Exelon Corp. v. Department of Revenue

• Decision Date: 20 February 2009
• Docket Number: No. 105582.,105582.
• Parties: EXELON CORPORATION, Appellant, v. The DEPARTMENT OF REVENUE et al., Appellees.
• Court: Illinois Supreme Court

917 N.E.2d 899

234 Ill.2d 266

334 Ill.Dec. 824

EXELON CORPORATION, Appellant, v. The DEPARTMENT OF REVENUE et al., Appellees.

No. 105582.

Supreme Court of Illinois.

February 20, 2009.

Modified on Denial of Rehearing July 15, 2009.

Barry Levenstam, Amy K. Trueblood, Amy D. Wills, and April A. Otterberg, of Jenner & Block LLP, Chicago, for appellant.

Lisa Madigan, Attorney General, Springfield (Michael A. Scodro, Solicitor General, and Paul Berks, Assistant Attorney General, Chicago, of counsel), for appellees.

OPINION

Justice FREEMAN delivered the judgment of the court, with opinion.

Plaintiff, Exelon Corporation, as successor to Unicom Corporation, filed a complaint in the circuit court of Cook County seeking administrative review of a decision by the Department of Revenue (Department). The Department denied plaintiff's claim for replacement tax investment credits provided by section 201(e) of the Illinois Income Tax Act (35 ILCS 5/201(e) (West 1994)). The circuit court confirmed the Department's decision, and the appellate court affirmed. 376 Ill.App.3d 918, 315 Ill.Dec. 491, 876 N.E.2d 1081. We allowed plaintiff's petition for leave to appeal (210 Ill.2d R. 315(a)).

I. BACKGROUND

The facts are undisputed. Commonwealth Edison (ComEd) was a wholly owned subsidiary of Unicom Corporation. During the years 1995 and 1996, ComEd was a public utility company principally engaged in the production, purchase, transmission, distribution and sale of electricity. During those years, ComEd bought nearly $3 billion in property that it used for generating, transmitting, and distributing electricity to its customers.

Unicom filed a combined 1995 and 1996 Illinois tax return. Unicom was liable for the "personal property tax replacement income tax" imposed by section 201(c) of the Illinois Income Tax Act. See 35 ILCS 5/201(c) (West 1994). Unicom timely filed amended returns, in which it claimed investment credits against this tax liability provided by section 201(e) of the Income Tax Act. Section 201(e) provides a tax credit for investments in property used in Illinois by, among others, retailers. The section defines "retailing" as "the sale of tangible personal property or services rendered in conjunction with the sale of tangible consumer goods or commodities." See 35 ILCS 5/201(e) (West 1994). Unicom claimed a section 201(e) credit of $10,419,507 for 1995, and claimed a section 201(e) credit of $4,398,115 for 1996. The Department denied both claims.

Unicom filed an administrative protest and requested a hearing. The Department and Unicom filed cross-motions for summary judgment. The sole disputed point of law was whether Unicom was engaged in "retailing" as defined by section 201(e). The Department contended that Unicom was not engaged in retailing because it did not sell "tangible personal property," but rather sold electricity, which was intangible. Unicom contended that electricity was "tangible personal property" as required by the statute. Unicom attached to its motion an affidavit and report from its expert witness, Dr. Joel Fajans, a professor of physics at the University of California, Berkeley. Dr. Fajans opined that "as a matter of irrefutable scientific fact, electricity is physical and material" because it can be measured and stored, obeys physical laws, and "can be felt, tasted and seen."

Unicom further contended that the Department's denial of the section 201(e) credit violated the uniformity clause of the Illinois Constitution (Ill. Const.1970, art. IX, § 2). Unicom claimed that it was the Department's policy to grant such tax credits to natural gas utility companies but not to electric utility companies. Unicom argued that there was no possible justification for discriminating between natural gas and electric utilities based on the purposes and object of section 201(e).

The Administrative Law Judge (ALT) recommended granting summary judgment in favor of the Department. The ALJ's written recommendation accepted the Department's arguments, which did not include any rebuttal of Dr. Fajans' expert opinion. Relying on this court's decision in Farrand Coal Co. v. Halpin, 10 Ill.2d 507, 140 N.E.2d 698 (1957), the ALJ concluded that the General Assembly did not intend to include electricity within the meaning of "tangible personal property" when enacting section 201(e). Also, the ALJ accepted the Department's argument pertaining to the uniformity clause. The ALJ concluded: "[T]here is a real and substantial difference in the classes of persons to whom the credit is available, and that this difference is related to Illinois' longstanding [sic] public policy of treating differently, for tax purposes, persons who sell tangible personal property versus persons who do not." The Director of Revenue accepted the ALJ's recommendation.

Unicom filed a complaint for administrative review of the Department's decision. Exelon thereafter succeeded Unicom. The circuit court substituted Exelon for Unicom in the case caption, and confirmed the Department's decision.

