Court Opinion

ID: 7018821
Source: CourtListenerOpinion
Date Created: 2022-07-24 04:32:40.109574+00
Date Added: 2024-06-11T16:10:29.493483
License: Public Domain

Mr. JUSTICE STOUDER, dissenting: I must respectfully dissent from the majority opinion finding the Peoria Hilton Hotel Company (Hilton) hable for the additional tax. The audit by the Department of Revenue covered the period from July 1, 1973, through June 30, 1976. Prior to 1974, the policy of the Department was to consider gratuity charges as not being part of the taxpayer’s gross receipts, and therefore not subject to the retailers’ occupation tax, if the charge was stated separately on the bill and all of the proceeds were in fact distributed to the employees who would normally have received the tips or gratuities. But in 1974, this policy was modified by the decision in Cohen v. Playboy Clubs International, Inc. (1974), 19 Ill. App. 3d 215, 311 N.E.2d 336, in which it was held that the determinative factor in whether the gratuity charges were part of gross receipts was whether or not the charge was mandatory. Subsequently, the Department adopted this test as its policy but failed to promulgate any rule or regulation regarding this change of policy. The crux of the issue in the case at bar is whether the taxpayer, Hilton, should be held liable for additional tax when the Department of Revenue changes its policy but fails to issue any new rule or regulation which spells out the particular change. The majority fails to address this issue, stating instead that Hilton failed to comply with the Department’s regulations in effect prior to the decision in Cohen and therefore Hilton is liable for the extra tax regardless of Cohens effect. In other words, the majority holds that whether or not the test of mandatory gratuities is applicable is immaterial in the present case because, in any event, Hilton violated the previous regulations. The trouble with the majority’s analysis is that Hilton has never been found to have violated those regulations. The administrative ruling found Hilton liable for the additional taxes only on the ground that the gratuity was mandatory, not that Hilton had failed to comply with the previous existing regulations. Upon review, the circuit court held the findings of the Department of Revenue were not against the manifest weight of the evidence. Nowhere did the court hold that Hilton had violated the Department’s regulations prior to Cohen. In the absence of such findings the majority does not have the ability to suddenly declare that Hilton had violated the Department’s regulations. Therefore, the majority’s holding that Hilton is liable is based on an invalid premise. The majority’s holding that Hilton is liable for the additional tax because it violated the Department’s regulations renders the majority’s discussion of whether or not the mandatory gratuity charges made Hilton liable dicta and permits the majority to decide the case without confronting a critical issue — whether the filing of the Cohen decision provided sufficient notice to the taxpayer regarding the Department’s change of policy so that there would be no violation of due process. I believe it was not sufficient notice. In the present case, Hilton had no reason to believe that it was not conforming to Department policy. Hilton had used the same procedure of treating the gratuities as deductible for 18 years, and past audits had always treated this procedure as being correct. While this fact in no way estops the Department from changing its policy, it does raise questions about the fundamental fairness necessary for due process of changing the policy without at least providing a means by which the taxpayer may discover there has been a change of policy. If Hilton had followed the reasonable course of checking the Department’s regulations periodically, it would have found nothing to make it think there had been a dramatic shift of policy regarding gratuities. The Department contends that the filing of the Cohen decision constituted sufficient notice to the taxpayer to avoid due process problems. The majority fails to address this issue. I believe this issue must be addressed to resolve the case, and I believe that the filing of Cohen was not sufficient notice. To hold that the filing of Cohen was sufficient notice would place an intolerable burden upon small businesses. In addition to regularly checking Department rules and regulations, businesses would have to meticulously check advance sheets for cases which might possibly affect them. Further, notice of the simple filing of a decision would not serve to alert the business as to whether or not the Department intends to change its policy due to the decision. And in any event, the effective date of the decision does not determine the effective date of the regulation, which is at best vague. A perfect example is the case at bar, in which the decision was filed April 18,1974, and the Department wishes to apply it to the audit period from July 1, 1973, to April 18, 1974, as well as the rest of the period. Therefore, to require businesses to check advance sheets for cases possibly affecting them would be a useless waste of time, energy and money. It would be much simpler, more logical and more efficient for the Department to simply amend an existing regulation or promulgate a new one when a case causes it to change its policy. This would adequately serve notice to taxpayers of changes in policy and comport with due process. In the instant case, had Hilton been given notice of the change in policy, it could have passed the additional costs on to its customers. While the instant case does not deal with retroactively applying the change in policy (except from July 1, 1973, to the date Cohen was filed), I find the reasoning in Pressed Steel Car Co. v. Lyons (1955), 7 Ill. 2d 95, 129 N.E.2d 765, to be applicable here. In Pressed Steel the court refused to retroactively apply a regulation. One of the bases for this decision was that the company had relied on the regulations extant prior to the new regulation in contracting with its customers. Hilton is in a similar situation. It relied on the regulations in existence in contracting with banquet customers. Unlike Cohen, where the tax had already been collected, in the instant case, the tax had not been collected and the majority’s holding would require Hilton to pay the tax out of its own pocket when it would otherwise have passed the additional cost on to its customers. In the absence of new regulations or any sort of notification of change of policy to the taxpayer, imposing additional taxes on these contracts is a violation of due process. For the aforementioned reasons, I dissent.