                                Illinois Official Reports

                                         Appellate Court



                 United States Liability Insurance Co. v. Department of Insurance,
                                     2014 IL App (4th) 121125




Appellate Court            UNITED STATES LIABILITY INSURANCE COMPANY;
Caption                    NATIONAL INDEMNITY COMPANY; NATIONAL LIABILITY
                           & FIRE INSURANCE COMPANY; CENTRAL STATES
                           INDEMNITY COMPANY OF OMAHA; KANSAS BANKERS
                           SURETY COMPANY; GOVERNMENT EMPLOYEES INSUR-
                           ANCE COMPANY; GEICO GENERAL INSURANCE COMPANY;
                           GEICO INDEMNITY COMPANY; GEICO CASUALTY
                           COMPANY; GENERAL REINSURANCE CORPORATION;
                           GENERAL STAR NATIONAL INSURANCE COMPANY;
                           GENESIS INSURANCE COMPANY; FAIRFIELD INSURANCE
                           COMPANY; NATIONAL REINSURANCE CORPORATION; and
                           NORTH STAR REINSURANCE CORPORATION, Plaintiffs-
                           Appellees, v. THE DEPARTMENT OF INSURANCE; and
                           MICHAEL T. McRAITH, as Director of the Department of Insurance,
                           Defendants-Appellants.




District & No.             Fourth District
                           Docket No. 4-12-1125




Rule 23 Order filed        March 3, 2014
Rule 23 Order
withdrawn                  May 9, 2014
Opinion filed              May 9, 2014
Held                       In an action arising from a dispute over how insurance companies
(Note: This syllabus domiciled outside Illinois but conducting business in Illinois should
constitutes no part of the treat overpayments they made on their Illinois income taxes for
opinion of the court but purposes of the Illinois retaliatory tax, the appellate court found that
has been prepared by the the retaliatory tax statute unambiguously provides that the income-tax
Reporter of Decisions component of the retaliatory tax is the income tax that accrued
for the convenience of pursuant to sections 201(a) through (d) of the Income Tax Act, not the
the reader.)               income taxes paid, and since Title 50, section 2515.50(b), of the
                           Illinois Administrative Code, which provides that the Illinois basis
                           includes the income tax paid, conflicts with the statute’s mandate that
                           the retaliatory tax includes the corporate income tax imposed in a
                           particular year, Title 50, section 2515.50(b), of the Illinois
                           Administrative Code is invalid on the ground that it was inconsistent
                           with the retaliatory tax statute; therefore, the trial court’s reversal of
                           the Department of Insurance’s decision that the refund at issue had to
                           be accounted on a cash basis for the year in which the refund was
                           received was affirmed and plaintiffs were entitled to apply the refund
                           to the years in which plaintiffs overpaid their taxes.



Decision Under            Appeal from the Circuit Court of Sangamon County, No. 11-MR-228;
Review                    the Hon. John Schmidt, Judge, presiding.



Judgment                  Affirmed.



Counsel on                Lisa Madigan, Attorney General, of Chicago (Michael A. Scodro,
Appeal                    Solicitor General, and Richard S. Huszagh, Assistant Attorney
                          General, of counsel), for appellants.

                          James S. Dunn, of Springfield, and Tracy D. Williams, William M.
                          Sneed (argued), and Julie M. Weber, all of Sidley Austin LLP, of
                          Chicago, for appellees.




Panel                     JUSTICE HOLDER WHITE delivered the judgment of the court, with
                          opinion.
                          Presiding Justice Appleton and Justice Steigmann concurred in the
                          judgment and opinion.



