth Edison is consistent with and supports our prior decision in this case.

	Vested rights are interests protected from legislative

interference by the due process clause of our constitution (Ill.

Const. 1970, art. I, §2).  Dardeen v. Heartland Manor, Inc., 186 Ill. 2d 291, 295 (1999).  A right has not vested until it is so far

perfected that it cannot be taken away by legislation and is so unconditional and complete that it may be equated with a property

interest.  Dardeen, 186 Ill. 2d at 295-96.  Since the legislature has an ongoing right to amend a statute, there is no vested right

in the continuance of a law.  Premier Property Management, Inc. v. Chavez, 191 Ill. 2d 101, 109 (2000).  When an amendment does not reach back to and interfere with a vested right, there is no true

retroactive impact.  In the absence of a vested right, the application of an amended statute to an existing controversy has no

retroactive impact; by definition, the amendment then has only

prospective application.  See General Telephone Co. of Illinois v. Johnson, 103 Ill. 2d 363 (1984); Richard's Tire Co. v. Zehnder, 295 Ill. App. 3d 48 (1998).  

	In Caveney I, the State did not argue that it had a vested right in the application of the preamendment statute.  Indeed,

there is no vested right in the mere continuance of a law, since 

the legislature has an ongoing right to amend a statute.  Premier Property Management, 191 Ill. 2d at 109.  When the legislature did not specify prospective application, the State gave up any "vested

rights" prospective application would have implicated.  Borden Chemicals & Plastics, L.P. v. Zehnder, 312 Ill. App. 3d 35, 48 (2000).  

	The amendment at issue here proclaimed that "no inference" was

to be drawn from its passage regarding the tax years in question; 

therefore, any vested right that the State might have had in the

prospective application of section 201(k) was given up.  The new

statute is not retroactive because its only possible negative

impact would affect the State's unasserted interest.  Applying the 

analysis set forth in Commonwealth Edison, we determine that application of the tax amendment at issue to prior tax years does

not have a retroactive impact, and the amended statute applies to

this case.

	Because of our disposition of this case on statutory grounds,

we need not address the constitutional issues raised in Caveney I.

	The judgment of the circuit court of Du Page County is

affirmed.

	Affirmed.

	RAPP, J., concurs.

	JUSTICE O'MALLEY, dissenting:

	The majority holds that applying the 1999 statutory change to

1993-94 tax years does not give the statutory change retroactive

effect because such application does not interfere with a vested

right.1  The majority holds that the new statute is not retroactive because its only possible negative impact would affect the State’s

unasserted interest.

	First, I disagree with the observation that the State’s

interest is unasserted.  The State’s conduct, including its defense

of this lawsuit, belies that observation.2  Second, the majority not only fails to indicate why it claims that the State’s interest is unasserted but also fails to indicate the consequences of the

interest being unasserted.  There certainly is no suggestion of

waiver, and the analyses in Landgraf and Commonwealth Edison contain no mention of assertion of an interest. 

	I also do not understand why the majority couches its vested

rights analysis in terms of whether the State has a vested right in

prospective application of the amendment rather than determining

whether the amendment takes away vested rights acquired under

existing law, as suggested by the Justice Story quotation contained

in Commonwealth Edison and Landgraf and in the majority opinion.  Slip op. at 6.       

	Most importantly, though, I disagree with the majority’s reliance on the ambivalent concept of "vested" and its conclusion

that Commonwealth Edison equated retroactive effect with the impairment of vested rights.  In Commonwealth Edison, our supreme court explained that, in the analysis involved in determining

whether to apply a new statutory amendment to an existing

controversy, the question is not simply whether the rights

allegedly impaired are labeled "vested" or "nonvested."  See

Commonwealth Edison, 196 Ill. 2d at 47.  Rather, the court stated:  	" 'The question of the validity of the application of a

statute rests on subtle judgments concerning the fairness or unfairness of applying the new statutory rule to affect

interests which accrued out of events which transpired when a

different prior rule of law was in force. One fundamental

consideration of fairness is that settled expectations

honestly arrived at with respect to substantial interests

ought not to be defeated. [Citation.] The determination of

whether the application of the statute unreasonably infringes

upon the rights of those to whom it applies involves a

balancing and discrimination between reasons for and against

the application of the statute to this class of individuals.

[Citation.]' "  Commonwealth Edison, 196 Ill. 2d at 47, quoting Moore v. Jackson Park Hospital, 95 Ill. 2d 223, 241-42 (1983) (Ryan, C.J., specially concurring, joined by Underwood

and Moran, JJ.). 

