{ "id": 3519193, "name": "ILLINOIS POWER COMPANY, Plaintiff-Appellant, v. J. THOMAS JOHNSON, Director of Revenue, Department of Revenue, et al., Defendants-Appellees", "name_abbreviation": "Illinois Power Co. v. Johnson", "decision_date": "1983-07-12", "docket_number": "No. 4\u201482\u20140727", "first_page": "618", "last_page": "632", "citations": [ { "type": "official", "cite": "116 Ill. App. 3d 618" } ], "court": { "name_abbreviation": "Ill. App. Ct.", "id": 8837, "name": "Illinois Appellate Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "263 N.E.2d 473", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1978, "opinion_index": 0 }, { "cite": "46 Ill. 2d 177", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 2898222 ], "year": 1978, "opinion_index": 0, "case_paths": [ "/ill-2d/46/0177-01" ] }, { "cite": "115 Ill. App. 3d 538", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3558197 ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/115/0538-01" ] }, { "cite": "444 N.E.2d 1164", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "111 Ill. App. 3d 1086", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 5438524 ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/111/1086-01" ] }, { "cite": "369 N.E.2d 1279", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "68 Ill. 2d 568", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 5809624 ], "opinion_index": 0, "case_paths": [ "/ill-2d/68/0568-01" ] }, { "cite": "6 Ill. App. 208", "category": "reporters:state", "reporter": "Ill. App.", "case_ids": [ 4747234 ], "pin_cites": [ { "page": "210-11" } ], "opinion_index": 0, "case_paths": [ "/ill-app/6/0208-01" ] }, { "cite": "100 N.E. 4", "category": "reporters:state_regional", "reporter": "N.E.", "year": 1880, "opinion_index": 0 }, { "cite": "257 Ill. 112", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 4719481 ], "year": 1880, "pin_cites": [ { "page": "122" } ], "opinion_index": 0, "case_paths": [ "/ill/257/0112-01" ] }, { "cite": "401 N.E.2d 491", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "78 Ill. 2d 387", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 3075444 ], "opinion_index": 0, "case_paths": [ "/ill-2d/78/0387-01" ] }, { "cite": "373 N.E.2d 1332", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "71 Ill. 2d 13", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 5448551 ], "opinion_index": 0, "case_paths": [ "/ill-2d/71/0013-01" ] }, { "cite": "93 S. Ct. 562", "category": "reporters:federal", "reporter": "S. Ct.", "year": 1970, "opinion_index": 0 }, { "cite": "34 L. Ed. 2d 511", "category": "reporters:federal", "reporter": "L. Ed. 2d", "year": 1970, "opinion_index": 0 }, { "cite": "409 U.S. 1059", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 6474788, 6474635, 6474572, 6474701, 6474512, 6475057, 6474870, 6474967, 6474430 ], "year": 1970, "opinion_index": 0, "case_paths": [ "/us/409/1059-06", "/us/409/1059-04", "/us/409/1059-03", "/us/409/1059-05", "/us/409/1059-02", "/us/409/1059-09", "/us/409/1059-07", "/us/409/1059-08", "/us/409/1059-01" ] }, { "cite": "285 N.E.2d 129", "category": "reporters:state_regional", "reporter": "N.E.2d", "weight": 2, "year": 1972, "pin_cites": [ { "page": "130" }, { "page": "130" } ], "opinion_index": 0 }, { "cite": "52 Ill. 2d 70", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 5395208 ], "weight": 2, "year": 1972, "pin_cites": [ { "page": "73" }, { "page": "73" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/52/0070-01" ] }, { "cite": "364 N.E.2d 597", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "49 Ill. App. 3d 713", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 5637314 ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/49/0713-01" ] }, { "cite": "102 N.E.2d 321", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "410 Ill. 435", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 5311916 ], "opinion_index": 0, "case_paths": [ "/ill/410/0435-01" ] }, { "cite": "145 N.E.2d 71", "category": "reporters:state_regional", "reporter": "N.E.2d", "pin_cites": [ { "page": "74" } ], "opinion_index": 0 }, { "cite": "12 Ill. 2d 98", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 2779681 ], "pin_cites": [ { "page": "105" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/12/0098-01" ] }, { "cite": "410 N.E.2d 828", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1957, "opinion_index": 0 }, { "cite": "81 Ill. 2d 502", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 