JB4 Air LLC v. Department of Revenue

Decision Date10 March 2009
Docket NumberNo. 2-07-1254.,2-07-1254.
Citation388 Ill. App. 3d 970,905 N.E.2d 310
PartiesJB4 AIR LLC, Plaintiff-Appellee, v. The DEPARTMENT OF REVENUE, Defendant-Appellant.
CourtUnited States Appellate Court of Illinois

Lisa Madigan, Attorney General, Michael A. Scodro, Solicitor General, Evan Siegel, Assistant Attorney General, Chicago, for Illinois Department of Revenue.

William J. Serritella Jr., Lisa J. Brodsky, Amy M. Rapoport, Aronberg, Goldgehn, Davis & Garmisa, Chicago, for JB4 Air LLC.

Justice BOWMAN delivered the opinion of the court:

Defendant, the Department of Revenue (Department), appeals the circuit court's reversal of the Department's decision that denied a tax exemption pursuant to the Use Tax Act (35 ILCS 105/1 et seq. (West 2006)) for an airplane owned by plaintiff, JB4 Air, LLC. The Department argues that its administrative law judge correctly determined that, under the plain language of section 3-70 of the Use Tax Act, the exemption applies only to individuals and not to limited liability companies or other entities. JB4 argues that it was substantively an individual because John Bell was its only member and the only person who used the airplane and that therefore it qualified for the exemption. We agree with the Department and reverse the judgment entered by the circuit court.

The parties stipulated to the following facts. JB4 was a limited liability company organized under Delaware law and had never applied to transact business in Illinois. Bell was the sole member of JB4. On April 4, 2000, JB4 negotiated to purchase a 1980 Cessna from Midwest Aviation, Inc., for $350,000. On that date, Bell was a resident of Wisconsin. Prior to the purchase, the aircraft was delivered to Bell in Kentucky and then flown to Illinois for a maintenance inspection. After the inspection, Bell flew the plane to Wisconsin, where the purchase was completed on May 6, 2000.

Between May 2000 and April 2001, the airplane was hangared in Wisconsin and regularly flown in and out of Timmerman Airport in Milwaukee. In April 2001, Bell established his primary residence in Illinois, and the airplane was relocated to Du Page Airport. Since then, the airplane has been hangared and flown in and out of Du Page Airport. For purposes of the Use Tax Act, the value of the aircraft as of April 2001 was $290,500. At all times, the airplane was used solely by Bell for his personal use and enjoyment. JB4 has never engaged in business as a commercial carrier for hire or other commercial air service activities or any other trade or business. Finally, no taxes respecting the sale or use of the airplane have been assessed or collected in any jurisdiction other than Illinois.

On September 27, 2005, the Department assessed JB4 $28,181.50 in use taxes, penalties, and interest. JB4 filed its complaint for administrative review of the Department's tax assessment, alleging that it was exempt pursuant to section 3-70 of the Use Tax Act. On January 22, 2007, the Department approved the decision of the administrative law judge (ALJ). Upon the parties' stipulation of facts and the briefs, the ALJ determined that JB4 owed use taxes on its relocation of the airplane to Illinois.

The ALJ's written decision explained that section 3-70 of the Use Tax Act provided:

"Property acquired by nonresident. The tax imposed by this Act does not apply to the use, in this State, of tangible personal property that is acquired outside this State by a nonresident individual who then brings the property to this State for use here and who has used the property outside of this State for at least 3 months before bringing the property to this State.

Where a business that is not operated in Illinois, but is operated in another State, is moved to Illinois or opens an office, plant, or other business facility in Illinois, that business shall not be taxed on its use, in Illinois, of used tangible personal property, other than items of tangible personal property that must be titled or registered with the State of Illinois or whose registration with the United States Government must be filed with the State of Illinois, that the business bought outside of Illinois and used outside Illinois in the operation of the business for at least 3 months before moving the used property to Illinois for use in this State." 35 ILCS 105/3-70 (West 2006).

