City of Naperville v. Illinois Dept. of Revenue, s. 81-207

• Decision Date: 22 January 1982
• Docket Number: Nos. 81-207,81-222,s. 81-207
• Citation: 431 N.E.2d 54,59 Ill.Dec. 35,103 Ill.App.3d 312
• Parties: , 59 Ill.Dec. 35 CITY OF NAPERVILLE, a Municipal Corporation, Plaintiff-Appellee, v. ILLINOIS DEPARTMENT OF REVENUE, Defendant-Appellant. CITY OF BATAVIA, a municipal Corporation, Plaintiff-Appellee, v. ILLINOIS DEPARTMENT OF REVENUE, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 54

431 N.E.2d 54

103 Ill.App.3d 312, 59 Ill.Dec. 35

CITY OF NAPERVILLE, a Municipal Corporation, Plaintiff-Appellee, v. ILLINOIS DEPARTMENT OF REVENUE, Defendant-Appellant.

CITY OF BATAVIA, a municipal Corporation, Plaintiff-Appellee, v. ILLINOIS DEPARTMENT OF REVENUE, Defendant-Appellant.

Nos. 81-207, 81-222.

Appellate Court of Illinois, Second District.

Jan. 22, 1982.

Tyrone C. Fahner, Atty. Gen., Imelda R. Terrazino, Asst. Atty. Gen., Chicago, for defendant-appellant.

Ancel, Glink, Diamond, Murphy & Cope, P. C., Katherine S. Janega and Marvin J. Glink, Chicago, for plaintiff-appellee.

REINHARD, Justice:

These actions, consolidated on appeal, were brought in the circuit courts of DuPage and Kane County under the Administrative Review Act (Ill.Rev.Stat.1979, ch. 110, par. 264 et seq.) to review final assessments made by the Illinois Department of Revenue against the cities of Naperville and Batavia for State public utilities tax liability. (Ill.Rev.Stat.1979, ch. 120, par. 468 et seq.) On February 19, 1981, the circuit court of DuPage County entered an order in the case of City of Naperville v. Illinois Department of Revenue, which in pertinent part found:

"2. 'Gross receipts' which are subject to a 5% tax under the provisions of the Public Utilities Revenue Act, Ch. 120, Ill.Rev.Stat. § 468 et seq. (1977) does not include the municipal tax that is billed separately to each user of an electric utility and reflected in the general fund of the plaintiff, City of Naperville, rather than its electric utility fund. This determination is directly analogous to that made by the Illinois Supreme Court in Getto v. City of Chicago, 77 Ill.2d 346 (33 Ill.Dec. 155), 396 N.E.2d 544 (1979)."

An identical order, excepting the name of the city, was entered on the same day by the circuit court of Kane County in City of Batavia v. Illinois Department of Revenue. It is this portion of the orders from which the cities appeal.

The Department of Revenue contends on appeal that the circuit courts erred in holding that the term "gross receipts" contained in the Public Utilities Revenue Act does not include the receipt of the municipal public utilities tax collected by the cities from its resident consumers of electricity. It was established at both of the separate administrative hearings before the Department of Revenue that the cities record the receipt of the municipal tax in their general corporate fund and do not include it in their separate electric utility fund. The taxing structure at issue in this case can be summarized as follows.

The cities of Naperville and Batavia each operate an electric utility whereby it purchases power at wholesale and distributes and resells it to its residents. As such, these municipalities are subject to a 5% "gross receipts" tax imposed by the State under the authority of section 469 of the Public Utilities Revenue Act. (Ill.Rev.Stat.1979, ch. 120, par. 469.) Also, under the terms of the Illinois Municipal Code, corporate authorities of any municipality are authorized to tax persons "engaged in the business of distributing, supplying, furnishing, or selling electricity for use or consumption within the corporate limits of the municipality, and not for resale, at a rate not to exceed 5% of the receipts therefrom." (Ill.Rev.Stat.1979, ch. 24, par. 8-11-2.) Since the cities themselves are the persons distributing, supplying, and selling the electricity, they charge their customers (the city residents) this 5% municipal tax. This procedure is authorized by section 36(a) of the Public Utilities Act. Ill.Rev.Stat.1979, ch. 1112/3, par. 36(a).

The 5% State tax imposed on Naperville and Batavia pursuant to the Public Utilities Revenue Act is to be based on the "gross receipts" of these cities from the sale and distribution of electricity. Section 468 of the Public Utilities Revenue Act defines "gross receipts" as follows:

" 'Gross receipts' means the consideration received for electricity distributed, supplied, furnished or sold to persons for use or consumption and not for resale and for all services rendered in connection therewith, including amounts received from minimum service charges, and includes cash, services and property of every kind or nature, and shall be determined without any deduction on account of the cost of the service, product or commodity supplied, the cost of materials used, labor or service costs, or any other expense whatsoever. * * * " (Ill.Rev.Stat.1979, ch. 120, par. 468.)