5480801 ], "year": 1957, "opinion_index": 0, "case_paths": [ "/ill-2d/81/0502-01" ] }, { "cite": "401 N.E.2d 491", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 1 }, { "cite": "78 Ill. 2d 387", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 3075444 ], "opinion_index": 1, "case_paths": [ "/ill-2d/78/0387-01" ] } ], "analysis": { "cardinality": 1054, "char_count": 28688, "ocr_confidence": 0.766, "pagerank": { "raw": 6.85721485949044e-08, "percentile": 0.4178481062023307 }, "sha256": "5b9eb8f9fddc86c7f922ff94fc43a3af70f95c943bb3a2484bc6f7f1acca0eee", "simhash": "1:73be88087971be17", "word_count": 4730 }, "last_updated": "2023-07-14T17:34:21.721217+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "ILLINOIS POWER COMPANY, Plaintiff-Appellant, v. J. THOMAS JOHNSON, Director of Revenue, Department of Revenue, et al., Defendants-Appellees." ], "opinions": [ { "text": "JUSTICE MILLS\ndelivered the opinion of the court:\nGas Revenue Tax Act interpretation.\nWhat is the definition of \u201ctotal long term debt\u201d as a component of \u201cinvested capital\u201d?\nIllinois Power and the Department of Revenue could not agree.\nThe trial court sided with Revenue.\nWe hold with Illinois Power.\nErgo, we reverse and remand.\nSection 2a. 1 of the Gas Revenue Tax Act (Ill. Rev. Stat. 1981, ch. 120, par. 467.17a.1) imposes a tax on those utilities subject to the Act, \u201cin an amount equal to .8% of [such utility\u2019s] invested capital for the taxable period.\u201d The tax was enacted as one of the replacement taxes for the personal property tax and became effective July 1, 1979. The tax is in addition to those imposed by the State on income and gross receipts.\nOn April 3, 1981, plaintiff Illinois Power Company, a utility subject to the Act, filed suit in the circuit court of Sangamon County against defendants, J. Thomas Johnson and Jerry Consentino, in their capacities as Director of Revenue of the Department of Revenue, and State Treasurer, respectively, seeking injunctive relief against portions of the tax which were assessed against it for the calendar year 1980. Plaintiff paid, under protest, the portion of the tax in dispute before filing suit. The complaint requested that Director Johnson and his agents be enjoined from depositing the money paid under protest into the State treasury and from taking any action against plaintiff for those funds. The complaint also requested that Treasurer Consentino be ordered to refund to plaintiff any funds paid under protest that had been received by the treasurer.\nThe trial court granted certain temporary relief, but, after a bench trial, it entered an order on October 19, 1982, denying the permanent relief requested. Plaintiff appeals. We reverse.\nSection 1 of the Act defines \u201cinvested capital\u201d as:\n\u201cthat amount equal to (i) the average of the balances at the beginning and end of each taxable period of the taxpayer\u2019s total stockholder\u2019s equity and total long-term debt, less investments in and advances to all corporations, as set forth on the balance sheets included in the taxpayer\u2019s annual report to the Illinois Commerce Commission for the taxable period; (ii) multiplied by a fraction determined under [the Illinois Income Tax Act].\u201d (Emphasis added.) (Ill. Rev. Stat. 1981, ch. 120, par. 467.16.)\nSection 1 also defines \u201ctaxable period\u201d as \u201ceach period which ends after the effective date of this Act and which is covered by an annual report filed by the taxpayer with the Illinois Commerce Commission.\u201d (Ill. Rev. Stat. 1981, ch. 120, par. 467.16.) Plaintiff files this report on a calendar year basis. The pertinent forms of the report are here set forth:\nui\n41\n4T\u00bb\n\u2022t-4\n45\ntA\nThe dispute between the parties concerns the calculation of items to be considered in determining the \u201ctotal long-term debt\u201d component of \u201cinvested capital\u201d under the provisions of section 2a. 1. Plaintiff maintains that certain adjustments should be made to the total face amount of bonds outstanding to obtain a true \u201ctotal long-term debt\u201d balance. It would make (1) a subtraction for the unamortized discount and expense which it incurred upon the issuance of bonds, and (2) an addition for the unamortized premium realized from the issuance of bonds. Defendants maintain that no such adjustments should be made. For the year 1980, plaintiff\u2019s tax was assessed at an amount $32,362.06 higher than it would have been had its method of computation been used. That sum was paid under protest.