FILED August 2, 2016 2016 IL App (4th) 150522 Carla Bender th 4 District Appellate NO. 4-15-0522 Court, IL IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
CHRISTOPHER JENNER, LAUREL JENNER, ) Appeal from THOMAS KLINGNER, ADAM LIEBMANN, ) Circuit Court of KELLY LIEBMANN, MICHELLE MATHIA, ) Sangamon County KRISTINA RASMUSSEN, JEFFREY TUCEK, ) No. 15MR16 MARK WEYERMULLER, and JUDI WILLARD, ) Plaintiffs-Appellants, ) v. ) THE ILLINOIS DEPARTMENT OF COMMERCE ) Honorable AND ECONOMIC OPPORTUNITY, ) John Madonia, Defendant-Appellee. ) Judge Presiding.
JUSTICE APPLETON delivered the judgment of the court, with opinion. Justices Harris and Steigmann concurred in the judgment and opinion.
OPINION ¶1 Plaintiffs are a group of Illinois taxpayers: Christopher Jenner, Laurel Jenner,
Thomas Klingner, Adam Liebmann, Kelly Liebmann, Michelle Mathia, Kristina Rasmussen,
Jeffrey Tucek, Mark Weyermuller, and Judi Willard. They brought this action in Sangamon
County circuit court for declaratory and injunctive relief against defendant, the Illinois
Department of Commerce and Economic Opportunity, alleging that defendant had promulgated a
regulation allowing tax credits greater than those allowed by statute. Defendant moved for the
dismissal of the complaint on the ground that plaintiffs lacked standing (735 ILCS 5/2-619(a)(9)
(West 2014)), and the trial court granted the motion, dismissing the complaint with prejudice.
Plaintiffs appeal. We reverse the trial court’s judgment and remand this case for further proceedings, because taxpayers have standing to seek an injunction against the use of public
funds to administer an allegedly illegal tax regulation.
¶2 I. BACKGROUND
¶3 The Economic Development for a Growing Economy Tax Credit Act (Act) (35
ILCS 10/5-1 to 999-1 (West 2014)) authorizes defendant to award a tax credit to “[a] person that
proposes a project to create new jobs in Illinois” and that “enter[s] into an Agreement with
[defendant] for the Credit under this Act” (35 ILCS 10/5-15(b) (West 2014)). The “Agreement”
must include, among other things, “[a] specific method for determining the number of New
Employees employed during a taxable year” (35 ILCS 10/5-50(5) (West 2014)) as well as a
requirement that the taxpayer “annually report to [defendant] the number of New Employees, the
Incremental Income Tax withheld in connection with the New Employees, and any other
information [defendant] needs to perform the Director’s duties under this Act” (35 ILCS 10/5-
50(6) (West 2014)).
¶4 The amount of tax credit under the Act “shall not exceed the Incremental Income
Tax attributable to the project that is the subject of the Agreement.” 35 ILCS 10/5-15(d) (West
2014). The Act defines the “ ‘Incremental Income Tax’ ” as “the total amount withheld during
the taxable year from the compensation of New Employees[,] under Article 7 of the Illinois
Income Tax Act [(35 ILCS 5/701 et seq. (West 2014)),] arising from employment at a project
that is the subject of an Agreement.” 35 ILCS 10/5-5 (West 2014). The Act defines “ ‘New
Employee’ ” as “[a] Full-time Employee first employed by a Taxpayer in the project that is the
subject of an Agreement and who is hired after the Taxpayer enters into the tax credit
Agreement.” (Emphasis added.) 35 ILCS 10/5-5(b) (West 2014).
-2- ¶5 The Illinois General Assembly empowered defendant to promulgate regulations
implementing the Act (35 ILCS 10/5-10(a) (West 2014)), and, according to the complaint,
defendant has promulgated regulations allowing tax credits greater than those the Act allows.
Under defendant’s regulations, it can award a tax credit no greater than “the incremental payroll
attributable to the applicant’s project.” 14 Ill. Adm. Code 527.20 (2008) (definition of
“ ‘Credit’ ”). So far, so good, but further down in section 527.20, defendant defines
“ ‘Incremental payroll’ ” as “ the total amount withheld by the taxpayer during the taxable year
from the compensation of new employees and retained employees under Article 7 of the Illinois
Income Tax Act [citation] arising from such employees’ employment at a project that is the
subject of an Agreement.” (Emphasis added.) Id. Defendant in turn defines “ ‘Retained
employee’ ” as follows: “ ‘Retained employee’ means a full-time employee employed by a
taxpayer during the term of the agreement whose job duties are directly and substantially-related
to the project. For purposes of this definition, ‘directly and substantially-related to the project’
means at least two-thirds of the employee’s job duties must be directly related to the project and
the employee must devote at least two-thirds of his or her time to the project.” Id.
