The Nature and Scope of the Illinois Income Tax

“Further, once the Illinois Supreme Court has construed an act of the legislature, that construction becomes, in effect, a part of that law and any change in the construction is a matter for the legislature. Mitchell v. Mahin (1972), 51 Ill.2d 452, 456, 283 N.E.2d 465.” Wolters v. Johnson, 114 Ill. App.3d 546 (1983).

So, according to the Illinois Supreme Court, once they rule upon the meaning of a statute, that interpretation becomes part of the law itself and the public is bound to follow the law according to what the High court says the law means.  If the Legislature disagrees with the court’s interpretation, they can change the law to negate or clarify what the court stated. So in the case of Thorpe v. Mahin, the court thoroughly analyzed the meaning [nature] of the IITA, and who it applies to [scope]. The following is relevant portions of the decision;

“In Hale v. Iowa State Board of Assessment and Review, 302 U.S. 95, 58 S.Ct. 102, 82 L.Ed. 72, the Supreme Court observed: “The question as to the nature of such a tax has come up repeatedly under state constitutions requiring taxes upon property to be equal and uniform, or imposing similar restrictions. Many, perhaps most, courts hold that a net income [1]tax is to be classified as an excise. [Citing cases.] `The tax levied on income is not a property tax, * * *.’ [Citing cases.] * * * True, there are courts in other states that teach a different doctrine. [Citing cases including Bachrach.]” (302 U.S. 95, 104_05, 58 S.Ct. 102,105, 82 L.Ed. 72, 78.) “While there is authority to the effect that an income tax is a `property tax’, and that a tax on the income from property is a tax on the property, the view generally taken is that an income tax is not a tax on property, but is more within the category of excise taxes, and that a tax on income is not a tax on the source of the income.” (85 C.J.S., Taxation, sec. 1089.) “The prevailing view appears to be that an income tax is not a tax on `property’ within the meaning of such provisions.” (State constitutional provisions governing property taxes.) 27 Am. Jur., Income Taxes, sec. 19.”

“We hold that under section 2 of article IX of our constitution the General Assembly has the power to impose a tax on the privilege of earning or receiving income in or as a resident of Illinois.”

“In Flint v. Stone Tracy Co., the Supreme Court stated: “The thing taxed is not the mere dealing in merchandise, in which the actual transactions may be the same, whether conducted by individuals or corporations, but the tax is laid upon the privileges which exist in conducting business with the advantages which inhere in the corporate capacity of those taxed, and which are not enjoyed by private firms or [2]individuals. These advantages are obvious, and have led to the formation of such companies in nearly all branches of trade. The continuity of the business, without interruption by death or dissolution, the transfer of property interests by the disposition of shares of stock, the advantages of business controlled and managed by corporate directors, the general absence of individual liability, these and other things inhere in the advantages of business thus conducted, which do not exist when the same business is conducted by private individuals or partnerships. It is this distinctive privilege which is the subject of taxation, not the mere buying or selling or handling of goods, which may be the same, whether done by corporations or individuals.” 220 U.S. 107, 161_2, 31 S.Ct. 342, 353, 55 L.Ed. 389, 417_8.”

“Second, we have the equally familiar rule that “It is our duty so to interpret the statute as to promote its essential purposes and to avoid, if possible, a construction that would raise doubts as to its validity.” (People v. Nastasio, 19 Ill.2d 524, 529; Pliakos v. Illinois Liquor Control Com., 11 Ill.2d 456; People v. Dale, 406 Ill. 238.)”

Therefore, in plain English, the Illinois Supreme Court has declared the “income tax” is an “excise tax”, which is synonymous with “privilege tax”. (Which the Illinois Legislature refers to the tax in Section 201(a) as a “privilege” tax. Most importantly, the Supremes have “construed” the “income tax” is a “corporate tax”, and “the tax is laid upon the privileges which exist in conducting business with the advantages which inhere in the corporate capacity of those taxed, and which are not enjoyed by private firms or [3]individuals”.

