Zachary Krizel is a J.D. candidate (2023) at American University, Washington College of Law with an interest in complex civil litigation concerning constitutional and administrative law. He is from Utica, Il., and served as an enlisted member of the United States Air Force and as Staff Assistant to U.S. Rep. Adam Kinzinger (IL-16) prior to law school.
Introduction
In 2022, Illinois enacted a law requiring motor vehicle insurers to pay a $4.00 tax to the Illinois Law Enforcement Training Fund as a condition of doing business in the state.[1] While the law taxes insurance companies, the statute states entities “may collect” these taxes from insured drivers.[2] Effectively, the legislation taxes a private entity but grants authority to these entities to collect the tax from private individuals. But wait, Article IX, Section 1 of the Illinois Constitution states in part “[t]he General Assembly has the exclusive power to raise revenue by law” and that “the power of taxation shall not be surrendered, suspended, or contracted away” (emphasis added).[3] So if the Illinois Constitution explicitly bars taxation by non-government entities, how can insurance companies collect $4 from Illinois drivers? This article will examine this novel question by briefly looking at grants of government authority and the collection of taxes by private entities.
State Grants of Governmental Authority to Private Actors
Cases addressing grants of government authority to private actors is limited.[4] Yet, in Behm v. City of Cedar Rapids, the Supreme Court of Iowa reviewed a challenge to a contract between the City of Cedar Rapids and a private company to install and manage automated traffic enforcement systems (speed cameras).[5] Although the plaintiffs, residents of Cedar Rapids, argued that the contract violated numerous provisions of the Iowa Constitution and was an unconstitutional delegation of governmental power to a private entity, the court disagreed. Relying on judicial decisions from Texas and Florida, the court found that the contract did not “involve the exercise of the kind of judgment that might amount to an unlawful delegation” because the contractor’s collection of images was ministerial in nature and the images were sent to the city who retained the discretion over which drivers to fine.[6]
Collection of Taxes
While Behm sheds light on how some states have viewed governmental delegations of authority to private entities, it does not address the collection of taxes. To examine this facet of §8.6, federal case law may be illustrative. For instance, in Du Pont Glore Forgan, Inc. v. Am. Tel. & Tel. Co., the U.S. District Court for the Southern District of New York held that plaintiffs could not recover erroneous taxes collected by a private entity.[7] The plaintiffs in Du Pont, users of a telephone service, sued the American Telephone and Telegraph Co. (“AT&T”) seeking to recover money collected under the Internal Revenue Code which imposed an excise tax on telephonic communication services.[8] Holding that the plaintiffs could only recover erroneously collected taxes from the government itself, the court found that the company was not liable.[9] Importantly, the court noted that the statute required compulsory performance on the part of AT&T, therefore rendering the company a private tax collector because the statute applied to all users and required the company to collect the tax or face potential criminal liability.[10]
The Illinois law is interesting because it intersects both issues: a delegation of taxing authority to a private entity. Yet the statute may present issues distinguishable from those in Behm and Du Pont on at least two points.[11] First, unlike Behm, under §8.6, the government has no active role in the process, motor vehicle insurers hold the exclusive power to directly tax drivers.[12] Second, unlike Du Pont where the excise tax applied to all telephone users under the statute and held communications companies criminally liable for the failure to collect the tax, 20 ILCS 4005 §8.6 is a tax on the insurance providers. Moreover, the language of the statute regarding the collection from individuals is not mandatory. To the contrary, §8.6 gives insurers the discretion on whether to tax drivers.[13] And this ‘decision’ is arguably illusory; why would a business volunteer to absorb the cost when the legislature granted these businesses the power to collect the money elsewhere?
Conclusion
Governmental grants of authority have come under the microscope in recent years, and legal scholars have noted this phenomenon.[14] But delegations by state governments have seemingly evaded this scrutiny. Therefore, whether state statutes granting private entities the authority to execute important governmental functions are merely tools implemented to encourage the smooth administration of government responsibilities or are unconstitutional delegations of authority that violate longstanding separation of powers principles is a question that may only be answered through courts across the country. And while it is fair to ask whether there is a material difference between entities passing down their tax-costs to consumers or granting these entities the power to tax consumers directly, I firmly believe it is an issue worthy of scrutiny.
[1] 20 ILCS 4005 §8.6 (2022).
[2] Id.
[3] Const. of the State of Il., Art. IX, §1 (2016).
[4] James M. Rice, NOTE: The Private Nondelegation Doctrine: Preventing the Delegation of Regulatory Authority to Private Parties and International Organizations, 105 CALIF. L. REV. 539 (2017).
[5] 922 N.W.2d 524, 578 (Iowa, 2019).
[6] See Texas Boll Weevil Eradication Found. v. Lewellen, 952 S.W.2d 454, 475 (1997), where the Texas Supreme Court found a legislative delegation of authority to a private party unconstitutional where it granted an association the power to require cotton growers to pay fees associated with boll weevil eradication efforts. In determining the legislation was an overbroad delegation of authority, the court used an eight part test that looked at 1) whether the private entity’s actions were subject to meaningful review by a government body, 2) whether those affected by the private entity’s action were provided adequate representation in the decision making process, 3) the scope of the private entity’s power, 4) whether the private entity had a conflicting pecuniary or personal interest in the matter, 5) whether the private entity had the authority to define or impose criminal sanctions, 6) the scope of the delegation (duration, extent, and subject matter) 7) whether the private entity possessed special qualifications or expertise in the area of their delegation, and 8) whether the legislative body delegating the authority provided sufficient guidelines to the private entity.
[7] Du Pont Glore Forgan, Inc. v. Am. Tel. & Tel. Co., 428 F. Supp. 1297, 1308 (S.D.N.Y. 1977).
[8] Id. at 1299—1300.
[9] Id. at 1306.
[10] See also Sigmon v. Southwest Airlines Co., 110 F.3d 1200 (5th Cir. 1997) where the U.S. Court of Appeals for the Fifth Circuit found that an airline could not be held liable for erroneously collected excise taxes on passengers.
[11] In Bohm, plaintiffs also challenged the use of contractors to capture and collect images of traffic infractions on the grounds that it violated the equal protection clause because it treated classes of Iowa and out-of-state citizens differently. This may also be an issue in 20 ILCS 4005 §8.6 because the tax is only applied to insured drivers who are legally required to carry insurance under 625 ILCS 5/7-601 (2019).
[12] See Bohm, where the court noted that although the contractor captured images of traffic infractions, these images were reviewed by the city who determined which vehicles would receive citations.
[13] Cf. 26 USCS § 4251 (a)(2) “Payment of tax. The tax imposed by this section shall be paid by the person paying for such services” with 20 ILCS 4005 §8.6 “each insurer engaged in writing private passenger motor vehicle insurance coverage . . . may collect and shall pay.”
[14] E.g., Mila Sohoni, The Major Questions Quartet, 136 HARV. L. REV. 262, 318 (2022) where the author examines the recent invalidation of agency actions on the grounds that they violate non-delegation principles.