¶6 Those regulatory definitions are, in plaintiffs’ view, unlawful because they allow
businesses to receive a larger tax credit than the Act permits. Instead of limiting the tax credit to
the amount of the income tax withheld from new employees’ paychecks, as section 5-15(d) of the
Act requires, defendant’s regulations would award businesses a tax credit up to the amount of the
income tax withheld from paychecks of both new and retained employees who work on a project
that is the subject of an “Agreement.” Plaintiffs allege that these excessive tax credits,
unauthorized by statute, deplete public funds and that taxpayers such as themselves could end up
having to replenish the deficiency. Also, apart from their liability to replenish a deficiency in the
-3- general revenues, plaintiffs argue that defendant’s use of their tax dollars to administer illegal
regulations is, in and of itself, an injury to them, the taxpayers, just as a trustee’s illegal use of
the trust corpus is, in itself, an injury to the beneficial owners of the corpus.
¶7 This two-pronged argument was unsuccessful below. The trial court regarded the
State as the only real party in interest and was unconvinced that by granting tax credits pursuant
to its regulations, defendant would cause any injury to plaintiffs as taxpayers. In the court’s view,
taxpayers had standing only when they challenged tax statutes as unconstitutional or otherwise
illegal; they did not have standing when challenging how a statute “[got] interpreted” or “the
judgment of policy, expenditures[,] or allocations of funds.” Consequently, the court granted
defendant’s motion, dismissing the complaint with prejudice.
¶8 This appeal followed.
¶9 II. ANALYSIS
¶ 10 A. Defendant’s Motion To Strike a Portion of Plaintiffs’ Brief
¶ 11 Before addressing the merits of this appeal, we note that defendant urges us to
strike part III of the statement of facts in plaintiffs’ brief on the ground that part III contains
argumentative matter. See Ill. S. Ct. R. 341(h)(6) (eff. Feb. 6, 2013) (“Statement of Facts, which
shall contain the facts necessary to an understanding of the case, stated accurately and fairly
without argument or comment ***.”). Part III could come across as argumentative in that it says,
for example: “[Defendant’s] regulations allow a business to receive a larger tax credit than [the]
Act permits.” But judging from the accompanying citations to the complaint, we infer that, in
part III of their statement of facts, plaintiffs mean to summarize their complaint rather than to
make an argument. Thus, we decline to strike part III.
-4- ¶ 12 B. The Concept of Standing
¶ 13 The doctrine of standing saves the courts from becoming “mired in abstract
questions, moot issues, or cases brought on behalf of parties who do not desire judicial aid.” In re
Estate of Zivin, 2015 IL App (1st) 150606, ¶ 14. The doctrine weeds out academic disputes
brought by the “merely curious or concerned.” Id. It does so by asking whether the plaintiff has
suffered an injury to a legally cognizable interest or, if the plaintiff has not yet suffered such an
injury, whether the plaintiff is in real danger of such an injury (Greer v. Illinois Housing
Development Authority, 122 Ill. 2d 462, 492-93 (1988)). This actual or threatened injury must be
“(1) distinct and palpable [citation]; (2) fairly traceable to the defendant’s actions [citation]; and
(3) substantially likely to be prevented or redressed by the grant of the requested relief
[citation].” (Internal quotation marks omitted.) Id.
¶ 14 C. The Lack of Standing as an Affirmative Defense
¶ 15 Under section 2-619(a)(9) of the Code of Civil Procedure (735 ILCS 5/2-
619(a)(9) (West 2014)), the defendant “may, within the time for pleading, file a motion for
dismissal of the action” on the ground that “the claim asserted against defendant is barred by ***
affirmative matter avoiding the legal effect of or defeating the claim.” A motion for dismissal
under this section admits the legal sufficiency of the complaint but raises “a defense outside the
complaint,” an “affirmative matter,” that defeats the action. Patrick Engineering, Inc. v. City of
Naperville, 2012 IL 113148, ¶ 31. Lack of standing is one such affirmative matter. Estate of
Zivin, 2015 IL App (1st) 150606, ¶ 13.
¶ 16 When moving for the dismissal of the action on the ground of the plaintiff’s lack
of standing, the defendant may argue that the plaintiff’s lack of standing is apparent from the
-5- face of the complaint, or, alternatively, the defendant may file an affidavit proving the plaintiff’s
lack of standing. “If the grounds do not appear on the face of the pleading attacked[,] the motion
shall be supported by affidavit,” as section 2-619 says. 735 ILCS 5/2-619 (West 2014); see also
Illinois Graphics Co. v. Nickum, 159 Ill. 2d 469, 486 (1994). In the present case, defendant
submitted no affidavit in support of its motion for dismissal, and therefore we will decide
whether it is apparent, from the face of the complaint, that plaintiffs lack standing. We will make
that decision de novo, taking the well-pleaded facts of the complaint to be true and drawing from
those facts all reasonable inferences in plaintiffs’ favor. See Chicago Teachers Union, Local 1 v.
Board of Education, 189 Ill. 2d 200, 206 (2000).
¶ 17 D. A Taxpayer’s Standing To Seek an Injunction Against an Administrative Regulation That Effectively Would Assess an Illegal Tax ¶ 18 The supreme court has held that tax revenues, upon their collection, become
public funds, of which the taxpayers are the equitable owners, and that a taxpayer has the
“equitable right to restrain the illegal use or misappropriation of public funds in which he, in
common with other tax-payers, ha[s] an interest.” Jones v. O’Connell, 266 Ill. 443, 447-48
(1914). In addition to this rationale of equitable ownership, the supreme court sometimes gives
another rationale for taxpayer standing: if public funds are misused, taxpayers are liable to make
up the resulting deficiency. Fergus v. Russel, 270 Ill. 304, 314 (1915). Let us push off to one side
plaintiffs’ argument that statutorily unauthorized tax credits will cause a deficiency in general
revenues and that they will be called upon to make up the deficiency. We can understand how
that argument might be too speculative and simplistic (can one really predict the legislature will
probably raise taxes because of the excessively generous tax credits that defendant will grant?).