                                                -2-
                                             OPINION

¶1       Defendants in this case are the Department of Insurance (Department) and Michael T.
     McRaith, as the Department’s Director. Plaintiffs, United States Liability Insurance Company
     (USLIC), National Indemnity Company, National Liability & Fire Insurance Company,
     Central States Indemnity Company of Omaha, Kansas Bankers Surety Company, Government
     Employees Insurance Company, GEICO General Insurance Company, GEICO Indemnity
     Company, GEICO Casualty Company, General Reinsurance Corporation, General Star
     National Insurance Company, Genesis Insurance Company, Fairfield Insurance Company,
     National Reinsurance Corporation, and North Star Reinsurance Corporation, are a group of
     insurance companies owned by National Indemnity Company that do business in Illinois.
¶2       The Illinois Insurance Code (Insurance Code) requires insurance companies domiciled
     outside Illinois that conduct business in Illinois to pay a retaliatory tax. 215 ILCS 5/444(1)
     (West 2010). The dispute in this case centers on how, for retaliatory tax purposes, plaintiffs
     should have treated an approximately $8.6 million refund that they received in 2004 for
     overpayments they made on their income taxes in 1999, 2000, and 2001. In reporting their
     2004 retaliatory tax, plaintiffs counted and applied the $8.6 million refund for the tax years in
     which they had overpaid their taxes–1999, 2000, and 2001–thus calculating that they owed
     $1.9 million in retaliatory taxes. The Department, however, contends the $8.6 million refund
     should have been counted against plaintiffs’ 2004 income, resulting in the payment of a higher
     retaliatory tax. The Department’s contention stems from the language in one of the
     Department’s regulations, which states, “[t]he amount of Illinois Corporate and Replacement
     income tax paid, decreased by the amount, if any, of any corporate and/or income replacement
     tax cash refund received in the same calendar year if that cash refund had been considered part
     of the amount of Illinois Corporate and Replacement income tax paid in the calculation of the
     annual retaliatory tax in a preceding year.” 50 Ill. Adm. Code 2515.50(b)(5) (2000).
¶3       In May 2011, the Department Director upheld the Department’s interpretation of its
     regulations as requiring the income tax refunds to be accounted on a cash basis. That month,
     plaintiffs filed a complaint for administrative review. Following a September 2012 hearing, the
     circuit court reversed the Department Director’s decision and entered judgment for plaintiffs,
     finding the Department’s regulation was invalid because it was “wholly and completely
     inconsistent” with the retaliatory tax statute.
¶4       Defendants appeal, arguing the circuit court erred by reversing the Department Director’s
     decision because section 2515.50(b) of Title 50 of the Illinois Administrative Code does not
     conflict with section 444(3) of the Insurance Code, as section 444(3) merely identifies the
     types of taxes, charges, and fees included in the scope of the retaliatory tax.
¶5       We disagree and affirm.

¶6                                    I. BACKGROUND
¶7                              A. Statutory Provisions at Issue
¶8       Section 444(1) of the Insurance Code, known as the retaliatory tax statute, requires
     insurance companies domiciled outside of Illinois to “pay penalties, fees, charges, and taxes, in
     amounts equal to” the aggregate amount of penalties, fees, charges, and taxes Illinois
     companies must pay when doing business in the foreign company’s state. 215 ILCS 5/444(1)