Commonwealth Edison also affirmed that " '[a]nalysis of the practical considerations influencing the question whether a

retroactive application of a new law is fair and just should afford

more meaningful standards of judgment than either catchpenny

phrases or the ambivalent concept of "vested." ' " Commonwealth Edison, 196 Ill. 2d at 47-48, quoting 2 N. Singer, Sutherland on Statutory Construction §41.05, at 369 (5th ed. 1993).

	The majority quotes Commonwealth Edison’s explanation of the Landgraf approach but fails to notice that both of those cases avoid the ambivalent concept of "vested."  The Landgraf test is " 'whether it would impair rights a party possessed when he acted.' " 

Commonwealth Edison, 196 Ill. 2d at 37, quoting Landgraf, 511 U.S. at 280, 128 L. Ed. 2d at 261-62, 1145 S. Ct. at 1505.  The majority fails to note that the word "vested" does not appear before

"rights" in this quote.  If the State had a right to collect taxes

in a greater amount from the Caveneys before the amendment, then

the application of the amendment to the prior tax years impairs

that right and imposes a new duty to refund money to the Caveneys

with respect to transactions already completed.  The State

correctly argues that the effect of applying the statute to

preamendment tax years plainly would be to attach new legal

consequences to completed events.  If applied retroactively, the

amendment would change the tax consequences of preamendment

corporate activity.  Corporate expenditures that did not entitle

subchapter S shareholders to their own income tax credits in the

tax years when the expenditures were made now would do so.  

	Landgraf observed that the largest category of cases where the presumption against retroactivity has been applied has consisted of 

new provisions affecting contractual or property rights, matters in

which predictability and stability are of prime importance. 

Landgraf, 511 U.S. at 271, 128 L. Ed. 2d at 256, 114 S. Ct. at 1500.  Applying tax credit amendments to prior tax years absent a

clear legislative directive clearly interferes with the State’s

ability to plan and budget for public expenditures, a matter in

which predictability and stability are even more important than in

private contractual or property rights situations.  

	The majority seems to hold that Commonwealth Edison’s adoption of the Landgraf analysis amounted to nothing more than the reaffirmation of Armstead, which the majority reads as calling for a default rule in favor of applying new law to antecedent events absent a "vested" rights problem or legislative direction to the

contrary.  But Landgraf expressly held that "prospectivity remains the appropriate default rule."  Landgraf, 511 U.S. at 272, 128 L. Ed 2d. at 257, 114 S. Ct. at 1501.  

	Finally, Landgraf pointed out that decisions to apply new law  to antecedent events have been limited to situations where analysis

of the temporal scope of the law itself required such application

(i.e., legislative intent) or where the case involved either prospective relief (e.g., injunctive relief), procedural matters (e.g., jurisdiction), or collateral issues (e.g., attorney fees). a question of jurisdiction, procedural matters, or collateral issues

(e.g., attorney fees); or prospective relief (e.g., injunctive relief).   Landgraf, 511 U.S. at 273-79, 128 L. Ed 2d. at 257-61, 114 S. Ct. at 1501-04.  Landgraf’s point in categorizing these cases was to "make it clear that Bradley [v. School Board of Richmond, 416 U.S. 696, 40 L. Ed. 2d 476, 94 S. Ct. 2006 (1974),] did not alter the

well-settled presumption against the application of the class of new

statutes that would have genuinely 'retroactive' effect.' " 

Landgraf, 511 U.S. at 277, 128 L. Ed 2d. at 260, 114 S. Ct. at 1503.   In other words, Bradley and the other cases did not involve genuine retroactivity because they concerned either prospective

relief, procedural matters, or collateral issues.  The use of

"retroactive" versus "genuinely retroactive" is a fine point, and

the final explication of the presumption helpfully avoids these

terms and holds: 

	"The authorities we relied upon in Bradley lend further support to the conclusion that we did not intend to displace

the traditional presumption against applying statutes

affecting substantive rights, liabilities, or duties to conduct arising before their enactment. [Citation.]" 

Landgraf, 511 U.S. at 278, 128 L. Ed 2d. at 260, 114 S. Ct. at 1504. 

The quote makes clear that the Landgraf presumption against retroactivity admits only narrow exceptions, such as situations

involving prospective relief, procedural matters, or collateral

issues.  

	The State’s right to collect taxes from the Caveneys and their

obligation to pay taxes clearly trigger what Landgraf called the "traditional presumption against applying statutes affecting

substantive rights, liabilities, or duties to conduct arising

before their enactment."  Landgraf, 511 U.S. at 278, 128 L. Ed 2d. at 260, 114 S. Ct. at 1504.