\nWhen a corporation such as plaintiff floats a bond issue, a usual method is to offer bonds of a particular maturity at a stated face amount and interest rate. The bonds are then bid upon and sold for an amount that usually varies from the face amount of the bonds, creating an effective interest rate that is either greater or less than that stated on the bonds. If the bonds are sold at a greater price than the face amount, they are said to have been sold at a premium. If sold at a lower price, they are said to have been sold at a discount. Under generally accepted accounting principles and under the requirements of the Illinois Commerce Commission, the premium or discount and the expenses of the issuance of the bonds are amortized over the life of the bonds. The amortization of the discount and costs of issuance constitute expenses and the amortization of the premium constitutes income.\nPlaintiff contends that it is necessary to make the adjustments it proposes to determine a true amount for \u201cinvested capital\u201d because: (1) Money spent for the expenses of the issuance of bonds is not available for the purchase of assets for the corporation; (2) if bonds are issued at a discount, the full face amount of the bonds is never received by the corporation; (3) when bonds are issued at a premium, a sum in excess of the face amount of the bonds is received by the corporation, and unless used for expenses of issuance, is available for investment in assets.\nThe gradual amortization of the debit account of bond discounts and expenses decreases stated profits, thereby decreasing \u201cstockholder\u2019s equity,\u201d while at the same time true long-term debt would be increasing by the same amount. The reverse is true for amortization of premiums. Plaintiff\u2019s theory was supported by the undisputed testimony of accounting experts that, under generally accepted accounting principles, to determine actual \u201cinvested capital,\u201d the face amount of the bonds would be so adjusted. Evidence was also presented that for the purpose of determining invested capital for setting utility rates, and for determining plaintiff\u2019s need for capital when approving the issuance of bonds, the Commerce Commission makes such adjustments to the bond accounts.\nDefendants\u2019 contention that plaintiff\u2019s \u201cinvested capital\u201d was properly computed and the tax properly assessed is based on (1) the statutory requirement that \u201cinvested capital\u201d includes the \u201ctotal long-term debt *** as set forth on the balance sheets\u201d in plaintiff\u2019s annual report to the Commission, and (2) the providing by the Commission, and use by the plaintiff, of balance sheets and supporting documents which (a) contained a category in the exact words of the statute, i.e., \u201ctotal long-term debt,\u201d and made no reference to unamortized discounts or premiums on the issuance of that debt or the unamortized expenses of its issuance, and (b) listed those latter items in other categories.\nThe issue thus becomes whether the legislature intended that \u201cinvested capital\u201d be determined (1) by taking figures from the balance sheets referred to and then arranging the figures in such a manner as to make the determination consistent with accepted accounting principles and the practice of the Commerce Commission, as asserted by plaintiff, or (2) by accepting and using those figures in the format in which they are presented on the balance sheets, as asserted by defendants.\nThe balance sheets submitted by plaintiff to the Illinois Commerce Commission for the year ended December 31, 1980, were on forms provided by the Commission. Accompanying instructions gave the following statement:\n\u201cThis form of annual report is prepared in conformity with the applicable uniform system of accounts and all of the accounting terminology used herein is in accordance therewith.\u201d\nThe first page of the balance sheet forms lists \u201cAssets and Other Debits.\u201d One heading is labeled \u201cDEFERRED DEBITS.\u201d Under it is listed line items for \u201cUnamort. Debt Discount and Expense\u201d and such items as \u201cExtraordinary Property Losses\u201d and \u201cClearing Accounts.\u201d There is a line for \u201cTotal Deferred Debits\u201d and the total from that line is used in the computation of \u201cTotal Assets and Other Debits.