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       (West 2010). The purpose of the retaliatory tax is to discourage other states from enacting
       discriminatory or excessive taxes on Illinois companies doing business there. Mutual Life
       Insurance Co. of New York v. Washburn, 137 Ill. 2d 312, 330, 561 N.E.2d 29, 37-38 (1990).
       The statute specifies that the terms “penalties,” “fees,” “charges,” and “taxes” shall include,
       among other things, the “taxes collected under State law” and “the Illinois corporate income
       taxes imposed under subsections (a) through (d) of Section 201 of the Illinois Income Tax Act
       after any tax offset allowed under Section 531.13 of this Code.” (Emphasis added.) 215 ILCS
       5/444(3) (West 2010).
¶9          Subsections (a) through (d) of section 201 of the Illinois Income Tax Act set forth two
       types of income taxes a corporation must pay. 35 ILCS 5/201(a) to (d) (West 2010). During the
       period of time of this dispute, a corporation was required to pay 4.8% of its net income in taxes.
       35 ILCS 5/201(b)(8) (West 2010). A corporation was also required to pay a personal property
       tax replacement income tax at a rate of 2.5% of a corporation’s net income. 35 ILCS 5/201(c),
       (d) (West 2010). These two taxes, collectively, will hereinafter be referred to as the “income
       tax.”
¶ 10        Under Illinois law, an insurance company is also required to pay a “premium” or
       “privilege” tax (hereinafter referred to as the “privilege tax”) at a rate of 0.5% of gross
       insurance premiums. 215 ILCS 5/409(1) (West 2010). If an insurance company has paid
       Illinois income tax in excess of 1.5% of premiums, it may receive a credit against the privilege
       tax liability. 215 ILCS 5/409(2) (West 2010). A privilege tax credit is based on the amount of
       income tax “paid by the company, on a cash basis.” 215 ILCS 5/409(2) (West 2010).
¶ 11        Section 401(a) of the Insurance Code authorizes the Director “to make reasonable rules and
       regulations as may be necessary” for effectuating the insurance laws of the State of Illinois.
       215 ILCS 5/401(a) (West 2010). The Department’s regulations governing the retaliatory tax
       are included in Title 50, section 2515, of the Illinois Administrative Code (50 Ill. Adm. Code
       2515 (2000)). In particular, section 2515.50 provides that to calculate the amount of retaliatory
       tax due, a corporation must compare the state of Illinois’s basis (Illinois Basis) to the state of
       incorporation’s basis (Foreign Basis). 50 Ill. Adm. Code 2515.50 (2000). The Illinois Basis is
       the sum of, among other things:
                “[t]he amount of Illinois Corporate and Replacement income tax paid, decreased by the
                amount, if any, of any corporate and/or income replacement tax cash refund received in
                the same calendar year if that cash refund had been considered part of the amount of
                Illinois Corporate and Replacement income tax paid in the calculation of the annual
                retaliatory tax in a preceding year.” 50 Ill. Adm. Code 2515.50(b)(5) (2000).
       Where the Illinois Basis is less than the Foreign Basis, the insurance company must pay a
       retaliatory tax. 50 Ill. Adm. Code 2515.50 (2000). A corporation pays the retaliatory tax in
       accordance with section 444 and is required to file “an annual return for the preceding calendar
       year on or before March 15.” 215 ILCS 5/444.1(1) to (2) (West 2010).

¶ 12                                B. The Administrative Proceedings
¶ 13       In 2004, after filing amended state income tax returns for tax years 1999 and 2000,
       plaintiffs collectively received a refund of approximately $8.6 million. On their 2004
       retaliatory tax return, plaintiffs included approximately $1.9 million of the $8.6 million refund
       based on plaintiffs’ belief that the refund should be counted for the years in which they made


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       overpayments–1999, 2000, and 2001. In October 2005, the Department issued an invoice to
       one of the plaintiffs, USLIC, alleging USLIC owed additional privilege and retaliatory taxes
       for 2004. USLIC filed a protest challenging the Department’s proposed assessment and
       requesting a hearing on the matter. Specifically, USLIC argued it correctly reported the refund
       of Illinois income tax it received in 2004 because its share of the refund had to “be taken into
       account in 2004 only to the extent it was considered part of the ‘income tax paid’ that
       generated a privilege or retaliatory tax benefit for a year prior to 2004.” Alternatively, USLIC
       claimed that section 444(3) of the Insurance Code required “that the amount of Illinois Income
       Tax imposed be taken into account on an incurred basis rather than a cash basis, so that no
       amount of the 1999-2000 Income Tax refund received in 2004 should have been taken into
       account in 2004.” In December 2005, the Director assigned a Department employee to conduct
       a hearing on USLIC’s protest.
¶ 14       In April 2006, the Department advised a second group of the plaintiffs, General
       Reinsurance Corporation, General Star National Insurance Company, Genesis Insurance
       Company, Fairfield Insurance Company, National Reinsurance Corporation, and North Star
       Reinsurance Corporation, that it would not issue those plaintiffs’ requested refunds of
       approximately $98,000 of retaliatory taxes that those plaintiffs alleged they erroneously paid in
       1999. The second group of plaintiffs requested a hearing. Likewise, in June 2006, the
       remaining plaintiffs, National Indemnity Company, National Liability & Fire Insurance
       Company, Central States Indemnity Company of Omaha, Kansas Bankers Surety Company,
       Government Employees Insurance Company, GEICO General Insurance Company, GEICO
       Indemnity Company, and GEICO Casualty Company, filed a protest after the Department
       issued invoices alleging those plaintiffs owed additional privilege and retaliatory taxes for
       2004.
¶ 15       The three cases were consolidated before a single hearing officer. In 2005 and 2006, the
       parties filed cross-motions for summary judgment. In March 2011, the hearing officer issued
       proposed findings of fact and conclusions of law, recommending the Director grant the
       Department’s motion for summary judgment, deny plaintiffs’ protest, and order plaintiffs to
       pay the invoices issued by the Department. In April 2011, the Director adopted the hearing
       officer’s findings of fact, conclusions of law, and recommendations. The Director noted that
       although USLIC initially challenged the validity of the Department’s regulations, including
       sections 2525.60 and 2515.50, USLIC was no longer making such a challenge, “perhaps”
       because it understood the Department could not “challenge, let alone invalidate, one of its own
       regulations.” The Director then went on to find that the Department’s interpretation of its
       regulations was correct in that refunds of corporate income and replacement taxes are to be
       accounted on a cash basis. Thus, the Director granted the Department’s motion for summary
       judgment, denied plaintiffs’ protests, and ordered USLIC and the third group of plaintiffs to
       pay the Department invoices.

