Chicago Tribune Co. v. Johnson, 59453

• Decision Date: 19 April 1985
• Docket Number: No. 59453,59453
• Parties: , 87 Ill.Dec. 505 CHICAGO TRIBUNE COMPANY, et al., Appellants, v. J. Thomas JOHNSON, Indiv. and as Director of Revenue, et al., Appellees.
• Court: Illinois Supreme Court

Page 482

477 N.E.2d 482 106 Ill.2d 63, 87 Ill.Dec. 505 CHICAGO TRIBUNE COMPANY, et al., Appellants,
v.
J. Thomas JOHNSON, Indiv. and as Director of Revenue, et
al., Appellees. No. 59453. Supreme Court of Illinois. April 19, 1985.

Page 483

[106 Ill.2d 66] [87 Ill.Dec. 506] Neil F. Hartigan, Atty. Gen., Chicago, for appellees; Paul J. Bargiel, Sp. Asst. Atty. Gen., Doss, Puchalski, Keenan & Bargiel, Ltd., Chicago, of counsel.

Reuben & Proctor, Chicago, for appellants; Don H. Reuben, William G. Schopf, Jr., William C. Schmidt, Andrew Butz, Andrew H. Connor, Chicago, of counsel.

WARD, Justice:

On July 19, 1982, the circuit court of Cook County held that the plaintiff, the Chicago Tribune Company (the Tribune), was exempt from liability under provisions of the Use Tax Act (Ill.Rev.Stat.1981, ch. 120, par. 439.1 et seq.) on its purchase of machinery for a new printing facility. The appellate court reversed (119 Ill.App.3d 270, 74 Ill.Dec. 854, 456 N.E.2d 356), and we granted the Tribune's petition for leave to appeal under Rule 315 (87 Ill.2d R. 315).

On September 9, 1979, the Tribune announced the beginning of construction on its new printing facility in Chicago, which was to be known as the "Freedom Center." In that year, amendments to the Use Tax Act and to the Retailers' Occupation Tax Act (Ill.Rev.Stat.1981, ch. 120, par. 440 et seq.) created an exemption for "machinery and equipment primarily [used] in the process of the manufacturing or assembling of tangible personal property for wholesale or retail sale or lease * * *." (Ill.Rev.Stat.1981, ch. 120, par. 439.3; Ill.Rev.Stat.1981, ch. 120, par. 441.) In December 1979, the Department of Revenue (the Department) made public a proposed regulation which in substance provides that the process of printing did not constitute manufacturing, and that therefore a purchase of printing machinery would [106 Ill.2d 67] not qualify for the "manufacturing machinery" exemption under the Use Tax Act and the Retailers' Occupation Tax Act. The proposed regulation was adopted on December 21, 1979, as an emergency rule (4 Ill.Reg. 99 (Jan. 4, 1980)), and later became a permanent regulation (86 Ill.Admin.Code sec. 130.330(b)(5)). Relying on the regulation, the Department claimed that the Tribune was liable for tax on the purchases of the printing presses and equipment that had been installed at the Freedom Center. The Tribune filed a complaint for "Injunction, Declaratory Judgment and Damages" in the circuit court of Cook County, asserting a right to the manufacturing-machinery exemption. In the interim, the Tribune paid the amount claimed under the disputed tax into a protest fund established by the circuit court.

The Tribune alleged in its complaint that it was engaged in "manufacturing." Much of the evidence introduced at the hearing described the operation of the Freedom Center. As stated, the court held that the Tribune's presses and equipment qualified for the sales and use tax exemption for manufacturing machinery and equipment.

In the appellate court, the Department abandoned its contention that pursuant to the regulation the presses were not considered as manufacturing machinery. Rather, the Department argued that printing presses did not produce "tangible personal property," and therefore the presses were not "machinery and equipment primarily [used] in the process of the manufacturing or assembling of tangible personal property * * *." (Ill.Rev.Stat.1981, ch. 120, par. 439.3.) The appellate court held that the Tribune's printing presses and equipment did not qualify for the manufacturing-machinery exemption and reversed the trial court.

The Retailers' Occupation Tax Act (Ill.Rev.Stat.1981, ch. 120, par. 440 et seq.) taxes the occupation of [106 Ill.2d 68] selling tangible personal property at retail. (Illinois Cereal Mills, Inc. v. Department of Revenue (1983), 99 Ill.2d 9, 17, 75 Ill.Dec. 391, 457 N.E.2d 385.) The Use Tax Act (Ill.Rev.Stat.1981, ch. 120, par. 439.1 et seq.) taxes the privilege of using tangible personal property within the State. (United Air Lines, Inc. v. Johnson (1981), 84 Ill.2d 446, 449, 50 Ill.Dec. 631, 419 N.E.2d 899.) Functionally, the Use Tax Act serves to tax property purchased out of State by Illinois residents that is not taxable under the Retailers' Occupation Tax Act or the tax act of another State. The Use Tax Act thus

Page 484

[87 Ill.Dec. 507] prevents the avoidance of the Retailers' Occupation Tax Act and at the same time attempts to eliminate the competitive disadvantage of in-State businesses. United Air Lines, Inc. v. Johnson (1981), 84 Ill.2d 446, 450, 50 Ill.Dec. 631, 419 N.E.2d 899; Illinois Road Equipment Co. v. Department of Revenue (1965), 32 Ill.2d 576, 580, 207 N.E.2d 425; Turner v. Wright (1957), 11 Ill.2d 161, 142 N.E.2d 84, appeal dismissed (1957), 355 U.S. 65, 78 S.Ct. 140, 2 L.Ed.2d 106.

In 1961, the legislature amended the Use Tax Act and the Retailers' Occupation Tax Act by adding a provision which had the effect of exempting newspapers and periodicals from the taxes:

"The purchase, employment and transfer of such tangible personal property as newsprint and ink for the primary purpose of conveying news (with or without other information) is not a purchase, use or sale of...