\u201d The second page lists \u201cLiabilities and Other Credits.\u201d One of its headings is labeled \u201cLONG-TERM DEBT.\u201d Under that heading are line items for (1) \u201cBonds\u201d where the total face amount of existing long-term bonds is listed, (2) \u201cAdvances from Assoc. Companies,\u201d and (3) \u201cOther Long-Term Debt.\u201d The sum of these items is then listed as \u201cTotal Long-Term Debt.\u201d On the same page, under the heading \u201cDEFERRED CREDITS\u201d there is a line item for \u201cUnamortized Premium on Debt.\u201d The sums of these two headings are included in the computation of \u201cTotal Liabilities and Other Credits.\u201d\nThe \u201cUniform System of Accounts for Gas Utilities\u201d adopted by the Illinois Commerce Commission by General Order 179, as revised, was offered by plaintiff and admitted into evidence. It treats the unamortized items in the same manner as do the balance sheets. Instruction 181 of that document lists \u201cUnamortized Debt Discount and Expense\u201d under \u201cDEFERRED DEBITS,\u201d together with other debit accounts which cannot be deducted directly from any account on the liabilities and capital side of the ledger. Neither that instruction nor instructions 221 through 224, dealing with \u201cLONG-TERM DEBTS,\u201d make reference to the unamortized expense or discount balances being deducted from the face amount of debt instruments to obtain a true \u201cTotal Long-Term Debt\u201d balance. Neither does instruction 251, \u201cUnamortized Premium on Debts,\u201d make any reference to use of its balance in obtaining such a balance.\nThe balance sheets make reference to the accounts for the various items discussed and those accounts are filed as supplements to the balance sheets. One account covers \u201cUnamortized Debt Discount and Expense and Unamortized Premium on Debt.\u201d That account lists the face amount of each bond issue and the \u201cTotal Discount and Expense or Net Premium on each.\u201d It then lists the balance in the amortization account at the beginning of the year, the adjustment made during the year to the amortization account, and the balance in that account at the end of the year. Totals are given for the discount accounts, the balances at the beginning of the year, the adjustments made, and the ending balance. No totals are given for the face amount of indebtedness, nor are any adjustments made to the face amount of the debt instruments. The \u201cLong-Term Debt Account\u201d makes no reference to expenses of issuance, discount, or premium.\nThe plain language of a statute is controlling unless a different legislative intent is apparent from the purpose and history of the Act. (Bodine Electric Co. v. Allphin (1980), 81 Ill. 2d 502, 410 N.E.2d 828.) \u201cThe legislative intent should be sought primarily from the language used in the statute, and if such intent can be ascertained therefrom, it should prevail without resorting to other aids for construction.\u201d Louis A. Weiss Memorial Hospital v. Kroncke (1957), 12 Ill. 2d 98, 105, 145 N.E.2d 71, 74.\nDefendants maintain that the legislature must be presumed to have known the makeup of the Commission\u2019s balance sheet forms. (See Krebs v. Board of Trustees (1951), 410 Ill. 435, 102 N.E.2d 321.) They thus conclude that there is no ambiguity in how \u201ctotal long-term debt\u201d is to be determined and maintain that further judicial inquiry is unwarranted. The record does not support such a conclusion.\nThe balance sheet forms provided by the Commission have no exact category titled either \u201ctotal stockholder\u2019s equity\u201d or \u201cinvestments and advances to all corporations,\u201d the other two elements of \u201cinvested capital\u201d under the Act. The parties have agreed that \u201ctotal stockholder\u2019s equity\u201d corresponds to the line item on the Commission form labelled \u201cTotal Proprietary Capital.\u201d (Since under section 2a.2 of the Act utilities are required to report \u201ctotal proprietary capital\u201d to the Department of Revenue, this is a logical construction.) Plaintiff\u2019s expert testimony indicated that \u201cinvestments in and advances to all corporations\u201d can only be determined by first looking to two different line items on the debit side of the balance sheet, \u201cInvestments in Associated Companies\u201d and \u201cOther Investments,\u201d and then examining supplemental schedules to determine the nature of the individual entries. Defendants have not argued that this is incorrect.