Let us concentrate, instead, on plaintiffs’ alternative argument, the argument of equitable
-6- ownership. Plaintiffs argue that by administering a regulation which, in violation of statute,
would award a tax credit up to the amount of the income tax withheld from the paychecks of not
only new employees but also retained employees, defendant has misappropriated or put to an
illegal use the public funds that finance defendant’s operation and that plaintiffs, as taxpayers,
have an equitable right to restrain the misappropriation.
¶ 19 The plaintiffs in Lyons v. Ryan, 201 Ill. 2d 529, 537 (2002), made a similar
argument in support of their standing, and the supreme court was unconvinced. But Lyons is
distinguishable in that the plaintiffs in that case were seeking to impose a constructive trust on
the fruits of official misconduct instead of seeking to restrain the misuse of public funds. The
plaintiffs in Lyons were Illinois taxpayers, and they alleged that some officers and employees of
the Secretary of State had conspired with a political action committee, Citizens for Ryan, to issue
commercial driver’s licenses to unqualified applicants in return for campaign contributions. (At
the time of the lawsuit, George Ryan was the Governor of Illinois. Before holding that office, he
was the Secretary of State. Id. at 531.) The plaintiffs sought the imposition of “a constructive
trust on allegedly illegal campaign contributions, salaries of officers and employees involved in
the alleged scheme, and the cost of equipment used in the alleged scheme.” Id. at 537-38.
¶ 20 The supreme court noted, however, that the campaign contributions themselves
“had no impact on the treasury.” Id. at 538. And apparently, the scheme entailed no expenditure
of public funds that, in the legitimate course of government business, would not have been spent
anyway. The supreme court said: “Plaintiffs offer no basis for this court to conclude that the
salaries of state employees *** would not have been paid in the absence of the alleged scheme,
or that the equipment used in the alleged scheme was not used for any other legitimate purpose.”
Id.
-7- ¶ 21 The argument could be made that, unless a salary was paid that otherwise would
not have been paid or unless equipment was used that otherwise would not have been used,
Lyons forecloses the argument that the administration of a statutorily unauthorized regulation
entails a misapplication of public funds, a misapplication that gives standing to a taxpayer. But
the appellate court has not interpreted Lyons that way. In Crusius v. Illinois Gaming Board, 348
Ill. App. 3d 44, 47 (2004), the plaintiff, a taxpayer, sought a declaratory judgment that section
11.2(a) of the Riverboat Gambling Act (230 ILCS 10/11.2(a) (West 2000)) violated the
constitutional ban on special legislation (Ill. Const. 1970, art. IV, § 13). The appellate court held
that the plaintiff “had the right to enforce his interest as a taxpayer in public resources that were
allegedly being used in administering an illegal legislative act.” Crusius, 348 Ill. App. 3d at 50.
Lyons, the appellate court said, was distinguishable for the following reason:
“[The plaintiff in Crusius] did not seek a constructive trust over private donations
generated through criminal activity and held by someone other than the State
Treasurer, in addition to past salary and equipment expenditures. [Rather, the
plaintiff] sought a declaration of unconstitutionality and to enjoin subsequent
misuse of state resources in administering the allegedly unconstitutional statute.”
Id. at 51.
The appellate court cited, among other authorities, Snow v. Dixon, 66 Ill. 2d 443, 450 (1977),
which held that “[a] taxpayer [might] bring suit to enjoin misuse of public funds in administering
an illegal legislative act.” Crusius, 348 Ill. App. 3d at 49.
¶ 22 In Snow, the plaintiff was an Illinois taxpayer who brought an action for an
injunction pursuant to what is commonly known as the Public Moneys Act (Ill. Rev. Stat. 1975,
ch. 102, ¶ 11 et seq.). Snow, 66 Ill. 2d at 450; see also Droste v. Kerner, 34 Ill. 2d 495, 497
-8- (1966). (The plaintiff in Crusius likewise sued under the Public Moneys Act (735 ILCS 5/11-301
to 11-304 (West 2000)). Crusius, 348 Ill. App. 3d at 49.) The plaintiff in Snow complained that
“State funds [were] being disbursed to effect the collection from [Illinois Central Gulf Railroad
Company (Gulf Railroad)] of [an] illegal 7% Tax on charter properties.” Snow, 66 Ill. 2d at 449.
¶ 23 What was the 7% tax on charter properties? In 1851, in the statute incorporating
the Illinois Central Railroad Company (Illinois Central), the General Assembly provided that
Illinois Central, in lieu of ordinary taxes, would pay a 7% gross revenue tax on its charter line,
the line running from Cairo to Chicago. Id. at 448-49. In 1972, however, Illinois Central
dissolved after selling all its assets to Gulf Railroad. Id. at 448. Thereafter, from 1972 to 1975,
Gulf Railroad paid the 7% tax on the charter properties, in lieu of other taxes, just as Illinois
Central had done—and, apparently, no official of the State of Illinois challenged Gulf Railroad.