¶ 16                                  C. Circuit Court Proceedings
¶ 17       In May 2011, plaintiffs filed a complaint for administrative review in the Sangamon
       County circuit court. A hearing commenced in September 2012. In addition to challenging the
       Department’s interpretation of its regulation, plaintiffs asserted the regulation was inconsistent
       with the statute and therefore invalid. Specifically, plaintiffs pointed out that section 444(3) of
       the Insurance Code (215 ILCS 5/444(3) (West 2010)) specified the retaliatory tax included,

                                                    -5-
       among other things, a percentage of the Illinois corporate income taxes “imposed” under
       section 201 of the Income Tax Act. By contrast, the Department’s regulation specified that
       each party’s basis, used to calculate the retaliatory tax, included the income tax “paid.” 50 Ill.
       Adm. Code 2515.50(b)(5) (2000). According to plaintiffs, “paid” and “imposed” connoted two
       different meanings; thus, the regulation was inconsistent with section 444(3) of the Insurance
       Code. (Plaintiffs also argued the Department’s application of the retaliatory tax was
       unconstitutional; however, plaintiffs have not renewed that argument on appeal.) For their part,
       defendants argued the retaliatory tax statute was “broad” and “flexible,” and that the use of the
       word “imposed” in the statute encompassed when the tax was “paid,” not when the tax
       “accrued.”
¶ 18        In September 2012, the circuit court entered judgment for plaintiffs. Specifically, the court
       found that the Department’s regulation, contained in Title 50, section 2515.50(b)(5), of the
       Illinois Administrative Code, was invalid because it was “wholly and completely inconsistent”
       with the retaliatory tax statute. The court’s written order also included a finding that no just
       cause existed to delay enforcement of its order.
¶ 19        This appeal followed.

¶ 20                                          II. ANALYSIS
¶ 21       On appeal, defendants assert the circuit court erred by reversing the Director’s decision.
       Specifically, defendants posit the court erred by finding that Title 50, section 2515.50(b)(5), of
       the Illinois Administrative Code conflicts with section 444(3) of the Insurance Code because,
       contrary to the court’s finding, section 444(3) of the Insurance Code does not mandate the use
       of an accrual basis of accounting to report Illinois income tax payments and refunds when
       calculating the retaliatory tax, nor does it address the temporal accounting issue at all. Rather,
       according to defendants, section 444(3) is unambiguous and merely identifies the types of
       taxes, charges, and fees that are included in the scope of the retaliatory tax. Thus, defendants
       contend, no conflict exists between the statute and the regulation. In the alternative, defendants
       argue that if section 444(3) of the Insurance Code is ambiguous, this court should adopt the
       Department’s interpretation of the statute.

¶ 22                         A. Standards Governing Statutory Interpretation
¶ 23        “The interpretation of a statute is a question of law, which we review de novo.” People ex
       rel. Madigan v. Illinois Commerce Comm’n, 231 Ill. 2d 370, 380, 899 N.E.2d 227, 232 (2008).
       Our “primary objective in interpreting a statute is to ascertain and give effect to the intent of
       the legislature.” Solon v. Midwest Medical Records Ass’n, 236 Ill. 2d 433, 440, 925 N.E.2d
       1113, 1117 (2010). The “most reliable indicator of such intent is the language of the statute,
       which is to be given its plain and ordinary meaning.” Id. When ascertaining the plain meaning
       of the statute, we consider the statute as a whole, the subject it addresses, and the legislature’s
       apparent intent in enacting it. Id. “When the statutory language is clear and unambiguous, it
       must be applied as written, without resort to extrinsic aids of statutory construction.” Id. By
       contrast, where a statute is ambiguous–that is, where a statute is capable of being understood
       by reasonably well-informed persons in two or more different ways–we may consider extrinsic
       aids of construction. Id. In addition, where a statute is ambiguous and the agency has rendered
       an interpretation of the statute, “ ‘the court does not simply impose its own construction on the
       statute, as would be necessary in the absence of an administrative interpretation. Rather, ***

