The end of the dispute over the tax on long distance phone calls was not in sight as of mid August. On July 27 the Illinois Supreme Court finally explained its June 24 decision that the state tax on interstate calls is constitutional, but this did not mean an instant transfusion of better than $140 million into depleted state coffers. The state is trying to get the use of the money, which remains in a segregated escrow account because of the possibility that the plaintiffs will appeal the decision. On July 2, after the court had ruled the tax constitutional, Gov. James R. Thompson signed a continuing appropriation guaranteeing a state refund to the plaintiffs if they should win an appeal. The Illinois Department of Revenue then filed papers with the Illinois Supreme Court asking that it release the money to the state. The plaintiffs in the case as well as GTE Sprint Communications Corporation are objecting to the funds being released, and the court has not yet ruled on the department's request. Nor had the plaintiffs filed an appeal as of August 13.

At issue is section 4 of the Telecommunications Excise Tax Act (III. Rev. State 1985, ch. 120, sec. 2004). It imposes a 5 percent tax on interstate calls originating inside or outside of Illinois, as long as they are billed to an account in Illinois. After considerable legal skirmishing between the plaintiffs (Jerome F. Goldberg and Robert McTigue) and the defendants (J. Thomas Johnson, director of the Department of Revenue when the suit was filed; a number of long distance carriers; and state treasurer at the time, James H. Donnewald), the circuit court of Cook County ruled the tax unconstitutional. The Illinois Supreme Court took the appeal directly, and overturned the lower court.

All parties agreed that the plaintiffs' claim of unconstitutionality under the commerce clause of the U.S. Constitution (art. I, sec. 8) must be tested against the U.S. Supreme Court's precedent, Complete Auto Transit v. Brady ((1977), 430 U.S. 274, 287, 51 L. Ed. 2d 326, 336, 97 S. Ct. 1076, 1083).

One of the tests prescribed in Complete Auto, the threat to interstate commerce because of multiple taxation on calls originating out-of- state, appeared the greatest problem with the Illinois tax. Since two cities in Colorado tax interstate calls originating there and billed to accounts elsewhere "on behalf of a person in this city," a collect call from a business in one of these cities to one of its affiliates in Illinois could be taxed in both places. The Illinois Supreme Court found this no problem because section 4 of the Telecommunications Excise Tax Act provides for a tax credit to anyone paying two taxes on the same call.

The second question of constitutionality involved the equal protection clauses of both the Illinois and the U.S. constitutions. Plaintiffs claimed that section 4 discriminates in favor of calls from Illinois to another state made collect or paid for by an out-of-state credit card. Such calls would not be taxed because they would not be billed in Illinois even though they originated here. The Supreme Court pointed out, however, that such calls would be made primarily by nonresidents, whose "ties to the State and any benefits which they may derive from being in the State are minimal." This is an exercise of the state's broad rights, within equal rights safeguards, to classify for tax purposes, as long as the classification has a rational relation to the purpose of the tax.

The court jointly wrote the opinion in Goldberg v. Johnson (Docket No. 64355), but only four justices took part. Not participating were Chief Justice William G. Clark and Justices Joseph H. Goldenhersh and Seymour Simon.

A hole was punched in an already shaky state budget by a unanimous decision handed down by the Illinois Supreme Court on June 10. The court ruled that the Department of Revenue made an arbitrary and unconstitutional distinction between two classes of corporate taxpayers. As a result, Searle Pharmaceuticals, Caterpillar and several other companies will receive tax refunds estimated around $50 million. The court sustained their attack on the Department of Revenue's interpretation of the state Income Tax Act. Federal tax laws are changing, but other companies are pursuing similar cases in the lower courts.

Federal tax law allows a corporate taxpayer to carry back a net operating loss to reduce taxable income for the three preceding years, or it can relinquish this option and carry the loss forward. When companies are members of an affiliated group, the parent company may file a consolidated federal tax return for all and decide which option to use for losses. Subsidiary companies must recompute their share of income or loss on a separate form to establish their base income for state tax purposes.

In this case the losses were carried back on the federal tax returns, and the plaintiffs included their portion of the loss in filing amended state tax reports and claimed refunds. In 1980 the Department of Revenue denied the refunds. It said that under a 1977 amendment to the Illinois Income Tax Act (Ill. Rev. Stat. 1979, ch. 120, sec. 2-203(e)(2)(E)), a subsidiary company whose parent company has filed a consolidated tax return automatically relinquishes the carryback option where Illinois taxes are concerned. During the previous three years, however, the department had allowed the option.