The Department's sole contention is that the term "gross receipts" as defined by the Public Utilities Revenue Act should include the 5% tax which the cities charge their resident consumers of electricity pursuant to section 8-11-2 of the Illinois Municipal Code and section 36(a) of the Public Utilities Act.

The trial court determined, and the cities assert on appeal, that the Illinois Supreme Court decision in Getto v. City of Chicago (1979), 77 Ill.2d 346, 33 Ill.Dec. 155, 396 N.E.2d 544, is controlling as applied to the facts in the case at bar. In Getto, plaintiff, individually and as the representative for a class of similarly situated telephone subscribers, brought suit against the City of Chicago and Illinois Bell Telephone Company alleging collection of sums in excess of the amount due under the municipal message tax. The message tax authorized the corporate authorities to impose a tax on persons engaged in the business of transmitting messages by means of electricity at a rate not to exceed 5% of the gross receipts for such business. (Ill.Rev.Stat.1979, ch. 24, par. 8-11-2.) The tax was passed on to the telephone customers by Illinois Bell as authorized by the Public Utilities Act. (Ill.Rev.Stat.1979, ch. 1112/3, par. 36(a).) The defendants in Getto had construed the term "gross receipts," upon which the message tax was based, to include not only customer billings, but also taxes imposed on those billings, including the message tax itself. (77 Ill.2d 346, 351, 33 Ill.Dec. 155, 396 N.E.2d 544.) The court used the following example in describing the effect of this taxing procedure:

"if a customer's pretax monthly bill were $10 (ignoring, for the sake of simplicity, the existence of Federal and State taxes), the amount upon which the municipal tax is imposed would not be $10, but $10.50. This results in a municipal tax of 521/2 cents, instead of 50 cents, plus a correspondingly larger amount withheld by Bell for its accounting costs." (77 Ill.2d 346, 351, 33 Ill.Dec. 155, 396 N.E.2d 544.)

After deciding that the plaintiff had standing to bring the action and that he was not required to exhaust his administrative remedies by proceeding before the Illinois Commerce Commission, the court held that the city's message tax could not properly be included in the tax base upon which the same tax was calculated. In so holding the court stated:

"The definition of 'gross receipts' contained in section 1 of the Messages Tax Act provides that, 'In case credit is extended, the amount thereof shall be included only as and when payments are received.' (Ill.Rev.Stat.1977, ch. 120, par. 467.1.) Although no similar provision is contained in the Chicago ordinance, it is clear that services provided on credit are not includable in 'gross receipts' until payment is actually received. The long-established rule is that the 'Taxing laws are to be strictly construed and they are not to be extended beyond the clear import of the language used. If there is any doubt in their application they will be construed most strongly against the government and in favor of the taxpayer. Peoples Gas Light Co. v. Ames, 359 Ill. 152 (194 N.E. 260).' (Oscar L. Paris Co. v. Lyons (1956), 8 Ill.2d 590, 598 (134 N.E.2d 755).) Although the tax was levied upon Bell, it was passed on to the subscriber, and no liability was incurred on Bell's part until payment was actually received. It would appear, therefore, that plaintiff, as the one who paid the tax, is entitled to the benefit of the foregoing rule, and its application would proscribe the construction of the statute which would result in an increase, both in the amount of tax paid the city and the 'costs of accounting' permitted to be charged by the nominal taxpayer. We hold, therefore, that construing the term 'gross receipts' to include the municipal tax is erroneous." 77 Ill.2d 346, 359, 33 Ill.Dec. 153, 396 N.E.2d 544.

At first glance, the Getto case might appear to be controlling of the issue in the case at bar. The definition of "gross receipts" contained in section 8-11-2 of the Illinois Municipal Code, which was at issue in Getto, is identical in all relevant respects with the definition contained in section 468 of the Public Utilities Revenue Act which is at issue in the present case. However, on closer examination, we find the rationale for the result in Getto to be wholly inapplicable to the facts in the present case.

Due to the taxing structure at issue in Getto, the telephone company could pass on the incidence of the municipal message tax to its subscribers. The effect of this was to impose the burden of the tax directly on the subscribers. However, as the supreme court noted, "no (tax) liability was incurred on Bell's part until payment was actually received" from its subscribers. (77 Ill.2d 346, 359, 33 Ill.Dec. 153, 396 N.E.2d 544.) Illinois Bell, however, adopted a formula for the addition of a percentage to be added to the net pretax billings in order for it to retain the same amount of dollars after the municipal tax was applied as before the tax was applied. Since Illinois Bell had not yet received payment for its service at the time of billing, the tax could only be computed on amounts it anticipated receiving. Thus, the telephone subscriber was becoming liable for the tax prior...