Id. at 449. But the plaintiff, Robert H. Snow, did so in his capacity as an Illinois taxpayer. Id. He
argued that the statutory right to pay the 7% tax belonged exclusively to Illinois Central, not to
Gulf Railroad, and he sought an injunction requiring the State of Illinois to tax Gulf Railroad the
same way it taxed other railroads. Id.
¶ 24 The State challenged the plaintiff’s standing (id. at 450), but the supreme court
concluded he had standing and that his action for an injunction could proceed under the Public
Moneys Act (id. at 453). Under the Public Moneys Act, a taxpayer might bring an action to
restrain the misuse of public funds, and assessing the illegally low 7% tax against Gulf Railroad
and collecting it amounted to a misuse of public funds: “the time of literally hundreds of State
employees [was] devoted in some part to the assessment and collection of this tax.” Id. at 450.
The total dollar value of this time devoted to the assessment and collection of the 7% tax was
unclear, but in any event, the amount of state funds misused was irrelevant: “[u]nder the settled
-9- rule in this State, every taxpayer [was] injured by the misapplication of public funds, [regardless
of] whether the amount [was] great or small.” (Internal quotation marks omitted.) Id.
Implementing any policy costs some amount of money, including a policy to impose an illegal
tax. And long before the enactment of the Public Moneys Act, “equity ha[d] jurisdiction to
enjoin the collection of an unauthorized tax”—meaning a tax that was either illegally high or, as
in Snow, illegally low. (Internal quotation marks omitted.) Id. at 452.
¶ 25 Taxpayers such as Snow paid the salaries of Illinois tax officials, and when those
officials implemented an illegal tax policy, their taxpayer-funded salaries were, to that extent,
being put to an illegal use. See id. at 453. The taxpayers of the state had standing to seek an
injunction against such misuses of public funds. Id. at 451. In fact, “a taxpayer [might] bring suit
to enjoin the misuse of public funds in administering an illegal legislative act even though the
taxpayer is not subject to the provisions of that act.” Id.
¶ 26 That is because incurring an illegally high tax is not the only way a taxpayer can
be injured; a taxpayer can also be injured when public funds, in which the taxpayer has a
beneficial interest, are misused by implementing an invalid statute or regulation. A party has
standing to challenge a statute if the party has “sustained, or [is] in immediate danger of
sustaining, a direct injury as a result of enforcement of the challenged statute.” (Internal
quotation marks omitted.) Pre-School Owners Ass’n of Illinois, Inc. v. Department of Children &
Family Services, 119 Ill. 2d 268, 287 (1988). The same holding applies to an administrative
regulation. Id. “[By] asserting a misuse of public funds and resources”—regardless of whether
the misuse is pursuant to an invalid statute or regulation or even, as in Martini v. Netsch, 272 Ill.
App. 3d 693, 696 (1995), an unlawful executive order—the taxpaying plaintiff “allege[s] a
distinct and palpable injury to a legally cognizable interest.” Martini, 272 Ill. App. 3d at 696. It
- 10 - must follow that, by asserting a threatened misuse of public funds—a threat embodied in an
administrative regulation—the taxpaying plaintiff alleges a threatened distinct and palpable
injury to a legally cognizable interest. Because defendant presumably will follow its own
regulations on the allowance of tax credits, the threat is imminent. See Pre-School Owners, 119
Ill. 2d at 287.
¶ 27 We doubt that the supreme court intended to overturn these longstanding
principles when, in Lyons, it required proof that salaries otherwise would not have been paid or
that equipment otherwise would not have been used (Lyons, 201 Ill. 2d at 538). Surely Crusius is
correct in regarding that requirement as applicable only to a case in which the plaintiff seeks to
impose a constructive trust on bribes and similar ill-gotten gains. Crusius, 348 Ill. App. 3d at 51.
In Lyons, the supreme court repeated what it had said in Fuchs v. Bidwell, 65 Ill. 2d 503, 509
(1976): “there was no authority conferring taxpayer standing on the basis that the funds at issue
would become ‘public’ only upon the imposition of a constructive trust.” Lyons, 201 Ill. 2d at
537. In the present case, by contrast, the funds will be public at the time of their misuse. Equity
will restrain a governmental policy of collecting an illegal tax, because the very act of collecting
it will be a misuse of taxpayer-funded salaries and offices and, as such, a misuse of public funds.
Snow, 66 Ill. 2d at 452-53.
¶ 28 E. Defendant’s Forfeiture of the Affirmative Defense That Plaintiffs Failed To Follow the Procedures of the Public Moneys Act
¶ 29 In a footnote of its brief, defendant says: “[P]laintiffs have never asserted reliance
on the Public Monies Act [(735 ILCS 5/11-301 to 11-304 (West 2014))], and they failed to
follow the procedural requirement of obtaining leave to file such a complaint, 735 ILCS 5/11-
303 (2014).”
- 11 - ¶ 30 A couple of times in our discussion thus far, we have mentioned the Public
Moneys Act. In response to defendant’s footnote, we now will discuss the statute more fully.