The plaintiffs argued that the department's interpretation violated equal protection clauses of both the federal and state constitutions as well as the state guarantees of uniformity of taxation (Ill. Const, art. IX, sec. 2). The Illinois Supreme Court based its ruling on the uniformity of protection clause in the 1970 Constitution. It said that the equal protection clause in the federal and state constitutions is only "a general limitation on the legislature's power to tax" and that the courts generally defer to the judgment of state legislatures in tax classification matters. In contrast, the uniformity of taxation guarantee in the 1970 Constitution "is a specific limit on the General Assembly in the exercise of its taxing power." Justice Howard C. Ryan's opinion cited cases both before and after the passage of the present Constitution as establishing that "classification must be based on a real and substantial difference between the people taxed and those not taxed and . . . bear some reasonable relationship to the object of the legislation."

The court found no difference between subsidiary companies covered by a consolidated return and those filing separate returns. It ruled that the department's classification bore no reasonable relationship to its interpretation of the object of the legislation: to clarify ambiguities in the Internal Revenue Code, to reduce the number of amended returns it would have to process and thus reduce costs, and to generate more revenue for the state. The court also rejected the claim of administrative advantage to be gained by eliminating large refunds for which budgetary provision had not been made, a difficulty immediately emphasized by Gov. James R. Thompson. The court felt that losses carried forward would also be hard to predict, since they would not be known in most cases until after completion of the next budgetary cycle.

The decision consolidated Searle Pharmaceuticals Inc. v. The Department of Revenue (Docket No. 63151) and Caterpillar Tractor Co. et al. v. J. Thomas Johnson (Docket No. 63228). Justice Joseph H. Goldenhersh did not participate.

The Illinois Supreme Court has affirmed the constitutionality of certain provisions of the law penalizing drunk drivers (DUI) which were challenged by the circuit court of Adams County. A judge there considered part of the mechanism for restoring a driver's license after summary suspension too vague and said that another section violates the constitutional separation of powers. The high court's opinion, handed down May 22, disagreed.

On the vagueness issue: After summary suspension the circuit court is to restore the license "when all appropriate fees are paid unless the court has evidence that the person should be disqualified" (Ill. Rev. Stat. 1985, ch. 95 1/2, sec. 6-208.1 (b)). The trial judge considered this too vague to be constitutional because it is "completely devoid of any procedure or guidelines to be followed" in determining whether to restore driving privileges. The high court, however, interpreted the statute as meaning that "in the typical situation reinstatement will be automatic upon application" without "any exercise of discretion on the part of the court on whether to reinstate . . . ."It would be up to the state's attorney to submit any evidence of unsuitability to hold a driver's license; the circuit court, if it agreed, would forward the information to the secretary of state as the only official empowered to suspend licenses. Subsequent to this case's appeal to the high court, the General Assembly clarified the statute by amendment to require restoration of privileges ''unless the person is otherwise disqualified by this Code" (Ill Rev. Stat. 1986 Supp., ch. 95 1/2, par. 6-208.1(b)). The high court lauded this clarifying language.

On the separation of powers issue: The DUI statute directs the circuit court to collect all fees and forward them to the secretary of state (sec. 6-208.1(c) ), which the circuit court considered a breach of the constitutional separation of powers. The high court termed collection and forwarding of fees a "ministerial function" involving no more than "interbranch communication and administrative cooperation," rather than an attempt by one branch to assume the power belonging to another or an administrative function that had grown to a point "where it detracts from the performance of essential judicial activities."

Justice Howard C. Ryan wrote the unanimous opinion (Justice Joseph H. Goldenhersh not participating) in People v. O'Donnell (Docket No. 63813).

Two decisions handed down by the Illinois Supreme Court on June 16 were victories for consumer advocates. One, concerning new rate schedules for Illinois Bell, will put only small change into consumers' pocketbooks since 3.6 million telephone customers will probably share less than $1 million. More money was involved in rate changes for Commonwealth Edison. Together the decisions require the Illinois Commerce Commission (I1CC) to take a more active, fact-finding role in the process of utilities ratemaking. This would replace the IlCC's previous practice of assuming the validity of data submitted by utilities companies.

These decisions appeared to directly affect the latest Commonwealth Edison proposal pending before the I1CC when the court ruled.

In the Bell case the I1CC had approved a new rate schedule for the utility in 1971, effective in August 1972. In October 1973 the Supreme Court ruled that improper costs had been eluded in computing the increased rates and sent the case back to the I1CC. The Independent Voters of Illinois petitioned for a refund of overcharges under the 1971 rate order. In the meantime, Bell had applied to the commission for another rate increase, which was granted and took effect January 1, 1974.

