Opinion ID: 2169840
Heading Depth: 3
Heading Rank: 3

Heading: AGR Classification

Text: As previously noted, the circuit court in the case at bar held there was no real and substantial difference between the four casinos taxed and the five that were not and, as a result, there was no reasonable relationship between the AGR classification and the object of the Act. Before this court, plaintiffs ask us to uphold this finding. Defendants and intervenors, however, contend that the casinos with an AGR over $200 million can better absorb the surcharge and that this is a proper basis for distinguishing the casinos. Defendants and intervenors maintain that the circuit court's decision must be reversed because plaintiffs failed to meet their burden of demonstrating that this justification for the AGR classification is insufficient as a matter of law or unsupported by the facts. Initially we note that one reason the circuit court ruled as it did was because it held that the General Assembly did not set forth its justification for the AGR classification within the Act itself. Defendants and intervenors contend that this was error on the circuit court's part. We agree. Although none of the cases cited by the parties directly analyze this question, it is evident from case law that the legislature is not required to state its justification for a classification within an act. As this court has stated: The reasons justifying the classification, moreover, need not appear on the face of the statute, and the classification must be upheld if any state of facts reasonably can be conceived that would sustain it. Department of Revenue v. Warren Petroleum Corp., 2 Ill.2d 483, 490, 119 N.E.2d 215 (1954). We conclude, therefore, that the legislature is not required to provide its justification for a classification within the statute itself. The circuit court's holding to the contrary was in error. On a related issue, plaintiffs argue that the ability to absorb justification fails because it is at odds with the expressly stated purpose of the Act, which is to address the harm created by casinos to horse track racing. Plaintiffs maintain that, when the legislature states its purpose within an act, a classification cannot later be upheld on other grounds. In support of this argument, plaintiffs rely on Primeco Personal Communications, L.P. v. Illinois Commerce Comm., 196 Ill.2d 70, 254 Ill.Dec. 749, 748 N.E.2d 195 (2001). In Primeco, a municipal infrastructure maintenance fee was imposed by certain municipalities on telecommunications retailers. The plaintiffs were wireless telecommunications retailers who argued that the fee violated the uniformity clause because the fee was intended as a means of compensating municipalities for the physical occupation of the public right-of-way by telecommunication providers. Because the plaintiffs, being wireless, did not physically occupy any public right-of-way, they argued that they should not be subject to the fee. Primeco, 196 Ill.2d at 73, 254 Ill.Dec. 749, 748 N.E.2d 195. The defendants denied that the fee was a means of compensating municipalities for their occupation of the public right-of-way and instead argued that the fee was a means of raising revenue. The circuit court found that the object of the fee was to compensate municipalities for use of the right-of-way. Because the wireless retailers did not use these right-of-ways, the court held the classification as applied to plaintiffs was unreasonable. Primeco, 196 Ill.2d at 82, 254 Ill.Dec. 749, 748 N.E.2d 195. We affirmed the circuit court and held there was no reasonable relationship between the classification and the object of the legislation. Plaintiffs maintain that Primeco held that when the General Assembly expressly sets forth the purpose of a tax, the taxing body cannot defend against a uniformity challenge by offering a different rationale. However, this language appears nowhere in Primeco, nor can it be implied from other language in the opinion. Primeco simply does not so hold. We find Primeco distinguishable for another reason. The defendants in Primeco were attempting to define the purpose of the act itself, not the justification for a classification. In the case at bar, defendants and intervenors do not assert, as plaintiffs maintain, that the purpose for imposing the surcharge was based on the ability to absorb. Instead, they assert that the AGR classification is based on the ability to absorb the costs. Defendants have produced a justification for the classification, i.e., the ability to absorb the surcharge, which the General Assembly could reasonably have concluded was a rational justification. It is therefore incumbent upon plaintiffs to show that the justification is insufficient as a matter of law or unsupported by the facts. Plaintiffs contend that the defendants' justification fails because it is not supported by the facts. Plaintiffs maintain that, if the General Assembly was concerned about a casino's ability to absorb the cost, it would have set the measuring point of the casinos' financial condition at the time the surcharge was paid, rather than the 2004 AGR. Plaintiffs assert that this retrospective view suggests the $200 million limit was arbitrarily selected to insulate the downstate casinos from the tax and was not a point at which a casino could afford to absorb the surcharge. Plaintiffs further argue that the $200 million AGR was selected by the legislature because it allowed the downstate casinos to be exempt from the tax and that exempting the downstate casinos from the tax was the only way the legislature was able to get the Act passed. We are unpersuaded by plaintiffs' arguments. First, plaintiffs have not shown that there is no real and substantial difference between the downstate casinos and the upstate casinos, which are the ones that have AGRs over $200 million. The fact is, however, that the downstate casinos' average intake is between $2 and $6 million per month, while the upstate casinos, located in more populated areas, have an average intake of $20 to $40 million per month. This is a substantial difference. Moreover, plaintiffs' suggestion that a different method for determining the financial condition of the casinos for deciding whether to impose the surcharge is impractical. It would be inconceivable to measure the financial condition of the casinos at the time they were required to pay the surcharge. The Act requires the surcharge to be levied on a daily basis. It would be logistically impossible to measure the financial condition of each casino every single day. The legislature had to set some measuring point. Since the bill was introduced in 2005, the 2004 figures were the most recent financial figures and, thus, a logical choice to use as the measuring point. Further, plaintiffs' suggestion that setting the measuring stick at $200 million was the result of a legislative compromise is not a relevant consideration. The justification itself is the critical focus. If the justification is reasonable, any further inquiry into the motives of the legislature is improper. Donovan v. Holzman, 8 Ill.2d 87, 96, 132 N.E.2d 501 (1956) (court is not at liberty to inquire into the motives of the legislature). Plaintiffs' arguments fail to persuade us that the justification for the AGR classification is not supported by the facts. Plaintiffs further argue that mere quantitative differences in AGR between otherwise identical businesses should never be enough, alone, to justify an exemption from a fee. Plaintiffs maintain that a qualitative difference must exist between the five casinos below the $200 million threshold and the four above it, and that none exists here, because all casinos have the similar ability to incorporate the cost of the surcharge into the services they provide. Initially, we do not accept plaintiffs' premise that all casinos are identical. While it may be true that all casinos might be able to incorporate a surcharge into their services and pass the charge along to customers, this does not mean the casinos are identical. More fundamentally, however, we agree with defendants that the uniformity clause allows subclassifications and exclusions as long as they are reasonable. As such, quantitative differences in AGR may be sufficient to justify a classification. We have previously held that there need not be proof of perfect rationality as to each and every taxpayer. Arangold Corp., 204 Ill.2d at 153, 272 Ill.Dec. 600, 787 N.E.2d 786. We conclude that plaintiffs have failed to meet their burden of demonstrating there is no real and substantial difference between the two groups of casinos. Plaintiffs have not shown the classification is arbitrary or unreasonable. Accordingly, we conclude that the circuit court erred in holding that the Act violates the uniformity clause of the Illinois Constitution.