Airco Indus. Gas Div., BOC Group, Inc. v. Illinois Dept. of Revenue

• Citation: 223 Ill.App.3d 386,584 N.E.2d 1017
• Decision Date: 30 December 1991
• Docket Number: No. 4-91-0313,4-91-0313
• Parties: , 165 Ill.Dec. 583 AIRCO INDUSTRIAL GAS DIVISION, THE BOC GROUP, INC., Plaintiff-Appellee, v. ILLINOIS DEPARTMENT OF REVENUE, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 1017

584 N.E.2d 1017

223 Ill.App.3d 386, 165 Ill.Dec. 583

AIRCO INDUSTRIAL GAS DIVISION, THE BOC GROUP, INC., Plaintiff-Appellee, v. ILLINOIS DEPARTMENT OF REVENUE, Defendant-Appellant.

No. 4-91-0313.

Appellate Court of Illinois,

Fourth District.

Dec. 30, 1991.

Roland W. Burris, Atty. Gen., Rosalyn B. Kaplan, Sol. Gen., John A. Morrissey, Asst. Atty. Gen., Chicago, for defendant-appellant.

H. Randolph Williams, Michael J. Garvey, Baker & McKenzie, Chicago, Patrick V. Reilly, Sorling, Northrup, Hanna, Cullen & Cochran, Ltd., Springfield, for plaintiff-appellee.

Presiding Justice GREEN delivered the opinion of the court:

On April 20, 1988, defendant Illinois Department of Revenue (Department) issued plaintiff Airco Industrial Gas Division, the BOC Group, Inc., a notice of tax liability assessing a deficiency which included $227,192 plus penalties and interest thereon, under the Retailers' Occupation Tax Act (Act) (Ill.Rev.Stat.1989, ch. 120, par. 440 et seq.). The assessment covered a period from January 1, 1982, to December 31, 1986. On June 20, 1990, plaintiff filed a complaint in the circuit court of Sangamon County for administrative review (Ill.Rev.Stat.1989, ch. 110, par. 3-104) of the Department Director's decision of April 5, 1990, to adopt the assessed deficiency under the Act. The circuit court reversed and the Department appeals. We affirm.

The parties have stipulated to the following facts. Plaintiff is engaged in the business of selling industrial gases, which are manufactured in either gaseous or liquid form. The liquid gases, which are pertinent here, are manufactured on plaintiff's premises and must be stored at temperatures below zero Fahrenheit to remain in liquid form. In order for plaintiff's customers to take possession of liquid gases, they must have insulated storage facilities on their premises. Plaintiff's customers primarily use the liquid gases in their manufacturing operations. If the customers need to use the liquid gases in a gaseous form, they must have vaporizing equipment on their property to convert the liquid gas to a gaseous form.

Plaintiff's customers can either purchase their own storage tanks and/or vaporizing equipment, or rent the equipment from plaintiff. If a customer rents the equipment from plaintiff, they must pay plaintiff an additional facility fee. Plaintiff utilizes a bulk product agreement for the purchase of their liquid industrial gases and the rental of their storage and/or vaporizing equipment. The bulk product agreement contains two separately negotiated prices. One price is for the purchase of the liquid gas, which is a standard unit price on the quantity of the liquid gas. The other price is a facility fee for the rental of the storage and/or vaporizing equipment. The bulk product agreement provides that if a customer rents storage and/or vaporizing equipment from plaintiff, plaintiff retains title to that equipment. In addition, the agreement provides that plaintiff reserves the right to substitute equipment for the equipment already located on the customer's premises, and the right to remove all equipment at the termination of the agreement.

The retailers' occupation tax (ROT) assessment in question here was based on $4,938,960 of facilities fees which plaintiff collected from its customers during the assessment period.

On May 10, 1988, plaintiff protested the assessment of a deficiency, which included the ROT assessment. A hearing was held before an administrative law judge (ALJ). Thomas F. Sullivan, plaintiff's regional manager of administration, testified at the hearing as follows: (1) the customer is charged for the industrial gas at the time of delivery; (2) the facility fee is billed monthly; (3) the facility fee is not dependent upon the quantity of liquid gas purchased, but strictly on the contracted price; (4) plaintiff utilizes a facilities fee schedule which stipulates the rental per month for each size storage system, and the rental per month for the vaporizing equipment; and (5) 30% of plaintiff's sales are for carbon dioxide, and because of a prior antitrust judgment, it utilizes separate contracts for the sale of that gas and for the rental of storage equipment.

