Tax Trends November 2009

Delayed implementation of a statutory
amendment necessitated a finding that the
Legislature intended to apply the statutory
amendment prospectively and that tax
objectors were entitled to the pre-amendment
interest rate up until the effective date of the
statutory amendment
By Christopher B. Kaczynski, partner, Smith, Hemmesch, Burke, Brannigan & Guerin and Jacki Dobesh
Section 23-20 of the Illinois Property Tax Code governs the rate of interest provided
to a tax objector when a final order of the Property Tax Appeal Board or court results in a
refund of real estate taxes. 35 ILCS 200/23-20 (2009). The First District Appellate Court has recently ruled that tax objectors who paid taxes and filed Specific Objection lawsuits prior to
amendment of Section 23-20 of the Property Tax Code were entitled to the pre-amendment interest rate up until the effective date of the statutory amendment, even though judgment orders granting statutory interest were entered after the statutory amendment. General Motors Corp.v. Pappas, 911 N.E.2d 504 (1st Dist. App. Ct. 2009). The consolidated plaintiffs in General Motors included both property owners who were objecting to the property tax assessment of their property through specific objection lawsuits, and property owners who were challenging tax rates extended through tax rate objection lawsuits. All the tax objectors filed their court actions and properly paid protested tax payments as required under the Illinois Property Tax Code. At the time the protested payments were made and the lawsuits were filed, Section 23-20 of the Property Tax Code provided that a taxpayer would receive interest on a refund of an illegal and excessive tax at the rate of 5 percent per year. 35 ILCS 200/23-20 (2005). During the time period these matters were pending in the Circuit Court of Cook County, the legislature amended this section of the Property Tax Code to provide the 5 percent interest rate
or “the percentage increase in the Consumer Price Index For All Urban Consumers during
the 12-month calendar year preceding the levy year for which the refund was made, as published by the federal Bureau of Labor Statistics.” 35 ILCS 200/23-20 (2006) (emphasis added). The Governor approved the amendment on August 12, 2005, and it became effective
on January 1, 2006. (Bill Status of House Bill 0504, Illinois General Assembly, House of Representatives Trans. 94th G.A.). After the effective date of the amendment,
agreed judgment orders were entered requiring the Cook County Treasurer to pay
interest or “statutory interest” on the refunded amounts. The Treasurer issued refunds,
however she calculated the statutory interest rate at the lower Consumer Price Index (CPI)
rate for the entire time period. The tax objectors filed motions to enforce the agreed
judgments, requesting that the trial court direct the Treasurer to provide them with statutory
interest at the annual rate of 5 percent, or alternatively that the pre-amendment 5
percent interest rate be applied up until the effective date of the amendment. The trial
court ordered that the Treasurer must provide interest on the refunded taxes at a rate
of 5 percent until December 31, 2005, and then at the CPI rate until the date of the refund.
The Treasurer appealed to the First District Appellate Court, and the tax objectors
filed cross-appeals. The appellate court on its own motion consolidated the tax objectors’
appeals. The main issue presented on appeal was whether the legislature’s amendment to 35 ILCS 200/23-20 should apply retroactively or prospectively to the tax objectors who had
made protested tax payments and filed tax objections prior to the amendment of the
statute.1 The issue presented the Court with three options: (1) the Court could agree with
the Treasurer and apply the new CPI interest rate for the entire time period, (2) the Court could agree with the trial court and apply the 5 percent interest rate until December 31,
2005 and the lower CPI rate from January 1, 2006 until the date of the refund, or (3) the Court could apply the 5 percent interest rate for the entire time period. In affirming the trial courts’ rulings, the appellate court engaged in a scholarly discussion of the current test used by Illinois courts to analyze the effect of a statutory amendment upon a pending case. To determine whether a statute applies retroactively, the Illinois Supreme Court has adopted the approach set forth by the United States Supreme Court in Landgraf v. USI Film Products, 511 U.S. 244 (1994); Commonwealth Edison Co. v. Will County Collector, 196 Ill. 2d 27 (Ill. 2001). Before the Landgraf test was adopted in Illinois, courts used either the legislative intent approach or the vested rights approach to analyze retroactive application of a statutory amendment. Commonwealth Edison Co., 196 Ill. 2d at 34. Under the vested rights approach, legislative intent is ignored, and the law existing at the time of the appeal applies unless doing so would interfere with a vested right. Id. Under the legislative intent approach, which is captured in the Landgraf test, statutory amendments are presumed to apply prospectively unless the statute clearly indicates a retroactive application. Id. The original Landgraf analysis consisted of two steps. First, if the legislature has expressly determined the retroactive or prospective reach of the statute, the expression of