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       the question for the court is whether the agency’s answer is based on a permissible construction
       of the statute.’ ” Illinois Bell Telephone Co. v. Illinois Commerce Comm’n, 362 Ill. App. 3d
       652, 657, 840 N.E.2d 704, 709 (2005) (quoting Chevron U.S.A. Inc. v. Natural Resources
       Defense Council, Inc., 467 U.S. 837, 843 (1984)).
¶ 24       Accordingly, we start our inquiry by looking to the language of section 444(3) of the
       Insurance Code.

¶ 25                              B. Section 444(3) of the Insurance Code
¶ 26       As previously detailed, a foreign corporation’s retaliatory tax is calculated by comparing
       the Illinois Basis to the Foreign Basis. Section 444(3) of the Insurance Code specifies that the
       income-tax component of the Illinois Basis consists of “the Illinois corporate income taxes
       imposed under subsections (a) through (d)” of the Income Tax Act. (Emphasis added.) 215
       ILCS 5/444(3) (West 2010).
¶ 27       Plaintiffs contend that the word “imposed” has an unambiguous, specific meaning within
       the field of tax law that is not the same as “paid.” In support of their argument, plaintiffs point
       out that the legislature, in enacting the retaliatory tax statute, used specific language when
       referring to the taxes making up the retaliatory tax calculation–“collected” when referring to
       the penalties, fees, charges, and taxes in article XXV of the Insurance Code, and “imposed”
       when referring to the corporate income tax under section 201, subsections (a) to (d), of the
       Income Tax Act. Thus, plaintiffs contend the legislature intended the word “imposed” to mean
       something different from “collected.”
¶ 28       Defendants, on the other hand, assert that the word “imposed” does not have the
       unambiguous meaning that plaintiffs attribute to it. Rather, defendants claim, “imposed” may
       be used to signify the “existence or application of an obligation generally” and thus can
       encompass the word “paid.” According to defendants, when reading section 444(3) as a whole
       and in conjunction with the rest of section 444 and the Insurance Code, the legislature clearly
       intended for section 444(3) to define the scope of the taxes, charges, and fees included in the
       retaliatory tax. With respect to why the legislature used the word “imposed” when referring to
       the corporate income tax and “collected” when referring to other taxes making up the
       retaliatory tax calculation, defendants assert the legislature likely adopted the word “imposed”
       because that term is used by section 201 of the Income Tax Act.
¶ 29       Defendants are correct that section 201 of the Income Tax Act uses the word “imposed” to
       refer to income taxes. This may explain why the legislature used the word “imposed” in the
       retaliatory tax statute when referring to income taxes and “collected” when referring to the
       other taxes comprising the retaliatory tax calculation. Defendants are also correct that in Lewyt
       Corp. v. Commissioner of Internal Revenue, 349 U.S. 237, 240 (1955), the Supreme Court, in
       interpreting a section of the Internal Revenue Code, stated that the word “ ‘imposed’ ” could be
       used “in one of two different senses–either to identify the tax or to define the amount of the tax
       that is to be levied and collected.”
¶ 30       Nonetheless, we conclude that, in this case, the legislature clearly did not intend the word
       “imposed” to merely identify the types of taxes included in the retaliatory tax. In particular, we
       find persuasive plaintiffs’ assertion that if the legislature had intended the amount of income
       tax included in the retaliatory tax calculation to be the amount of income tax paid, it could have
       made that clear by referencing section 601(a) and/or section 803 of the Income Tax Act, both
       of which govern the amount of Illinois income tax a corporation actually pays during a

