Caterpillar Tractor Co. v. Department of Revenue

• Citation: 47 Ill.2d 278,265 N.E.2d 675
• Decision Date: 29 September 1970
• Docket Number: No. 42442,42442
• Parties: CATERPILLAR TRACTOR CO., Appellee, v. DEPARTMENT OF REVENUE of the State of Illinois, Appellant.
• Court: Illinois Supreme Court

Page 675

265 N.E.2d 675

47 Ill.2d 278

CATERPILLAR TRACTOR CO., Appellee, v. DEPARTMENT OF REVENUE of the State of Illinois, Appellant.

No. 42442.

Supreme Court of Illinois.

Sept. 29, 1970.

Rehearing Denied Jan. 27, 1971.

William J. Scott, Atty. Gen., Springfield (Francis T. Crowe, Herman Tavins and A. Zola Groves, Asst. Attys. Gen., of counsel), for appellant.

McDermott, Will & Emery, Chicago (Hamilton Smith, James E. Betke and William G. Migely, Chicago, of counsel), for appellee.

SCHAEFER, Justice.

The circuit court of Peoria County reversed a decision of the Department of Revenue and denied the Department's authority to impose a use tax (Ill.Rev.Stat.1969, ch. 120, par. 439.1 et seq.) on Caterpillar Tractor Company with respect to equipment purchased by Caterpillar in three separate transactions between 1962 and 1967. The revenue and constitutional questions are involved and the Department has appealed directly to this court.

The facts have been stipulated. In the first transaction Caterpillar purchased from Machinery International Inc., an Illinois importer located in Chicago, two drilling machines which were imported from West Germany. The machines were sold F.O.B. Newark, New Jersey, where they were picked up by a common carrier and transported to Caterpillar's plant at Mapleton, Illinois. There the equipment was removed by Caterpillar from the original package in which it was shipped, and thereafter used by Caterpillar for the purpose for which it was intended. After the machines were put to use Caterpillar paid a use tax in the amount of $473.55 directly to the Department of Revenue.

In the second transaction Caterpillar purchased from Kurt Orban, a New Jersey importer, a gear hobbing machine which was also imported from Germany. The equipment cleared customs at the port of New York and was shipped by interstate motor carrier to Caterpillar's plant at Peoria, Illinois. There the machine was removed by Caterpillar from the original package in which it was shipped and thereafter used by Caterpillar for the purpose for which it was intended. Caterpillar paid a use tax directly to the Department of Revenue in the amount of $2580.38.

In the third transaction Caterpillar purchased from Hawker-Siddeley Ltd. of Toronto, Canada, two turbine test capsules and a combustor. The equipment was shipped by interstate motor carrier from Toronto to Peoria, Illinois, where it cleared customs, and then was transported by Caterpillar to its plant at Mossville, Illinois. There the equipment was removed by Caterpillar from its original package and thereafter used for the purpose for which it was intended. Caterpillar paid a use tax directly to the Department of Revenue in the amount of $2920.87.

On November 9, 1967, Caterpillar filed a claim for credit with the Department of Revenue in the amount of $5,974.80, the aggregate amount of the three tax payments. After a hearing the Department denied Caterpillar's claim in its entirety. The circuit court of Peoria County reversed that determination and ordered that Caterpillar's claim for credit be allowed in full.

With regard to the first two transactions, Caterpillar argues, and the trial court held, that section 3(d) of the Use Tax Act precludes the imposition of a use tax. (Ill.Rev.Stat.1969, ch. 120, par. 439.3(d).) That section provides: '* * * If the seller of tangible personal property for use would not be taxable under the Retailers' Occupation Tax Act despite all elements of the sale occurring in Illinois, then the tax imposed by this Act shall not apply to the use of such tangible personal property in this State.' The trial court predicated its decision upon our opinion in Miehle Printing Press and Manufacturing Co. v. Department of Revenue (1960), 18 Ill.2d 445, 164 N.E.2d 1. Miehle was a Chicago importer who sold imported printing presses to Illinois customers. The presses were sold in their original packages and were not opened and put to the use for which they were intended until after their arrival at the customers' plants. We held that the import-export clause in section 10 of article I of the Federal constitution protected Miehle against the imposition of a tax under the Retailers' Occupation Tax Act. (Ill.Rev.Stat.1969, ch. 120, par. 440 et seq.) We pointed out that 'The Supreme Court has consistently held that imported articles retain their import status until they are sold, removed from the original package, or put to the use for which they are imported. (Citation.) Although the imports lose their immunity from State taxation after being sold by the importer, that sale or the gross receipts from that sale are not taxable.' 18 Ill.2d at 447--448, 164 N.E.2d at 3, see Brown v. Maryland (1827), 12 Wheat. (25 U.S.) 419, 6 L.Ed. 678; Hooven & Allison Co. v. Evatt (1945), 324 U.S. 652, 65 S.Ct. 870, 89 L.Ed.3d 1252; Youngstown Sheet & Tube Co. v. Bowers (1959), 358 U.S. 534, 3 L.Ed.2d 490, 79 S.Ct. 383.

The trial court held that under our decision in Miehle a retailers' occupation tax could not constitutionally be imposed on Machinery International, nor could such a tax be imposed upon Kurt Orban even if all the elements of that sale had occurred in Illinois. Since these transactions would not be taxable under the Retailers' Occupation Tax Act, the court concluded that section 3 of the Use Tax Act exempted them from the imposition of a use tax.

The Department of Revenue, however, contends that this exemption in section 3 was intended only to exempt certain types of transactions from the operation of the use tax, such as isolated or occasional sales or sales incidental to service which are not subject to the retailers' occupation tax even if all elements of the sale occur in Illinois. (See Ill.Rev.Stat.1969, ch. 120, pars. 440, 440a.) We agree with this construction.

The Use Tax Act was enacted in 1955 as a complement to the Retailers' Occupation Tax Act, and was intended 'to prevent evasion of the tax that applies when retail purchases are made within the State, and to protect the local retail merchant against diversion of his business to out-of-State sellers.' (Turner v. Wright (1957), 11 Ill.2d 161, 166, 142 N.E.2d 84, 87; Ice, The Retailers' Occupation Tax Act and Related Tax Laws, 1961 Ill.L.F. 614, 617.) Since the desire to avoid the retailers' occupation tax and the competitive disadvantage to which it puts Illinois retailers are not present in those isolated or incidental sales which are not subject to the Retailers' Occupation Tax Act, there is no need to impose a corresponding use tax on those transactions. The Use Tax Act recognizes this through the exemption in section 3 for all sales in which 'the seller of tangible personal property for use would not be taxable under the Retailers' Occupation Tax Act despite all elements of the sale occurring in Illinois.'...