Dearborn Wholesale Grocers, Inc. v. Whitler

• Decision Date: 18 November 1980
• Docket Number: No. 52515,52515
• Citation: 45 Ill.Dec. 892,82 Ill.2d 471,413 N.E.2d 370
• Parties: , 45 Ill.Dec. 892 DEARBORN WHOLESALE GROCERS, INC., Appellant, v. Robert M. WHITLER, Director of Revenue, Appellee.
• Court: Illinois Supreme Court

Page 370

413 N.E.2d 370

82 Ill.2d 471, 45 Ill.Dec. 892

DEARBORN WHOLESALE GROCERS, INC., Appellant, v. Robert M. WHITLER, Director of Revenue, Appellee.

No. 52515.

Supreme Court of Illinois.

Nov. 18, 1980.

Robert R. Tepper, Martin J. Friedman, and Mitchell H. Macknin, Chicago (Rosenthal & Schanfield, Chicago, of counsel), for appellant.

William J. Scott, Atty. Gen., Chicago (George H. Klumpner, Asst. Atty. Gen., Chicago, of counsel), for appellee.

Harold T. Halfpenny, James F. Flanagan, Louis R. Marchese, and Michael T. Reid, Chicago (Halfpenny, Hahn & Roche, Chicago, of counsel), for amicus curiae Illinois Wholesaler-Distributors Association.

John M. Cannon and Susan W. Wanat, Mid America Legal Foundation, Chicago, for amicus curiae in support of appellant Dearborn Wholesale Grocers, Inc.

WARD, Justice:

The plaintiff, Dearborn Wholesale Grocers, Inc., filed a complaint for administrative review in the circuit court of Cook County against the defendant, Robert M. Whitler, Director of the Department of Revenue (the Department), to set aside an assessment of taxes claimed to be due under the Retailers' Occupation Tax Act (Ill.Rev.Stat.1979, ch. 120, par. 440 et seq.) and the Municipal Retailers' Occupation Tax Act (Ill.Rev.Stat.1979, ch. 24, par. 8-11-1). The circuit court granted the relief sought, the appellate court reversed (74 Ill.App.3d 813, 30 Ill.Dec. 346, 393 N.E.2d 1), and we granted the plaintiff's petition for leave to appeal under Rule 315 (73 Ill.2d R. 315). We also granted leave to the Illinois Wholesaler-Distributors Association, the Chicago Association of Commerce and Industry, and the Illinois Manufacturers Association to file briefs amici curiae. Their briefs supported the plaintiff.

In 1975 the Department conducted a field audit of the plaintiff's revenues from July 1, 1972, to May 31, 1975. The auditor examined the plaintiff's invoices for three 10-day periods, and on the basis of his examination drew up corrected returns for the total time audited. Entries on the corrected returns show that deductions were allowed for 98.5% of the plaintiff's gross receipts during that period and that only the balance were treated as taxable sales. The Department issued a notice of tax liability for the delinquency, and the plaintiff filed a protest and requested an administrative hearing. At the close of the hearing the hearing officer recommended a final assessment in the amount of approximately $129,000, and the Department issued a final assessment for that amount.

In addition to the sums claimed to be due under the State and local retailers' occupation taxes, the assessment included an amount due under the Use Tax Act (Ill.Rev.Stat.1979, ch. 120, par. 439.1 et seq.). The use tax assessment is not contested. As to deficiencies under the Municipal Retailers' Occupation Tax Act, that act incorporates by reference all the provisions of the Retailers' Occupation Tax Act which are pertinent to this case, and only the latter, referred to hereafter as "the Act," need thus be considered.

At the hearing the Department introduced the corrected returns and the testimony of the auditor who had prepared them as its prima facie case pursuant to section 4 of the Act (Ill.Rev.Stat.1979, ch. 120, par. 443). The plaintiff then presented testimony from its officers and employees that it made no sales at retail but that all its sales, including those which were the subject of the assessment, were made to retail grocery stores for the purpose of resale.

The plaintiff also introduced the invoices for sales made during the test periods of the audit. Although requested to do so by the auditor, the plaintiff had not made available for inspection any certificates from its customers that the merchandise covered by the invoices had been purchased for resale, and the plaintiff did not produce any such certificates at the hearing. The plaintiff did introduce affidavits by its salesmen, however, that whenever a new account was opened the retailer was required by the plaintiff to complete and sign a form prepared by the plaintiff in which the retailer stated that all merchandise to be purchased by him would be resold. The retailer was also required to furnish the registration number or sales number assigned to him by the Department. A blank copy of the form was attached to each salesman's affidavit. After being executed by the retailers these forms were returned to the plaintiff, but the completed forms, for reasons not shown by the record, were no longer in the plaintiff's possession at the time of the audit.