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       calendar year. See 35 ILCS 5/601(a), 803 (West 2010). Instead, the retaliatory tax statute
       references income taxes “imposed” under section 201 of the Income Tax Act. Section 201 of
       the Income Tax Act sets forth the rates at which an income tax is to be calculated but does not
       include a temporal component. However, section 444.1 of the Insurance Code requires a
       corporation to file an annual retaliatory tax return on or before March 15 “for the preceding
       calendar year.” 215 ILCS 5/444.1 (West 2010). Thus, in reading section 444.1 of the Insurance
       Code in conjunction with section 201 of the Income Tax Act, the legislature apparently
       intended the income-tax component of the Illinois Basis to be the income tax that accrued
       during the preceding calendar year.
¶ 31        Defendants point out that in another portion of the Insurance Code, section 409(2), the
       legislature specifically stated that for purposes of computing credits based on income taxes, the
       credit equals “the excess amount, if any, by which the aggregate income taxes paid by the
       company, on a cash basis, for the preceding calendar year” exceed a specific amount.
       (Emphases added.) 215 ILCS 5/409(2) (West 2010). Defendants contend this section of the
       Insurance Code shows that when the legislature intends to prescribe a specific accounting
       method, it does so; thus, because the legislature did not specify a type of accounting to be used
       to calculate the retaliatory tax, the Department could prescribe a cash-basis method in its
       regulation without conflicting with the statute.
¶ 32        Although the legislature did not specify that an accrual method should be used to calculate
       the income-tax component of the retaliatory tax, the legislature did use the word “imposed”
       instead of the word “paid.” The word “impose” is defined as “to establish or apply by authority
       [(a tax, new restrictions, penalties)].” Merriam-Webster’s Collegiate Dictionary 582 (10th ed.
       2000). In this instance, defendants’ reading of the word “imposed” to encompass the word
       “paid” is too broad, particularly in light of the Illinois Supreme Court’s directive that because
       the “ ‘retaliatory statute is penal,’ ” it is “ ‘subject to the rule of strict construction.’ ” Mutual
       Life Insurance Co., 137 Ill. 2d at 324, 561 N.E.2d at 35 (quoting Metropolitan Life Insurance
       Co. v. Boys, 296 Ill. 166, 172, 129 N.E. 724, 726 (1920)). If “imposed” signified when the
       income tax was “paid” rather than when it “accrued,” plaintiffs would have to pay an
       additional $2.7 million in retaliatory taxes that they would not have originally had to pay if
       they had not overpaid their income taxes in 1999, 2000, and 2001. The legislature could not
       have intended such a result given that such an interpretation effectively punishes plaintiffs for
       overpaying their taxes. See Coram v. State of Illinois, 2013 IL 113867, ¶ 57, 996 N.E.2d 1057
       (When construing statutes, the court “presumes that the legislature did not intend to create
       absurd, inconvenient, or unjust results.”).
¶ 33        Defendants also argue the language in section 444(3)–“[t]he terms ‘penalties’, ‘fees’,
       ‘charges’, and ‘taxes’ in subsection (1) of this Section shall include” (emphasis added) (215
       ILCS 5/444(3) (West 2010))–makes clear that the purpose of section 444(3) is merely to define
       the scope of the taxes, penalties, and charges included in the retaliatory tax and not to proscribe
       a specific accounting method. We disagree that this language in section 444(3) precludes a
       finding that “imposed” signifies “incurred” or “accrued” rather than “paid.” To the contrary,
       section 444(3) can be read as stating the “penalties,” “fees,” “charges,” and “taxes” include the
       Illinois corporate income taxes that “accrued” or “became due” under subsections (a) to (d) of
       section 201 of the Income Tax Act. We also reject defendants’ contention that because section
       444(1) of the Insurance Code specifies a foreign corporation owes a retaliatory tax if the
       foreign state requires “the payment of penalties, fees, charges, or taxes” (emphasis added) (215


