IL appeals panel: Man can challenge constitutionality of state's retroactive estate tax bill

By Dan Churney | Apr 17, 2017

A state appeals panel has overturned a DuPage County circuit judge’s dismissal of a challenge to Illinois’ retroactive estate tax, saying an executor is entitled to pursue his case against the tax in circuit court, not the Illinois Court of Claims as the state asserted.

The April 13 decision was authored by Justice Joseph Birkett, of the Illinois Second District Appellate Court, with concurrence from Justices Kathryn Zenoff and Mary Schostok. The court, which sits in Elgin, favored Paminder S. Parmar in his suit against Illinois Attorney General Lisa Madigan and IllinoisTreasurer Michael Frerichs

Parmar was executor of the $5 million estate of Dr. Surinder K. Parmar, who died Jan. 9, 2011. At the time of her death, there had been no estate tax in Illinois since Jan. 1, 2010. However, the tax went back into effect four days after her death, retroactive to estates of people who died after Dec. 31, 2010.

Parmar went to DuPage County Circuit Court in 2015, contending the retroactive application of the estate tax law violated the U.S. and Illinois Constitutions. Parmar had paid the $423,425 tax and interest, but said he forked over the money under duress to avoid penalties and further interest.

The state argued the case belonged in the Illinois Court of Claims, not circuit court, because the Court of Claims is the venue to handle claims against the state based on any state law or regulation.

Parmar replied the estate tax statute authorized circuit courts to hear disputes concerning the tax. However, Circuit Judge Bonnie Wheaton ruled the matter belonged in the Court of Claims, dismissing Parmar’s suit, but allowing him to refile the case with that body.

On appeal, Justice Birkett noted the sovereign immunity doctrine requires recourse to the Court of Claims, but only when the state agent or officer involved in the suit, acted within the legitimate scope of his or her power. Birkett pointed out Parmar is alleging the state attorney general and treasurer acted illegally, because it goes against the federal and state constitutions to retroactively impose the tax.

“Sovereign immunity affords no protection when it is alleged that the State’s agent acted in violation of statutory or constitutional law or in excess of his authority, and in those instances an action may be brought in circuit court,” Birkett observed.

Birkett went on to say this exception is based on the principle that legal acts by state officers are regarded as acts of the state, but illegal acts performed by officers are not, stripping the officer of his or her official status.

“This suit is a textbook instance of the officer-suit exception,” Birkett concluded.

The state also contended Parmar voluntarily paid the tax and interest, because the state never threatened or tried to force payment. In consequence, Parmar’s only recourse to regain the money was to file an action under the Illinois Protest Fund Act and follow the Act’s procedures, as voluntary payment is a prerequisite to seeking recovery through the Act. Parmar did not lodge such an action, so he forfeited his right to the money, in the state’s view.

Birkett agreed with Parmar’s reasoning that the prospect of penalties and interest, as well as Parmar’s risk of personal financial liability, amounted to “duress,” even though the state never directed Parmar to pay the interest or penalties, or forced liability on him.

As a result, Parmar did not voluntarily pay, eliminating the Protest Fund Act as a destination for Parmar.

Further, the Protest Fund Act only comes into play when officials follow the law, but Parmar is alleging officials violated the law, so Parmar was not obliged to make his case through the Act, Birkett said.

Birkett reinstated Parmar’s suit, saying Judge Wheaton was wrong to have tossed the case.

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Circuit Court of Dupage County Illinois Attorney General Illinois Second District Appellate Court Illinois State Treasurer

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