The foregoing evidence by the plaintiff was not controverted, and on the basis of it the hearing officer made a finding that the plaintiff was a wholesale grocer. He nevertheless concluded that the plaintiff's evidence was insufficient to rebut the Department's prima facie case, since the plaintiff had not documented the resale character of its individual sales as required by section 2c of the Act (Ill.Rev.Stat.1979, ch. 120, par. 441c). In reversing the circuit court the appellate court took essentially the same position as that of the hearing examiner.

The plaintiff makes the following contentions on appeal: Since it is not engaged in the business of selling property at retail and since these sales were not made at retail, section 2c is not applicable; if applicable, section 2c does no more than create a presumption of taxability, and that presumption was rebutted by the plaintiff's evidence; if a failure to comply with section 2c makes the Department's determination of liability conclusive, then section 2c is unconstitutional; the plaintiff complied with section 2c since that section requires only that certificates of resale be obtained, which was done, not that they be retained until the date of audit so as to be available for inspection at that time.

Similar contentions relating to the construction and the validity of section 2c were advanced in Calderwood Corp. v. Mahin (1974), 57 Ill.2d 216, 311 N.E.2d 691. The court disposed of that case on the ground that the plaintiff had failed to exhaust its administrative remedies, however, and the present case is thus the first to consider these issues.

Section 2c, a separate section and not a subdivision of section 2, was added to the Act in 1965 (1965 Ill. Laws 116). As amended in 1967 (1967 Ill. Laws 257), it reads as follows:

"If the purchaser is not registered with the Department as a taxpayer, but claims to be a reseller of the tangible personal property in such a way that such resales are not taxable under this Act or under some other tax law which the Department may administer, such purchaser (except in the case of an out-of-State purchaser who will always resell and deliver the property to his customers outside Illinois) shall apply to the Department for a resale number. Such applicant shall state facts which will show the Department why such applicant is not liable for tax under this Act or under some other tax law which the Department may administer on any of his resales and shall furnish such additional information as the Department may reasonably require.

Upon approval of the application, the Department shall assign a resale number to the applicant and shall certify such number to him. The Department may cancel any such number which is obtained through misrepresentation, or which is used to make a purchase tax-free when the purchase in fact is not a purchase for resale, or which no longer applies because of the purchaser's having discontinued the making of tax exempt resales of the property.

The Department may restrict the use of the number to one year at a time or to some other definite period if the Department finds it impracticable or otherwise inadvisable to issue such numbers for indefinite periods.

Except as provided hereinabove in this Section, no sale shall be made tax-free on the ground of being a sale for resale unless the purchaser has an active registration number or resale number from the Department and furnishes that number to the seller in connection with certifying to the seller that any sale to such purchaser is nontaxable because of being a sale for resale."

Section 2c is complemented by sections 1 and 2 (Ill.Rev.Stat.1979, ch. 120, pars. 440, 441). The first paragraph of section 2 states:

"A tax is imposed upon persons engaged in the business of selling tangible personal property at retail at the rate of (a prescribed percentage) of the gross receipts from such sales of tangible personal property * * *."

The paragraph goes on to enumerate various exceptions not relevant here.

The first paragraph of section 1 of the Act defines a retail sale as follows:

" 'Sale at retail' means any transfer of the ownership of or title to tangible personal property to a purchaser, for the purpose of use or consumption, and not for the purpose of resale in any form as tangible personal property to the extent not first subjected to a use for which it was purchased, for a valuable consideration: * * *." Ill.Rev.Stat.1979, ch. 120, par. 440.

The second paragraph also relates to a retail sale. It provides:

" 'Sale at retail' shall be construed to include any transfer of the ownership of or title to tangible personal property to a purchaser, for use or consumption by any other person to whom such purchaser may transfer the tangible personal property without a valuable consideration, and to include any transfer, whether made for or without a valuable consideration, for resale in any form as tangible personal property unless made in compliance with Section 2c of this Act." (Emphasis added.) Ill.Rev.Stat.1979, ch. 120, par. 440.

The italicized portion of the foregoing paragraph was added in 1965 by the same amendment which enacted section 2c.

The position of the appellate court was that the last paragraph of section 2c and the final clause of the second paragraph of section 1, taken together, permit the imposition of the tax upon any...