Section 11-301 of the Public Moneys Act provides: “An action to restrain and enjoin the
disbursement of public funds by any officer or officers of the State government may be
maintained either by the Attorney General or by any citizen and taxpayer of the State.” 735 ILCS
5/11-301 (West 2014). If the plaintiff is an Illinois taxpayer, the plaintiff must petition the circuit
court for permission to bring the action, and the plaintiff must give notice to the Attorney
General. Section 11-303 provides:
Ҥ 11-303. Action by private citizen. Such action, when prosecuted by a
citizen and taxpayer of the State, shall be commenced by petition for leave to file
an action to restrain and enjoin the defendant or defendants from disbursing the
public funds of the State. Such petition shall have attached thereto a copy of the
complaint, leave to file which is petitioned for. Upon the filing of such petition, it
shall be presented to the court, and the court shall enter an order stating the date
of the presentation of the petition and fixing a day, which shall not be less than 5
nor more than 10 days thereafter, when such petition for leave to file the action
will be heard. The court shall also order the petitioner to give notice in writing to
each defendant named therein and to the Attorney General, specifying in such
notice the fact of the presentation of such petition and the date and time when the
same will be heard. Such notice shall be served upon the defendants and upon the
Attorney General, as the case may be, at least 5 days before the hearing of such
petition.
- 12 - Upon such hearing, if the court is satisfied that there is reasonable ground
for the filing of such action, the court may grant the petition and order the
complaint to be filed and process to issue. The court may, in its discretion, grant
leave to file the complaint as to certain items, parts[,] or portions of any
appropriation Act sought to be enjoined and mentioned in such complaint, and
may deny leave as to the rest.” 735 ILCS 5/11-303 (West 2014).
¶ 31 Defendant observes that, in the proceedings below, plaintiffs (1) never asserted
reliance on the Public Moneys Act and (2) never fulfilled the procedural requirements in section
11-303. As to defendant’s first point, it is unclear that plaintiffs were required to specifically
invoke the Public Moneys Act, considering that, instead of creating a new cause of action, the
Public Moneys Act acknowledged a preexisting common-law right of taxpayers to seek an
injunction against an illegal tax. See Snow, 66 Ill. 2d at 450-51 (“Long before the enactment of
the Public Monies Act, the citizens and taxpayers of this State have been permitted to sue to
enjoin the misuse of public funds.”). Besides, in so many words, plaintiffs did invoke the Public
Moneys Act. In their memorandum in opposition to defendant’s motion for dismissal, they
argued that taxpayers had “standing to challenge and enjoin the misappropriation of public funds
through a public body’s administration of an unlawful statute or regulation,” and in support of
that argument, they cited Snow and Crusius, in which, as we have discussed, the plaintiffs sued
under the Public Moneys Act. (Emphasis in original.) In fact, plaintiffs explicitly compared
themselves to the plaintiff in Crusius. They argued to the trial court: “Plaintiffs have standing for
the same reason that the *** Crusius taxpayer *** had standing: because the state applies public
funds in administering the regulation they challenge.”
- 13 - ¶ 32 As for defendant’s second point, that plaintiffs never fulfilled the procedures in
section 11-303 of the Public Moneys Act, this would have been an affirmative defense, “a
defense outside the complaint,” and if only defendant had raised this affirmative defense in the
proceedings below, plaintiffs could have obtained leave to amend their complaint and could have
cured the defect by attaching a section 11-303 petition to their amended complaint. Patrick
Engineering, 2012 IL 113148, ¶ 31. As it is, defendant has forfeited the affirmative defense of
noncompliance with section 11-303 by failing to raise that affirmative defense in the trial court.
See Greer, 122 Ill. 2d at 508; Fillmore v. Walker, 2013 IL App (4th) 120533, ¶ 28; Fox v.
Heimann, 375 Ill. App. 3d 35, 45 (2007); Wehde v. Regional Transportation Authority, 284 Ill.
App. 3d 297, 311 (1996); Carlson v. City Construction Co., 239 Ill. App. 3d 211, 243 (1992).
¶ 33 F. The Inapplicability of Case Law Holding That Taxpayers Lack Standing To Sue for the Collection of Back Taxes
¶ 34 Defendant argues this case is basically an attempt to compel the collection of
additional taxes and that, in People ex rel. Morse v. Chambliss, 399 Ill. 151 (1948), the supreme
court held that taxpayers lack standing to sue for the collection of unpaid taxes. The plaintiff in
that case brought an action “in the name of The People on relation of himself as a taxpayer and
on behalf of all other taxpayers similarly situated, and pray[ed] for an accounting of the taxes,
interest, penalties[,] and costs due upon the property of [Hugo] Chambliss.” Chambliss, 399 Ill.
at 151. The plaintiff did not sue the state; rather—in the manner of the Attorney General—he
sued the property owner, Chambliss, to enforce a tax lien of approximately $13,500 against his
property, a lien the plaintiff claimed had arisen as a result of taxing officials’ unauthorized
acceptance of $14,500 from Chambliss as full satisfaction for back taxes of $28,000. Id. at 152.
The supreme court held: “In our opinion there is no right in an individual taxpayer to bring a suit
- 14 - for the collection of taxes, but a suit having for its purpose such collection must be brought by
the person or agency designated by statute for that purpose.” Id. at 158.