The appellate court upheld the circuit court's confirmation of the Department's decision. 376 Ill.App.3d 918, 315 Ill.Dec. 491, 876 N.E.2d 1081. The appellate court viewed this court's Farrand Coal decision as dispositive of the case and concluded that it was "bound by the principle of stare decisis and must adhere to the decisions of our supreme court." 376 Ill.App.3d at 922, 315 Ill.Dec. 491, 876 N.E.2d 1081. The appellate court held that, as a matter of law, Exelon did not engage in the sale of "tangible personal property" as required by section 201(e) of the Income Tax Act. 376 Ill.App.3d at 921-23, 315 Ill.Dec. 491, 876 N.E.2d 1081. Also, the appellate court rejected Exelon's uniformity clause challenge. 376 Ill.App.3d at 923-27, 315 Ill. Dec. 491, 876 N.E.2d 1081. Exelon appeals to this court.

II. ANALYSIS

A. Standard of Review

The Income Tax Act provides that judicial review of the Department's decisions be in accordance with the Administrative Review Law (735 ILCS 5/3-101 et seq. (West 1994)). 35 ILCS 5/1201 (West 1994). In a case arising under the Administrative Review Law, we review the decision of the administrative agency, not the determination of the circuit court. Wade v. City of North Chicago Police Pension Board, 226 Ill.2d 485, 504, 315 Ill.Dec. 772, 877 N.E.2d 1101 (2007); Marconi v. Chicago Heights Police Pension Board, 225 Ill.2d 497, 531, 312 Ill.Dec. 208, 870 N.E.2d 273 (2006).

The Administrative Review Law provides that judicial review extends to all questions of law and fact presented by the entire record. 735 ILCS 5/3-110 (West 1994). The proper standard of review depends on whether the question presented is one of fact, one of law, or a mixed question of fact and law. Cinkus v. Village of Stickney Municipal Officers Electoral Board, 228 Ill.2d 200, 210, 319 Ill. Dec. 887, 886 N.E.2d 1011 (2008); Elementary School District 159 v. Schiller, 221 Ill.2d 130, 142, 302 Ill.Dec. 557, 849 N.E.2d 349 (2006). The Review Law limits judicial review to the administrative record; the court may not hear new or additional evidence. The statute additionally mandates that the "findings and conclusions of the administrative agency on questions of fact shall be held to be prima facie true and correct." 735 ILCS 5/3-110 (West 1994). Accordingly, when a court reviews an administrative agency's factual findings, it will not reweigh the evidence or substitute its judgment for that of the agency. Rather, the court will only ascertain whether such findings of fact are against the manifest weight of the evidence. American Federation of State, County & Municipal Employees, Council 31 v. Illinois State Labor Relations Board, State Panel, 216 Ill.2d 569, 577, 298 Ill.Dec. 156, 839 N.E.2d 479 (2005); Comprehensive Community Solutions, Inc. v. Rockford School District No. 205, 216 Ill.2d 455, 471-72, 297 Ill.Dec. 221, 837 N.E.2d 1 (2005). In contrast, an agency's conclusion on a question of law is reviewed de novo. American Federation of State, County & Municipal Employees, 216 Ill.2d at 577, 298 Ill.Dec. 156, 839 N.E.2d 479; City of Belvidere v. Illinois State Labor Relations Board, 181 Ill.2d 191, 205, 229 Ill.Dec. 522, 692 N.E.2d 295 (1998).

A mixed question of fact and law asks the legal effect of a given set of facts. Cinkus, 228 Ill.2d at 211, 319 Ill.Dec. 887, 886 N.E.2d 1011; Comprehensive Community Solutions, 216 Ill.2d at 472, 297 Ill. Dec. 221, 837 N.E.2d 1. Mixed questions of fact and law are "`questions in which the historical facts are admitted or established, the rule of law is undisputed, and the issue is whether the facts satisfy the statutory standard, or to put it another way, whether the rule of law as applied to the established facts is or is not violated.'" American Federation of State, County & Municipal Employees, 216 Ill.2d at 577, 298 Ill.Dec. 156, 839 N.E.2d 479, quoting Pullman-Standard v. Swint, 456 U.S. 273, 289 n. 19, 102 S.Ct. 1781, 1790 n. 19, 72 L.Ed.2d 66, 80 n. 19 (1982). An agency's conclusion on a mixed question of fact and law is reviewed for clear error. An administrative decision is clearly erroneous when the reviewing court is left with the definite and firm conviction that a mistake has been committed. American Federation of State, County & Municipal Employees, 216 Ill.2d at 577-78, 298 Ill.Dec. 156, 839 N.E.2d 479.

Unlike Pullman-Standard, where the rule of law was undisputed, this case presents solely questions of law. The Department and the appellate court each considered itself bound by this court's tangential discussion of the physical properties of electricity in Farrand Coal Co. v. Halpin, 10 Ill.2d 507, 140 N.E.2d 698 (1957). In determining whether and to what extent Farrand Coal controls the outcome of the present case, this court has the power and the duty to reexamine the authorities and legal concepts invoked in that opinion. See Bradley v. Fox, 7 Ill.2d 106, 111, 129 N.E.2d 699 (1955). As will be...