The Supremes have also told us that; “the view generally taken is that an income tax is not a tax on property, but is more within the category of excise taxes, and that a tax on income is not a tax on the source of the income.” So does the income tax apply to a citizen’s “labor”. Again, let’s turn to the Illinois Supreme Court in the following 2 cases;

“Labor is property. The laborer has the same right to sell his labor, and to contract with reference thereto, as any other property owner.”                                               Gillespie v. People, 188 Ill. 176, 183 (1900).

“The property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable…

The enjoyment or deprivation of these rights… constitutes the essential distinction between freedom and slavery; between liberty and oppression.”

And, the United States Supreme Court is in perfect agreement with the Illinois Supreme court, as we read the following cases;

“The right of a person to sell his labor upon such terms as he deems proper is, in its essence, the same as the right of the purchaser of labor to prescribe the conditions upon which he will accept such labor from the person offering to sell it.”

Adair v. U. S., 208 U.S. 161, 174 (1908).

“The property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of the poor man lies in the strength and dexterity of his own hands, and to hinder his employing this strength and dexterity in what manner he thinks proper, without injury to his neighbor, is a plain violation of this most sacred property.”

“The principle is fundamental and vital. Included in the right of personal liberty and the right of private property __ partaking of the nature of each __ is the right to make contracts for the acquisition of property. Chief among such contracts is that of personal employment, by which labor and other services are exchanged for money or other forms of property. If this right be struck down or arbitrarily interfered with, there is a substantial impairment of liberty in the long established constitutional sense. The right is as essential to the laborer as to the capitalist, to the poor as to the rich, for the vast majority of persons have no other honest way to begin to acquire property save by working for money.”

With this knowledge we must consider two things; (1) “Labor is property” and the Illinois Supremes have stated that “an income tax is not a tax on property”. (2) The Supremes have declared that the income tax “is not a tax on the source of income”, and YOU ARE THE SOURCE OF INCOME, which means the compensation for your labor is not the subject of the income tax.

But let’s go further and examine whether a citizen’s “labor” is a “privilege” subject to the IITA. In the above cases, the Ill. Supremes say a citizen has the “right to sell his labor”, and that it is “the most sacred and inviolable” right, and that it “constitutes the essential distinction between freedom and slavery; between liberty and oppression”.

The U.S. Supremes repeatedly agree that it is a “right” for a citizen to labor, not a “privilege”. They state it is your“most sacred property”, and that “The principle is fundamental and vital”.

Wow! It seems clear enough! However, for those that are still foggy, let’s read more of what the Ill Supr Crt says about the subject;

“Compensation for labor can not be regarded as profit, within the meaning of the law. The word “profit”, as ordinarily used, means the gain made upon any business or investment – a different thing altogether from mere compensation for labor.”

To make the point even clearer, read what the Supreme Court’s of Tennessee, Arkansas, and Oregon have to say on the subject of income tax on a citizen’s right to work [labor].

“It cannot be denied that the Legislature can name any privilege a taxable privilege and tax it by means other than an income tax, but the Legislature cannot name something to be a taxable privilege unless it is first a privilege. …

Since the right to receive income or earnings is a right belonging to every person, the right cannot be taxed as privilege.”

“The effect of this construction of our Constitution by all of our former decisions is that the Legislature has no power to declare as a privilege and tax for revenue purposes occupations that are of common right, but it does have the power to declare as privileges and tax as such for the state revenue purposes those pursuits and occupations that are not matters of common right, and to declare and tax as a privilege for state revenue any other subjects or sources of taxation that are not pursuits or occupations of common right.”

“The individual [citizen], unlike the corporation, cannot be taxed for the mere privilege of existing. The corporation is an artificial entity which owes it’s existence and charter powers to the state; but the individuals’[citizen’s] rights to live and own property are natural rights for the enjoyment of which an excise cannot be imposed. 26 R. C. L. Taxation § 209, p. 236; Cooley Taxation (4^th Ed.) § 1676; In re Opinion of the Justices, 195 Mass. 607, 84 N. E. 499.”