\nTwo of the three components of \u201cinvested capital\u201d cannot be determined by mechanically matching a single line item from the Commission\u2019s balance sheet to the wording of the statute. Consequently, we cannot conclude from the face of the statute that by saying \u201cas set forth on the balance sheet,\u201d the legislature meant a particular line item, and it only, should be used to determine the third component, merely because the language in the statute and on the form is the same. Whether the coincidence is a fortuity, as plaintiff suggests, can only be determined by delving beyond the plain words of the statute.\nRelying on Illinois Power Co. v. Mahin (1977), 49 Ill. App. 3d 713, 364 N.E.2d 597, defendant argues that we should not look beyond the plain words of the statute to plaintiff\u2019s accounting methods established by the Commission. We find Illinois Power Co. inapposite because the statute there contained a complete and specific definition of the term in question. Furthermore, the question here is not one of accounting methods, but rather what significance the legislature meant to give to a particular way of presenting financial information and the terminology used on an informational form.\n\u201cThe cardinal rule of statutory construction, to which all other canons and rules are subordinate, is to ascertain and give effect to the true intent and meaning of the legislature.\u201d (People ex rel. Hanrahan v. White (1972), 52 Ill. 2d 70, 73, 285 N.E.2d 129, 130, cert. denied (1972), 409 U.S. 1059, 34 L. Ed. 2d 511, 93 S. Ct. 562, citing People v. Hudson (1970), 46 Ill. 2d 177, 263 N.E.2d 473.) Interpretation of a statute must be grounded on the nature and the object of the statute as well as the consequences which would result from construing it one way or another. Andrews v. Foxworthy (1978), 71 Ill. 2d 13, 373 N.E.2d 1332.\nThe tax in question purports to be imposed on \u201cinvested capital.\u201d The language used to describe the components of invested capital, \u201ctotal stockholder\u2019s equity and total long-term debt, less investments in and advances to all corporations,\u201d even in a nontechnical sense, gives the general impression of a tax on the amount of money at least semi-permanently committed to the utility\u2019s operation. Indeed, in Continental Illinois National Bank & Trust Co. v. Zagel (1979), 78 Ill. 2d 387, 401 N.E.2d 491, the Illinois Supreme Court sustained the constitutionality of the tax on the basis that it was an excise tax levied on the privilege of engaging in a particular business.\nIf a utility were to raise $500 by selling a debt instrument, denominated on its face at $1,000, it could in no sense be thought to have $1,000 to use for engaging in business. It is true that when the time comes to redeem the debt the utility must have $1,000. However, by that time the amount of the original discount, whether by amortization or some other charge against income, will have in some manner reduced stockholder\u2019s equity.\nThat the Commission recognizes the need for adjustments for premiums, discounts and expenses incurred when raising any form of capital is abundantly clear. The line on the form labelled \u201ctotal proprietary capital,\u201d which is assumed to be \u201ctotal stockholder\u2019s equity\u201d under the Act, is determined by adjusting the capital stock account for premiums, discounts and expenses on the.sale of stock. The expert testimony established that when the Commission makes substantive decisions which require knowledge of a utility\u2019s invested capital and long-term debt, it makes the very deductions and additions for which plaintiff argues. In making these deductions and additions, the Commission uses the figures \u201cas set forth on the balance sheet.\u201d\nIt is significant that the Commission, although it has prepared the balance sheet format solely for its own purposes, does not view the format controlling in matters of substance, but only as a way for a utility to report information. Why the Commission has chosen this particular format to set forth long-term debt and its premiums and discounts, may be rooted in old accounting practices or other irrelevant considerations. However, the record is clear as to how the Commission uses the balance sheet figures to determine long-term debt.