¶ 35 In Snow, however, the supreme court distinguished Chambliss. The supreme court
reasoned that, unlike the plaintiff in Chambliss, the plaintiff in Snow sued to restrain the future
collection of an illegal tax. Snow, 66 Ill. 2d at 452. The supreme court said: “The case sub judice
is clearly distinguishable [from Chambliss]. It is designed to prevent the continued acceptance of
an allegedly unlawful tax in lieu of all other taxes, when the appropriate taxing authorities have
declined, and still decline, to follow applicable statutory procedures requiring them to assess all
of [Gulf Railroad’s] property in the same manner as other railroad properties assessed.” Snow, 66
Ill. 2d at 452. Likewise, in the present case, plaintiffs sued to prevent the continued, future
acceptance of an unlawful tax or, more precisely, the implementation of an administrative
regulation that contemplates the future imposition of an illegal tax: illegal because it is in an
amount less than required by statute. This case is closer to Snow than to Chambliss.
¶ 36 G. The Inapplicability of the Ban on Taxpayer Derivative Actions
¶ 37 The supreme court has drawn a distinction between a “ ‘taxpayer action’ ” and a
“ ‘taxpayer derivative action.’ ” Scachitti v. UBS Financial Services, 215 Ill. 2d 484, 494-95
(2005). A “ ‘taxpayer action,’ ” contemplated by section 11-301 of the Public Moneys Act (735
ILCS 5/11-301 (West 2014)), “is brought by private persons in their capacity as taxpayers.”
Scachitti, 215 Ill. 2d at 493. Snow and Krebs v. Thompson, 387 Ill. 471 (1944), are examples.
Taxpayers bring such an action “on behalf of themselves and as representatives of a class of
taxpayers similarly situated within a taxing district or area, upon a ground which is common to
all members of the class, and for the purpose of seeking relief from illegal or unauthorized acts
- 15 - of public bodies or public officials, which acts are injurious to their common interests as
taxpayers.” (Internal quotation marks omitted.) Scachitti, 215 Ill. 2d at 493. For more than a
hundred years, the common law of Illinois has recognized the right of Illinois taxpayers to
“enjoin the misuse of public funds,” as we already have observed. (Internal quotation marks
omitted.) Id. at 494.
¶ 38 By contrast, a “ ‘taxpayer derivative action’ ” is an action brought by a taxpayer
on behalf of the government to enforce a right or remedy belonging to the government alone. Id.
In a taxpayer derivative action, the only real party in interest is the government—thus the
adjective “derivative”—the taxpayer brings the action derivatively, not in the taxpayer’s own
personal right. “ ‘The claimed injury [in a taxpayer derivative action] is not personal to the
taxpayers, but rather impacts the government entity on whose behalf the action is brought.’ ” Id.
(quoting Lyons, 201 Ill. 2d at 535). In both Scachitti and Lyons, the actions were taxpayer
derivative actions, not taxpayer actions. Scachitti, 215 Ill. 2d at 496; Lyons, 201 Ill. 2d at 535.
The plaintiffs in Scachitti sued a lead underwriter and an accounting firm, seeking to recover, for
the State of Illinois, the amounts by which the lead underwriter had allegedly overcharged the
State in connection with bond transactions. Scachitti, 215 Ill. 2d at 489. The plaintiffs in Lyons
“sue[d] for the recovery of illegally obtained funds by state officials.” Lyons, 201 Ill. 2d at 533.
The plaintiffs lacked standing in these two taxpayer derivative actions because the State was the
only real party in interest and the Attorney General had the exclusive constitutional authority to
represent the state. Scachitti, 215 Ill. 2d at 500; Lyons, 201 Ill. 2d at 540.
¶ 39 In this appeal, defendant relies heavily on Scachitti and Lyons, but those cases are
distinguishable because the present case is a taxpayer action rather than a taxpayer derivative
action. Like the plaintiffs in Snow and Krebs, plaintiffs in this case sue to restrain the
- 16 - misapplication of public funds. The administration of an illegal policy, regulation, or statute is
the misapplication of public funds because “the time of *** State employees”—a valuable public
asset paid for out of the state treasury, with taxpayers’ money—“is devoted in some part to” the
administration of the illegal policy, regulation, or statute. Snow, 66 Ill. 2d at 450; see also Krebs,
387 Ill. at 475. Other assets purchased by tax revenues, such as paper and electricity, also would
be used. It always will cost something to administer a regulation, including an illegal one. The
machinery of the State never runs cost-free.
¶ 40 H. The Inapplicability of Case Law Regarding Special Funds
¶ 41 Defendant cites two cases in which the plaintiffs claimed to be challenging the
misuse of public funds whereas, in reality, they were challenging the alleged misuse of a special
fund.
