Bradley Supply Co. v. Ames

• Decision Date: 08 February 1935
• Docket Number: No. 22685.,22685.
• Citation: 359 Ill. 162,194 N.E. 272
• Parties: BRADLEY SUPPLY CO. et al. v. AMES, State Director of Finance.
• Court: Illinois Supreme Court

359 Ill. 162

194 N.E. 272

BRADLEY SUPPLY CO. et al.

v.AMES, State Director of Finance.

No. 22685.

Supreme Court of Illinois.

Dec. 20, 1934.

As Modified on Denial of Rehearing Feb. 8, 1935.

Suit for injunction by the Bradley Supply Company and others against Knowlton L. Ames, Jr., State Director of Finance. From a decree granting an injunction, defendant appeals.

Affirmed.Appeal from Superior Court, Cook County, Denis E. Sullivan, judge.

Otto Kerner, Atty. Gen. (Montgomery S. Winning, of Springfield, and James G. Skinner, of Chicago, of counsel), for appellant.

Ashcraft & Ashcraft, of Chicago (Carroll J. Lord, of Chicago, of counsel), for appellees.

FARTHING, Justice.

The defendant (appellant), Knowlton L. Ames, Jr., director of finance of the state of Illinois, has appealed from a decree of the superior court of Cook county restraining him from enforcing against the plaintiffs (appellees) ‘An act in relation to a tax upon persons engaged in the business of selling tangible personal property to purchasers for use or consumption,’ approved June 28, 1933, effective July 1, 1933, known as the ‘Retailers' Occupation Tax Act’ (Smith-Hurd Ann. St. c. 120, § 440 et seq.), and special rules 6 and 23 promulgated by the department of finance in its administration of that act.

The amended complaint alleges that the plaintiffs are severally engaged in the business of selling plumbing and heating supplies to plumbing and heating contractors. The heating supplies consist of boilers and radiators and the necessary accessories, such as steam and water pipes and valves and fittings. The plumbing supplies consist of bathtubs, lavatories, urinals, closet combinations, kitchen sinks, laundry tubs, and necessary accessories, such as plumbing brass goods, water pipes, valves, water-pipe fittings, soil pipes, and soil-pipe fittings, and hot water heaters, with their necessary accessories. It further alleges that, upon the sale by plaintiffs to the contractors, credit is extended by them to the contractors alone, and the supplies are delivered at the time and place designated by them. Some of the articles sold are, at the direction of the contractors, delivered at locations where buildings are being constructed or repaired and other deliveries are made at the contractors' places of business. After the plumbing supplies have been delivered, the respective plaintiffs have no right of possession or control over them, and title to the supplies passes from the vendor to the contractor. Plaintiffs have no contractual relations with the owners of the premises. In most instances, the contractors have, prior to the time they purchase the supplies, entered into contracts with the owners of the premises by which they have agreed to furnish and install in the buildings of the owners certain specified heating and plumbing supplies for fixed sums of money. In arriving at the prices to be charged for supplying and installing the equipment, the contractors or subcontractors add to the cost of the supplies purchased from the plaintiffs a profit of from 10 to 25 per cent. They also add the cost of labor, and in most instances they add a further profit upon the contract as a whole. The owner pays the contractor and not the plaintiffs. Upon the installation of the heating and plumbing equipment in a building, the owner acquires title thereto from the contractor and not from the plaintiff, who sold it to the contractor. The articles sold by plaintiffs retain the form in which they were sold after they are installed. The amended complaint further alleges that plaintiffs sell heating and plumbing supplies to contractors who do not intend to install them in buildings, but who, instead, sell the supplies in their shops. The department of finance has not attempted to include these receipts in computing the tax to be paid by the plaintiffs.

Plaintiffs contend that special rule 6 is in conflict with the express provisions of section 1 of the Retailers' Occupation Tax Act (Smith-Hurd Ann. St. c. 120, § 400), in that it seeks to impose a tax upon the business of selling tangible personal property, which sales do not constitute ‘sales at retail’ as defined by that section, and that these sales of tangible personal property are not made ‘for use or consumption’ within the meaning of the act. They also contend that as to this merchandise there are resales for use or consumption which except their business from the act. They say that these rules are ambiguous and uncertain, and therefore void. As to special rule 23, plaintiffs say that it is void, in that it compels them to secure certificates of resale from plumbing and heating contractors when they sell to them.

The rules objected to are as follows:

‘Special Rule No. 6-Contractors. A clear distinction must be made between contracts to repair, renovate, construct, re-construct or improve real property, and contracts to repair, renovate, construct or re-construct tangible personal property.

‘Where a contract is entered into to repair, renovate, construct, re-construct or improve real property, such as roads, bridges or buildings, persons selling construction materials or other tangible personal property for use by the contractor in connection with the completion of his contract are making the final sales of such tangible personal property, with respect to which they become liable for retailers' occupation tax. The contractor's receipts from the repair, renovation, construction, re-construction or improvement of real property are not included within the Retailers' Occupation Tax Act. It is immaterial whether or not the contractor itemizes various items of tangible personal property used in connection with the performance of the contract in arriving at the total contract price, or whether the contract price is computed on a ‘time and materials,’ ‘fixed fee,’ ‘cost-plus,’ or other similar basis. The determining factor is that the contractor has contracted to repair, renovate, construct, reconstruct or improve real property and not tangible personal property, and hence does not come within the purview of the act. This ruling applies equally to sub-contractors who enter into contracts with general contractors, under which they contract to repair, renovate, construct, re-construct or improve real property, sales of tangible personal property to sub-contractors constituting sales at retail.

‘Contractors who may enter into contracts of this nature may include such persons as building, electrical, plumbing, heating, painting, decorating, ventilating, paper-hanging, sheet-metal, bridge, road, landscape or roofing contractors, with respect to each of which occupations these statements apply. But in the event that any such persons engage in the business of selling construction materials or other tangible personal property through shops or otherwise, they become liable for tax with respect to receipts from such sales.

‘A contractor may in certain instances himself fabricate part or all of the articles which he uses in construction work. For example, a sheet-metal contractor may partly or wholly manufacture roofing, cornices, gutter pipe, furnace pipe, furnaces, ventilation ducts or other such items from sheet metal which he purchases, and use these articles pursuant to a contract for the construction or improvement of real property. In this instance the sale of sheet metal to such contractor constitutes a sale at retail within the act. This is true irrespective of whether such articles so fabricated are used in the alteration, repair or re-construction of an old building or are used in new construction work.

‘On the other hand, where a contract is entered into to construct or manufacture and sell tangible personal property, such as furniture, machinery or office equipment, the contractor becomes liable for the tax measured by two per cent of his entire gross receipts from the transaction. The act specifically states that there shall be no deduction from selling prices or from gross receipts on account of cost of the property sold, the cost of the materials used, labor or service cost, or any other expense whatever. Persons selling materials to such contractors in these instances make sales for purposes of re-sale, which are not within the act.’

‘Special Rule No. 23-Certificate of Resale. Sellers of tangible personal property must determine, when sales are made, whether the buyer purchases goods for use or consumption or for purposes of re-sale. The burden of proof is upon the seller to determine that a sale of tangible personal property was not made at retail. When in doubt, the seller should take for his protection a certificate of re-sale from the buyer.

‘No rigid form of certificate is...