Sullivan also testified: (1) if a customer purchases liquid gas from plaintiff, the customer must either purchase its own storage equipment or rent from plaintiff; (2) the customer can purchase the storage equipment from an outside vendor; (3) the customer cannot rent storage equipment from any other vendor but must rent the equipment from plaintiff to ensure product quality; (4) plaintiff does not manufacture storage tanks, but purchases the equipment from outside vendors; (5) plaintiff cannot sell liquid gas to a customer who does not have the special storage tank available on its premises; and (6) the facilities fees are based on plaintiff's cost of the storage tanks and/or vaporizing equipment.

The sole issue here is whether the facilities fees charged by the plaintiff for the rental of storage equipment and/or vaporizing equipment are subject to the ROT. Section 2 of the Act imposes a tax "upon persons engaged in the business of selling tangible personal property." (Ill.Rev.Stat.1989, ch. 120, par. 441.) The tax is measured by gross receipts from the sales. (Ill.Rev.Stat.1989, ch. 120, par. 441.) Section 1 of the Act provides that " 'Gross receipts' from the sales of tangible personal property at retail means the total selling price or the amount of such sales." Ill.Rev.Stat.1989, ch. 120, par. 440.

The Department argues that the definition of "selling price" or "amount of sale" provided in section 1 of the Act is dispositive. Section 1, in part, provides:

" 'Selling price' or the 'amount of sale' means the consideration for a sale valued in money whether received in money or otherwise * * * and shall be determined without any deduction on account of the cost of the property sold, the cost of materials used, labor or service cost or any other expense whatsoever * * *." (Emphasis added.) Ill.Rev.Stat.1989, ch. 120, par. 440.

The Department points out that plaintiff is singularly engaged in the business of selling liquid industrial gases and, in order to complete a sale of that product, plaintiff must rent storage tanks and/or vaporizing equipment to those of its customers who do not own their own equipment. Accordingly, the Department maintains the facilities fees plaintiff charges those customers are actually reimbursements for expenses it incurs in selling them gas. The Department then asserts that under those circumstances, plaintiff cannot properly deduct those facilities fees from the total charges obtained from those customers for the gas and the use of the equipment in determining its revenue subject to Act, but those fees must be included in its ROT base. Under this theory, plaintiff is wrong in treating the facilities fees as revenues derived from an independent service provided to its customers.

The Department contends the findings of the ALJ were correct. She found that the facilities fees charged plaintiff were not "rental" fees "but rather separately stated costs to reimburse [plaintiff] for certain expenses necessary to sell its product." The ALJ concluded plaintiff's "customers are buying tangible personal property in an incomplete form that mandates [plaintiff] maintain storage tanks and/or vaporizing equipment on customer premises in order to complete the transfer of a useable product."

The Department maintains the instant case is analogous to a line of cases where charges for certain services provided in conjunction with the sale of tangible personal property, and which were separately charged to the customer, were found to be a cost of completing the sale which should be included in the vendor's taxable gross receipts. For example, in Gapers, Inc. v. Department of Revenue (1973), 13 Ill.App.3d 199, 300 N.E.2d 779, a caterer, who arranged parties at the homes of his customers, deducted the cost of transporting the food and equipment to its customers' homes from his gross receipts. The transportation costs were negotiated for separately from the customer's other costs, and were separately shown on the caterer's invoices.

On review, the circuit court upheld the Department's assessment under the Act on the caterer's revenues from transportation charges. The appellate court affirmed. The Gapers' court noted that the caterer not only agreed to prepare the food, but also agreed to carry out the contract at the customer's home. Under those circumstances " 'the delivery becomes as important to the seller as to the buyer; it becomes an inseparable link in the chain of events leading to the completion of the sale of meals to purchasers and not merely incidental to the purpose of the [caterer's] business.' " Gapers, 13 Ill.App.3d at 203, 300 N.E.2d at 782.

Plaintiff argues Gapers is...