\n\u201cCommercial, trade, or professional terms used in a statute which has reference to, or deals with, the trade, business, or profession are construed in the sense in which such terms are generally used or understood in the trade, business, or profession, even though such meaning may differ from their common or ordinary meaning.\u201d (82 C.J.S. Statutes sec. 330 (1953); see, e.g., Donham v. Joyce (1912), 257 Ill. 112, 122, 100 N.E. 4; Herring v. Poritz (1880), 6 Ill. App. 208, 210-11.)\nHere, as discussed earlier, the meaning given by the administrative agency with expertise even coincides with common sense notions regarding the meaning of \u201cinvested capital.\u201d\nFurthermore, to mechanically adhere to a reporting format leaves the amount of the tax dependent on how the Commission deems it convenient to have the information displayed. Since it has been shown that at least some of that display has no substantive meaning to the Commission, it is unreasonable to conclude that changes in the forms which may be cosmetic should be able to change the substance of the tax on invested capital. A change in the Commission\u2019s method of determining total long-term debt or invested capital for substantive purposes would of course be a different matter.\nSimilarly, the situation here is not analogous to the use of adjusted gross income from Federal tax returns to establish a taxpayer\u2019s base income for the purpose of the Illinois Income Tax Act. (Ill. Rev. Stat. 1981, ch. 120, par. 1\u2014101 et seq.) In that case, the extrinsic term which is being relied on is strictly defined by the Internal Revenue Code, not merely picked up as a nonsubstantive line item from an informational form.\nAllowing a nonsubstantive format to control a tax is not the only unreasonable result to which defendants\u2019 position would lead. Consider the example of three utilities which each raise $2,000 in cash to invest in equipment. One sells bonds with a very low interest rate (on its face), and because market rates are high it takes the sale of four $1,000 bonds to raise $2,000. Another utility sells its bonds with a face interest rate above the market and receives $2,000 upon the sale of one $1,000 bond. The third utility sells stock having a par value of $100, netting $2,000, after expenses. By defendants\u2019 interpretation of the law, the first utility will pay a tax on $4,000, the second on $1,000, and the third on $2,000. This is so, even though they all raised the same amount of money and employed the same amount of money in their utility business.\nWhile the legislature could impose such a tax, there is no evidence that that was the purpose of the present tax. Such a perverse division of the tax burden would not be a tax on \u201cinvested capital\u201d nor would it be an excise tax on the privilege of doing business as a utility. It would be a graduated tax on the issuance of bonds at an interest rate lower than the market rate. Such a result is both unreasonable and clearly not within the intent of the legislature. Taxing statutes should be construed so that they are given a reasonable and common sense meaning. (Department of Revenue v. Joseph Bublick & Sons, Inc. (1977), 68 Ill. 2d 568, 369 N.E.2d 1279.\nFinally, plaintiff calls to our attention Moline National Bank v. Department of Revenue (1983), 111 Ill. App. 3d 1086, 444 N.E.2d 1164. The question there concerned section 203(b)(2)(A) of the Illinois Income Tax Act (Ill. Rev. Stat. 1981, ch. 120, par. 2\u2014203(b)(2)(A)), which requires corporate payers to modify their taxable income based upon the Internal Revenue Code by the amount of interest accrued or received which was exempt under the Internal Revenue Code. In this case it was exempt municipal bond interest. Section 203(b)(2)(A) made no provision for the corporate taxpayer to deduct from the amount of that interest the yearly amortization of any premium paid in purchase of the bonds. The Third District, in a split decision, held that the right to do so was implied. It noted: (1) The tax was stated to be a tax on \u201cnet income\u201d (Ill. Rev. Stat. 1981, ch. 120, par. 2\u2014201); (2) the Internal Revenue Code permitted the deduction for nonexempt interest; (3) reasonable accounting would require the deduction.