legislative intent must be given effect absent a constitutional prohibition. Second, if the statute contains no express provision regarding its temporal reach, the court must determine whether the new statute would have retroactive effect, meaning “whether it would impair rights a party possessed when he acted, increase a party’s liability for past conduct, or impose new duties with respect to transactions already completed.” Commonwealth Edison Co., 196 Ill. 2d at 37. However, the Illinois Supreme Court held that an Illinois court need never go beyond step one of the Landgraf test, because absent an express directive in the amendment, through section 4 of the Statute on Statutes, our legislature has provided a default legislative directive as to the temporal reach of any statutory amendment: those that are procedural may be applied retroactively, while those that are substantive may not. Allegis Realty Investors v. Novak, 223 Ill. 2d 318, 330-331 (Ill. 2006). Finally, even if a court determines that the legislature intended to apply the amendment retroactively, the constitution may still prevent the court from applying the statute retroactively. Id. at 332. In General Motors, the Treasurer argued that the plain language of the statute provides that no right accrues until the trial court orders a refund; accordingly the computation of interest must be made according to the version of the law in effect at the time the judgment order is entered. Although not specifically stated by the appellate court decision, the flaw in this contention is that the current test concerning retroactivity is a time neutral test, and the court is required to first examine the plain language of the statute to determine if the legislature intended to apply the amendment to the statute retroactively or prospectively. Applying the Illinois version of the Landgraf test, the tax objectors argued that the language of the amended statute is unambiguous, and that if the legislature had intended for a retroactive application, it would have used explicit language to do so. For example, section 23-5 of the Property Tax Code was previously amended and included: “Beginning with the 1994 tax year . . .” 35 ILCS 200/23-5 (2006). No such language, or any other specific language concerning retroactive intent, was included in the amended statute at issue. The tax objectors further argued that because the legislature has provided for a delayed implementation of the amendment by way of a future effective date, the legislature has expressly prescribed that the amendment to the statute was intended to have only prospective application. The tax objectors supported their contention based upon the Illinois Supreme Court’s rationale in People v. Brown, where it found that the delayed implementation of a statute meant “that the law was intended to have only prospective application.” 225 Ill. 2d 188, 201 (Ill. 2007). In the case at hand, the Governor approved the amended statute on August 12, 2005, and the legislature chose and passed language that included a subsequent effective date, more than five months later on January 1, 2006. Therefore, the tax objectors concluded that the inclusion of a future effective date can only evidence a prospective application of statute. While the General Motors Court determined that the plain language of the amended statute did not indicate a temporal reach, it held that the delayed implementation of the amendment demonstrated the legislature’s intent to apply the amendment prospectively and no further analysis was necessary. Based upon this analysis, the appellate court then concluded that it was proper for the trial court to split the interest rate calculations at the effective date of the amended statute. In support of its ruling the appellate court cited to previous Illinois Supreme and Appellate Court decisions where split interest rates were utilized. Finally, the appellate court further noted that under the Treasurer’s theory a tax payer who received a judgment on December 31, 2005 would receive 5 percent interest, while the tax payer who received a judgment on the next business day, January 3, 2006, would only receive 2.3 percent interest, concluding that the legislature could not have intended this type of unjust result. In conclusion, the First District Appellate Court affirmed the trial court and held that the delayed implementation of the statutory amendment necessitated a finding that the legislature intended to apply the statutory amendment prospectively and that tax objectors were entitled to the pre-amendment interest rate up until the effective date of thestatutory amendment. ■
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1. The opinion also dealt with the issue of the
grant of judgment interest ordered in conjunction
with the Treasurer’s request to stay payment of
the appealed judgment deficiency. Although the
Appellate Court affirmed the trial court’s grant of
judgment interest, the Treasurer has filed a pending
Petition for Leave to Appeal to the Illinois Supreme
Court. Accordingly, this issue has not been
included in the discussion. The retroactivity issue
was not included in the Treasurer’s PLA; however,
if leave to appeal is granted by the Illinois Supreme
Court, the tax objectors may resurrect their
contention that the pre-amendment 5 percent interest
rate should be the only interest rate utilized
in these matters.