                                                     -8-
       ILCS 5/444(1) (West 2010)) greater than those required under Illinois law, then the
       Department can use the time of payment, not the time of accrual, to calculate the Illinois
       income-tax component. Section 444(3) goes on to specify that the “ ‘penalties,’ ” “ ‘fees,’ ”
       “ ‘charges,’ ” and “ ‘taxes’ ” in section 443(1) include “income or personal property taxes
       imposed by other states or countries.” (Emphasis added.) 215 ILCS 5/444(3) (West 2010).
       Thus, the language used to specify the foreign income-tax component of the retaliatory tax
       mimics the language used to specify the Illinois income-tax component of the retaliatory tax.
       In other words, section 444(3) does not define the foreign states’ income-tax component as the
       “income tax paid” but rather as the “income or personal property taxes imposed.” (Emphasis
       added.) 215 ILCS 5/444(3) (West 2010). Again, to “impose” is “to establish or apply by
       authority.” Merriam-Webster’s Collegiate Dictionary 582 (10th ed. 2000).
¶ 34        In addition, defendants contend that because section 444(3) of the Income Tax Act uses the
       word “imposed” to refer to the hypothetical taxes that a foreign state would impose on an
       Illinois corporation doing business in that state, the word “imposed” when referring to Illinois
       income taxes likewise cannot refer to actual taxes. We find this argument unpersuasive
       because whether “imposed” signifies “paid” or “accrued,” any comparison of the Illinois taxes
       to the foreign state taxes would necessarily involve a consideration of the hypothetical taxes
       that an Illinois corporation would owe in the foreign state.
¶ 35        Finally, defendants assert that plaintiffs’ interpretation of section 444(3) will force
       corporations whose tax year is not the calendar year to create a second set of tax records in
       addition to the one they normally keep. Defendants also contend plaintiffs fail to take into
       account that although corporate income taxes are “generally due” on March 15 for the
       preceding calendar year, corporations are entitled to automatic seven-month extensions to file
       their returns. See 86 Ill. Adm. Code 100.5020(b) (2010). Thus, the only information a
       corporation taking such an extension would have to report on their retaliatory tax return by the
       March 15 deadline would be what it actually paid, typically in quarterly installments, which is
       exactly what the Department’s regulation requires. Plaintiffs respond that the Internal Revenue
       Code requires insurance companies to adopt a calendar year as their fiscal year, and the Income
       Tax Act requires taxpayers to use federal taxable income as the starting point in calculating
       Illinois taxable income. However, while section 843 of Title 26 of the Internal Revenue Code
       provides that, generally, “the annual accounting period for each insurance company subject to
       a tax imposed by this subchapter shall be the calendar year,” it also states that “an insurance
       company which joins in the filing of a consolidated return *** may adopt the taxable year of
       the common parent corporation even though such year is a not a calendar year.” 26 U.S.C.
       § 843 (2006). Thus, defendants are correct that an insurance company could have a different
       fiscal year than the calendar year and thus would be required to keep a second set of tax
       records.
¶ 36        Nonetheless, it is more plausible that the legislature would impose such a requirement than
       that it would require a corporation to owe more retaliatory taxes than it would have originally
       owed simply because the corporation initially overpaid its corporate income tax. Again, we
       note the supreme court has stressed the retaliatory tax statute is penal in nature and “ ‘must be
       confined to such cases as fall within its letter.’ ” Mutual Life Insurance Co., 137 Ill. 2d at 324,
       561 N.E.2d at 35 (quoting Metropolitan Life Insurance Co., 296 Ill. at 172, 129 N.E. at 726).
¶ 37        Based on the foregoing, we conclude the retaliatory tax statute unambiguously specifies
       that the income-tax component of the retaliatory tax is the income tax that accrued under

                                                    -9-
       section 201(a) through (d) of the Income Tax Act, not the income tax paid. We now turn to
       whether the Department’s regulation is consistent with the statute.

¶ 38                                 C. The Department’s Regulation
¶ 39       As previously detailed, Title 50, section 2515.50(b), of the Illinois Administrative Code
       specifies that the Illinois basis includes the amount of income tax paid. 50 Ill. Adm. Code
       2515.50(b)(5) (2000). Because this language conflicts with the statute’s mandate that the
       retaliatory tax includes the corporate income tax imposed in a particular year, we conclude
       Title 50, section 2515.50(b), of the Illinois Administrative Code is invalid. See Hartney Fuel
       Oil Co. v. Hamer, 2013 IL 115130, ¶ 38, 998 N.E.2d 1227 (“Regulations that are inconsistent
       with the statute under which they are adopted will be held invalid.”).

¶ 40                                      III. CONCLUSION
¶ 41      For the reasons stated, we affirm the circuit court’s judgment.

¶ 42      Affirmed.




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