\nThe First District has recently come to the opposite conclusion. (Continental Illinois National Bank & Trust Co. v. Lanckos (1983), 115 Ill. App. 3d 538.) The court in Continental Illinois Bank, as well as the dissent in Moline, maintained that because the statute made no provision for deductions from interest, none could be implied. It also noted that in other parts of the Illinois Income Tax Act the term \u201cinterest\u201d had not been construed in the manner that the taxpayer was advocating.\nWhile there is some analogy between the issue in Moline and Continental Illinois Bank and the situation found here, the peculiar nature of the Illinois Income Tax Act and its relation to the Internal Revenue Code precludes any direct comparison. Our holding is based on the circumstances of the statute in question only.\nWe conclude from both the unreasonableness of the results of defendants\u2019 construction and the general purpose of the statute that the legislature intended that long-term debt for purposes of this tax on invested capital be determined \"with the adjustments plaintiff has made on its return. Our responsibility \u201cis to ascertain and give effect to the true intent and meaning of the legislature.\u201d People ex rel. Hanrahan v. White (1972), 52 Ill. 2d 70, 73, 285 N.E.2d 129, 130.\nThe judgment of the trial court is reversed and remanded.\nReversed and remanded.\nTRAPP, J., concurs.", "type": "majority", "author": "JUSTICE MILLS" }, { "text": "JUSTICE GREEN,\ndissenting:\nSection 1 of the Gas Revenue Tax Act defines \u201cinvested capital\u201d as an amount computed from the average balances at the beginning and end of each for three categories of items \u201cas set forth on the balance sheets\u201d (emphasis added) (Ill. Rev. Stat. 1981, ch. 120, par. 467.16) included in certain reports which were required to be submitted to the Illinois Commerce Commission. One of those categories is \u201ctotal long-term debt.\u201d\nThe form for those reports contains an item for \u201cTotal Long-Term Debt\u201d and lists it on the \u201cLiabilities and Other Credits\u201d side of the balance sheet. Neither the form prescribed, by the Commission nor the Uniform System of Accounts for Gas Utilities prescribed by the Commission for keeping the accounts, provides for making a deduction for unamortized discount or expense in computing the total amount of long-term debt. Rather those items of discount and expense are placed on the \u201cAssets and Other Debits\u201d side of the balance sheet. The majority would, nevertheless, make a deduction for those items in determining \u201ctotal long-term debt\u201d within the meaning of section 1 of the Act because they believe the legislature intended the use of certain accounting principles which would treat these items in that way.\nMy disagreement with the majority stems from my interpretation of the portion of section 1 which states \u201cas set forth on the balance sheets\u201d (emphasis, added). The phrase \u201cset forth\u201d is defined as: \u201cto give an account or statement of\u201d or \u201cpresent fully and clearly: EXPLAIN, DESCRIBE.\u201d (Webster\u2019s Third New International Dictionary 2077 (1971).) The use by the legislature of the phrase indicates an intention that the balance sheet format was intended to have a significance beyond the amount of the figures contained on the sheet. The method of accounting for, stating, describing, and explaining the figures was also to be of significance. As the determination for the amount of total long-term debt was presented and explained on the balance sheets, no deduction was made for unamortized discount or expenses. As the amount of total long-term debt was \u201cset forth\u201d in that manner on the balance sheets, it should have been \u201cset forth\u201d in that manner in determining \u201cinvested capital.\u201d\nMy position is not premised principally on the coincidence in wording between section 1 and the balance sheet forms with reference to total long-term debt. Rather it is based on the format by which the item is calculated for balance sheet purposes. If it were necessary to add two or more items on the same side of the balance sheet to obtain \u201ctotal long-term debt\u201d my position would be the same. Thus, the theory of this dissent is not negated because some interpretation of the balance sheet was necessary to determine the balances for the other two categories of \u201cinvested capital.