¶ 42 In one of the cases, Barco Manufacturing Co. v. Wright, 10 Ill. 2d 157, 159
(1956), the plaintiffs sought to enjoin some allegedly “illegal disbursements” from the Illinois
unemployment compensation fund. They argued that, as taxpayers, they were “entitled to enjoin
the illegal distribution of public funds.” Id. at 160. The supreme court held, however, that instead
of being general revenue raised from taxation, the Illinois unemployment compensation fund was
a special fund, a trust fund consisting of contributions of employers. Id. at 160-61. Thus, the case
law holding that taxpayers could sue to enjoin the misuse of public funds was inapplicable. Id. at
161. “[T]he fund in question [was] not a general public fund; nor [was] it a part of the general
State revenue; and the involuntary contributions thereto [were] not general taxes.” Id. Rather, it
was “a trust fund composed of contributions made by employers.” Id. Because “the expenditure
- 17 - involved [was] from a trust fund,” the plaintiffs had to “show a special injury not common to the
public generally.” Id. They had not done so. Id. at 166.
¶ 43 In the other case, Illinois Ass’n of Realtors v. Stermer, 2014 IL App (4th) 130079,
¶ 1, the plaintiff complained of the transfer of monies from the real estate license administration
fund into the state’s general revenue fund. We held that because the real estate license
administration fund was a special fund, the plaintiff had no “taxpayer standing” (id. ¶ 30); that is,
the plaintiff could not rely on the “narrow doctrine permitting a taxpayer the ability to challenge
the misappropriation of public funds” (id. ¶ 29). As in Barco, the plaintiff had to “show a special
injury” (id. ¶ 30), and the plaintiff failed to make this showing (id. ¶ 38).
¶ 44 Barco and Stermer are distinguishable for two reasons. First, neither case
involved an unauthorized tax. “[E]quity has jurisdiction to enjoin the collection of an
unauthorized tax,” and when defendant grants tax credits unauthorized by statute, defendant
effectively causes the imposition of an unauthorized tax. (Internal quotation marks omitted.)
Snow, 66 Ill. 2d at 452. Second, the wages of defendant’s officers and employees and the cost of
defendant’s office supplies and utilities are paid out of the state’s general revenues, not out of a
special fund (see Krebs, 387 Ill. at 475), and “a taxpayer may bring suit to enjoin the misuse of
public funds in administering an illegal legislative act” (Snow, 66 Ill. 2d at 451; see also Crusius,
348 Ill. App. 3d at 51) or an illegal administrative regulation (Pre-School Owners, 119 Ill. 2d at
287).
¶ 45 I. The Irrelevance of the Possibility of a Net Economic Benefit to the State
¶ 46 Defendant cites Arizona Christian School Tuition Organization v. Winn, 563 U.S.
125 (2011), in support of its argument that any injury to taxpayers resulting from the application
- 18 - of its regulation would be speculative. Winn likewise involved a tax credit. An Arizona statute
(Ariz. Rev. Stat. Ann. § 43-1089 (West Supp. 2010)) allowed Arizona taxpayers a dollar-for-
dollar tax credit for their contributions to school tuition organizations. Winn, 563 U.S. at 130.
These school tuition organizations used the contributions to provide scholarships to students
attending private schools, many of which were religious. Id. at 129. Because the beneficiaries of
the contributions included religious schools, a group of Arizona taxpayers “challenge[d] the ***
tax credit as a violation of Establishment Clause principles under the First and Fourteenth
Amendments” (U.S. Const., amends. I, XIV). Winn, 563 U.S. at 129. The Supreme Court of the
United States concluded that the taxpayers lacked standing under article III of the federal
constitution. Id. at 130. In reliance on the Supreme Court’s reasoning in Winn, defendant argues
the record is devoid of any showing that its tax-credit regulation will inflict a distinct and
palpable injury on plaintiffs as taxpayers.
¶ 47 The Supreme Court reasoned in Winn: “When a government expends resources or
declines to impose a tax, its budget does not necessarily suffer. On the contrary, the purpose of
many governmental expenditures and tax benefits is to spur economic activity, which in turn
increases government revenues.” (Emphasis in original and internal quotation marks omitted.)
Winn, 563 U.S. at 136. And besides, the Supreme Court reasoned, “even if one assume[d] that an
expenditure or tax benefit deplete[d] the government’s coffers,” one could only speculate
whether “elected officials [would] increase a taxpayer-plaintiff’s tax bill to make up the deficit.”
(Internal quotation marks omitted.) Id.
¶ 48 By this reasoning, though, the plaintiff in Snow would have lacked standing, and
the judgment should have been for the State. After all, Gulf Railroad was being given a tax
break—just like the contributors to school tuition organizations in Winn—and the plaintiff sued
- 19 - to stop the tax break as contrary to Illinois law. Snow, 66 Ill. 2d at 449. A “tax credit” is nothing
but a euphemism for a tax break. Year after year, from 1972 through 1975, the state had been
giving Gulf Railroad a break on its taxes, allowing it to pay only a 7% tax on charter properties,
whereas, under statute, only Illinois Central was entitled to that low rate. Id. at 448-49.
Obviously, by providing in the first place that Illinois Central would have to pay only a 7% gross
revenue tax, the Illinois General Assembly intended to stimulate economic activity and thereby
increase public revenues. It would have been easy, in the manner of Winn, to carry over that
justification to Gulf Railroad. There would have been the same potential for greater economic
activity and increased public revenues if Gulf Railroad likewise had paid only a 7% tax, as
Illinois Central had been doing for the past hundred years. Thus, by the logic of Winn, the injury
to taxpayers would have been merely speculative, and they would have lacked standing. But the
Supreme Court of Illinois did not see it that way. Id. at 453. Illinois courts “are not *** required
to follow the Federal law on issues of justiciability and standing.” Greer v. Illinois Housing
Development Authority, 122 Ill. 2d 462, 491 (1988). “[T]o the extent that the State law of
standing varies from Federal law, it tends to vary in the direction of greater liberality ***.” Id.