The Supreme Court ruled that even though it found problems with the rates approved for Bell in 1971, these were the only ones that the company could legally charge from the time they were approved by the DCC until the court's 1973 ruling. It therefore rejected the plea for a refund for this period but ruled that a refund would be in order from the time of its October 1973 decision until the new rates took effect in January 1974. Because of the small amount per customer the court said that credits to consumers would be an acceptable method for refunding. Justice Daniel P. Ward wrote the opinion in the unanimous decision (Justice Joseph H. Goldenhersh not participating) in Independent Voters of Illinois v. Illinois Commerce Commission ((1987) 117 Ill. 2d 90).

The other case involved a 1985 rate increase for the Commonwealth Edison Co. The circuit court had remanded the case to the UCC for further ratemaking procedures, and the Supreme Court agreed, even though it disagreed with certain specific directions of the lower court.

The burden of proof in the ratemaking process was the central issue. The I1CC had allowed certain costs, including cost overruns for Commonwealth's nuclear plant at Byron, to be included because they had not been proven unreasonable. The pertinent section of the Public Utilities Act (Ill. Rev. Stat., 1985 Supp., ch. Ill 2/3, sec. 30.1) says, "The cost of new electric utility generating plants and significant additions . . . shall not be included in the rate base of any utility unless such cost is reasonable." The statute also provides a process to be used by the IlCC in determining reasonableness. This means, according to Justice Ben Miller's opinion, that "the Commission is to be an active participant.... an investigator and regulator of the utilities." He pointed out that no one is required to oppose rate increases and that such intervention can be very costly. "Requiring intervenors to establish unreasonableness is therefore no substitute for requiring proof of reasonableness," said Miller. The court found that the I1CC had fallen short of its responsibilities here.

The active role defined for the I1CC is probably the major significance of this unanimous decision (Justices Joseph H. Goldenhersh and Seymour Simon not participating) in People ex rel. Neil F. Hartigan v. The Illinois Commerce Commission ((1987) 117 Ill. 2d 120).

As to the rates to be applied during the new round of ratemaking for Commonwealth Edison, the court cited its ruling in the Bell case that "following the reversal of rates ordered by the Commission, the utility could continue to charge the rate approved by the Commission. The utility, however, is subject to ratepayers' claims for reparations for excessive rates collected from the time of this court's reversal through the time new rates are approved by the Commission." The decision removes an incentive for utilities to prolong the process at the UCC. As Justice Ward noted in his Bell opinion, "The rate-making process . . . may be lengthy, and a utility could be tempted to extend that process if it continued to benefit from the increased rate without the risk that it would have to refund customers overcharges after a judicial reversal."

When product liability is alleged as a cause of injury a June 16 ruling by the Illinois Supreme Court now permits a manufacturer to claim negligence in a third-party action against an employer. In this case the manufacturer, J. L. Case, had been sued for injuries received while the plaintiff operated equipment it had manufactured. Case sued the plaintiffs employer, claiming misuse, assumption of risk and negligence. The employer claimed that the first two allegations were not proved and that the third was not an allowable cause for action under the Contribution Act (Ill. Rev. Stat. 1985, ch. 70, sees. 301-305).

The court ruled unanimously that negligence could be an appropriate basis for action and that it was the appropriate basis in J. L. Case Co. v. McCartin-McAuliffe Plumbing & Heating Inc. (Docket Nos. 62660 and 62803 cons.). Justice Ben Miller wrote the opinion; Justice Joseph H. Goldenhersh did not participate.

In a case involving the validity of a pesticide ordinance enacted by the village of Wauconda, the U.S. Court of Appeals for the Seventh Circuit made use for the first time of Rule 20 of the Illinois Supreme Court (103 Ill. 2d R. 20) adopted in 1983. This rale permits the U.S. Supreme Court or courts of the Seventh District to certify questions of Illinois law to the Illinois high court. This should only occur when the federal court is hearing a case involving matters of Illinois law upon which there is no controlling precedent. Rule 13 of the federal appellate court of the Seventh District encourages the establishment of such rules, and the Illinois rule resembles those in other jurisdictions.

The Illinois Supreme Court ruled in the case that because of the comprehensiveness of Illinois laws on pesticides and pest control and the legislature's interest in uniformity, "Wauconda, a non-home-rule unit, is preempted . . . from enacting its ordinance regulating pesticides." Justice Ben Miller wrote the opinion in Pesticide Public Policy Foundation v. Village of Wauconda ((1987) 117 Ill. 2d 107).