\u201d In calculating these two categories, items on one side of the balance sheet were not added to or subtracted from those on the other side to obtain the required balances. In each case the interpretations made were consistent with the format of the balance sheets and the prescribed Uniform System of Accounting for Gas Utilities.\nThe recognition by the Commission that discount and expenses in issuance of stock was a direct deduction to be made in determining \u201ctotal proprietary capital\u201d does not indicate an intention that the unamortized portions of those items arising from issuance of instruments of debt should be treated in the same way. Discount and expense in issuance of stock are not amortized. It is consistent with conservative accounting principles to show capital items in a way that minimizes the amount, while showing items of debt in the full amount that will eventually have to be paid.\nI agree with the majority that the position of the dissent would discourage issuance of discount bonds, but I do not suppose that, in any event, bonds would be issued at discounts as large as set forth in the hypothetical used by the majority. I also agree with the majority that allowing adjustments for the two unamortized items in determining \u201ctotal long-term debt\u201d would be in accordance with general accounting principles and would aid in making a more realistic determination of \u201cinvested capital.\u201d However, the phrase \u201cinvested capital\u201d is, at best an uncertain phrase. Here, it was obviously not limited to the amount furnished by the investors. Nor is long-term debt and proprietary capital accurate criteria for determining the expenditures for assets having long-term value. Some long-term debt is created to supply working capital and some short-term debt is used to purchase assets to be used over a period of years.\nThe majority correctly states that the instant tax was enacted as a partial replacement for the corporate personal property tax. Article IX, section 5(c) of the Illinois Constitution of 1970 (Ill. Const. 1970, art. IX, sec. 5(c)) mandated this replacement and required it to be done by means other than the imposition of ad valorem taxes on real estate. In Continental Illinois National Bank & Trust Co. v. Zagel (1979), 78 Ill. 2d 387, 401 N.E.2d 491, the supreme court upheld the \u201cinvested capital tax\u201d as being an excise tax on the privilege of operating as a utility and not an ad valorem tax on property. The opinion indicated that a major purpose of the legislation was to impose on utilities a tax burden similar to that it had under the personal property tax. The focus of the legislative intent was to produce a viable excise tax. The court held that the lack of relationship between the book value of the \u201ctotal long-term debt\u201d and \u201ctotal stockholders equity\u201d balances and the actual value of the assets of the utility supported the theory that the measure was an excise tax.\nIn the context of the foregoing legislative history it is not appropriate to assume the legislature intended to use the accounting principles advanced by the majority when the express language indicates otherwise. The figure shown on the balance sheet for total long-term debt is the amount that (1) the utility will eventually have to pay as principal on that debt, and (2) would be due at present if the debts were all accelerated and made payable presently. There is a rational basis for using the balance of the \u201cLong-Term Debt\u201d account in determining the basis for an excise tax on the privilege of operating as a utility.\nAccordingly, I would affirm.", "type": "dissent", "author": "JUSTICE GREEN," } ], "attorneys": [ "Owen E. MacBride and Janet M. Johnson, both of Schiff, Hardin & Waite, of Chicago, for appellant.", "Neil E Hartigan, Attorney General, of Springfield (Imelda R. Terrazino, Assistant Attorney General, of counsel), for appellees." ], "corrections": "", "head_matter": "ILLINOIS POWER COMPANY, Plaintiff-Appellant, v. J. THOMAS JOHNSON, Director of Revenue, Department of Revenue, et al., Defendants-Appellees.\nFourth District\nNo. 4\u201482\u20140727\nOpinion filed July 12, 1983.\nGREEN, J., dissenting.\nOwen E. MacBride and Janet M. Johnson, both of Schiff, Hardin & Waite, of Chicago, for appellant.\nNeil E Hartigan, Attorney General, of Springfield (Imelda R. Terrazino, Assistant Attorney General, of counsel), for appellees." }, "file_name": "0618-01", "first_page_order": 640, "last_page_order": 654 }