¶ 49 When it comes to taxpayer standing, Illinois courts are more generous in two
ways. First, although the Supreme Court of the United States “has rejected the general
proposition that an individual who has paid taxes has a continuing, legally cognizable interest in
ensuring that those funds are not used by the Government in a way that violates the Constitution”
(emphasis in original and internal quotation marks omitted) (Winn, 563 U.S. at 134), the rule in
Illinois is precisely the opposite: “a taxpayer may bring suit to enjoin the misuse of public funds
in administering an illegal legislative act even though the taxpayer is not subject to the
provisions of that act” (Snow, 66 Ill. 2d at 451). Second, although the Supreme Court of the
- 20 - United States denies standing to taxpayers because “[t]he effect upon future taxation, of any
payment out of funds, [is] too remote, fluctuating[,] and uncertain to give rise to a case or
controversy” (internal quotation marks omitted) (Winn, 563 U.S. at 134), Illinois courts find an
injury to taxpayers the moment public funds are used illegally, regardless of the ultimate effect
of such illegal use on the treasury or on rates of taxation (see Krebs, 387 Ill. at 475-76).
¶ 50 To be sure, when holding that taxpayers have standing to enjoin the
misapplication of public funds, some Illinois cases have relied on the taxpayers’ “liability to
replenish the public treasury for the deficiency which would be caused by misapplication
thereof.” Beardsworth v. Whiteside & Rock Island Special Drainage District, 356 Ill. 158, 169
(1934); Washburn v. Forest Preserve District of Cook County, 313 Ill. 130, 132 (1924); Malec v.
City of Belleville, 384 Ill. App. 3d 465, 468-69 (2008). But such liability is not the sine qua non
of taxpayer standing. In Krebs, the supreme court held it did not matter that the administration of
an illegal statute would result in a net profit to the state (and, hence, no deficiency for taxpayers
to replenish). Krebs, 387 Ill. at 475.
¶ 51 The taxpayer in Krebs sought to enjoin state officials from expending any public
funds for the administration of an act entitled “ ‘An Act to regulate the practice of professional
engineering.’ ” Id. at 472 (challenging Ill. Rev. Stat. 1943, ch. 48½). He contended the statute
was unconstitutionally vague. Id. at 476. The state officials argued the plaintiff lacked standing
to make this constitutional challenge because, “from a financial standpoint, [the act would be]
self-sustaining”: “the fees paid in by registrants under the act [would] exceed the cost of
administering the act.” Id. at 473. The cost of administering the act would not exceed $11,000,
and when the approximately 5000 registrants paid a fee of $20 apiece, the state would be well in
the black. Id. The supreme court responded:
- 21 - “The showing of appellants by the affidavits attached to their motion to dismiss is
that there will be an estimated administration expense of $11,000. This can be
paid only out of the general funds of the State. The expenditure of this or any
other amount from the general funds of the State for the purpose of administering
an unconstitutional statute is such an injury to every taxpayer that he may bring a
suit to enjoin such unlawful expenditure and misapplication of the funds of the
State. The fact that an equal or greater amount than the amount expended for the
administration of the act will be ultimately produced from fees paid under the act,
and paid into the State Treasury, has nothing whatever to do with the right of a
taxpayer to enjoin the misapplication of public funds for the administration of the
act, if it is not a valid statute. Under the settled rule in this State, every taxpayer is
injured by the misapplication of public funds, whether the amount be great or
small. Such injury is not prevented by the fact that the State may thereafter
receive fees under an unconstitutional statute in excess of the cost of its
administration.” Id. at 475-76.
¶ 52 Thus, unless the administration of an illegal regulation is cost-free (and it is
difficult to see how it ever would be), the taxpayer has standing to seek an injunction, regardless
of whether the regulation would bring a net profit to the state and regardless of whether the cost
of administration is small. See id. That is because, as we noted earlier, the supreme court relies
on an equitable-ownership rationale, not just the rationale that taxpayers are liable to replenish
deficiencies in the general revenues.
- 22 - ¶ 53 III. CONCLUSION
¶ 54 In sum, a taxpayer has standing to enjoin the administration of a regulation that, in
its terms, exceeds the agency’s legal authority. This opinion should not be interpreted more
freely. We do not mean to confer standing to challenge a regulation that, in the view of the
taxpayer-plaintiff, is unwise, inefficient, improvident, or not the best means of accomplishing a
statutory objective. Rather, the regulation has to be illegal, or in conflict with statutory or
constitutional law, in which case a taxpayer has standing to seek an injunction against the use of
public funds to administer the illegal regulation. Because plaintiffs allege that defendant’s
regulation allows a tax credit unauthorized by statutory law, we hold that they have standing, and
we reverse the trial court’s judgment and remand this case for further proceedings.
¶ 55 Reversed and remanded.
- 23 -