The ALJ determined that the principal issue was whether a single-member limited liability company, although not itself a private individual, qualified for the exemption in section 3-70. Using traditional rules of statutory construction, including that tax exemptions are to be strictly construed in favor of taxation, the ALJ determined that "individual" had a plain and well-understood meaning that did not include entities, such as a limited liability company. It rejected JB4's contention that there was a distinction between section 3-70's use of "individual" and the use of "natural individual" in the definition of "person" in section 2 of the Use Tax Act (35 ILCS 105/2 (West 2006)). The ALJ also rejected JB4's argument that a "substance over form" analysis should be applied. Under a "substance over form" analysis, JB4 would be exempt from use taxes because Bell was the substantive owner of the airplane.

On August 17, 2007, JB4 filed for judicial review of the administrative decision. On November 8, 2007, the trial court reversed the ALJ's decision, siding with JB4's argument that the substantive owner of the airplane was Bell. The Department timely appealed, arguing that the ALJ was correct in finding that JB4 failed to prove that it was entitled to the use tax exemption provided for individuals.

This court reviews the decision of the administrative agency, not the decision of the trial court. Lombard Public Facilities Corp. v. Department of Revenue, 378 Ill. App.3d 921, 927, 317 Ill.Dec. 430, 881 N.E.2d 598 (2008). The standard of review that applies to an administrative agency's decision depends on whether the question presented on appeal is one of fact, law, or both. Lombard, 378 Ill.App.3d at 927, 317 Ill.Dec. 430, 881 N.E.2d 598. Questions of fact are reviewed using the manifest weight of the evidence standard, and questions of law are reviewed de novo. Lombard, 378 Ill.App.3d at 928, 317 Ill. Dec. 430, 881 N.E.2d 598. When the issue presented contains mixed questions of law and fact, we review whether the decision was clearly erroneous. Lombard, 378 Ill. App.3d at 928, 317 Ill.Dec. 430, 881 N.E.2d 598. The clearly-erroneous standard applies instead of a bifurcated standard in order to give deference to the agency's experience and expertise in interpreting its own statutes. Lombard, 378 Ill.App.3d at 928, 317 Ill.Dec. 430, 881 N.E.2d 598. A mixed question of law and fact is whether the facts satisfy a statutory standard or whether the rule of law, as applied to the facts, is violated. Lombard, 378 Ill.App.3d at 928, 317 Ill.Dec. 430, 881 N.E.2d 598. A decision is clearly erroneous when there is evidence supporting reversal and the reviewing court is "`left with the definite and firm conviction that a mistake has been committed.'" AFM Messenger Service, Inc. v. Department of Employment Security, 198 Ill.2d 380, 393, 261 Ill.Dec. 302, 763 N.E.2d 272 (2001), quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746, 766 (1948).

In this case, the parties stipulated to the facts and, therefore, there are no questions of fact presented for our review. The main question on appeal is whether the word "individual" in section 3-70 of the Use Tax Act encompasses limited liability companies, which is a question of law. We review this question de novo. See Lombard, 378 Ill.App.3d at 928, 317 Ill.Dec. 430, 881 N.E.2d 598; Du Page County Airport Authority v. Department of Revenue, 358 Ill.App.3d 476, 482, 294 Ill.Dec. 507, 831 N.E.2d 30 (2005) (applying de novo review to statutory interpretation questions). We review the agency's ultimate conclusion (applying section 3-70 to the facts), that JB4 did not qualify for the section 3-70 exemption for individuals, using the clearly-erroneous standard of review. Lombard, 378 Ill.App.3d at 928, 317 Ill.Dec. 430, 881 N.E.2d 598.

We begin by examining the meaning of "individual" in section 3-70 of the Use Tax Act. The statute itself does not define "individual" but defines "person" as "any natural individual, firm, partnership, association, joint stock company, joint adventure, public or private corporation, limited liability company, or a receiver, executor, trustee, guardian or other representative appointed by order of any court." 35 ILCS 105/2 (West 2006).

The cardinal rule of statutory construction is to ascertain and give effect to the intent of the legislature. Abruzzo v. City of Park Ridge, 231 Ill.2d 324, 332, 325 Ill.Dec. 584, 898 N.E.2d 631 (2008). "The best indication of the legislature's intent is the statutory language given its plain and ordinary meaning." Abruzzo, 231 Ill.2d at 332, 325 Ill.Dec. 584, 898 N.E.2d 631. When the language of a statute is clear and unambiguous, it must be applied without resorting to other aids of construction. Abruzzo, 231 Ill.2d at 332, 325 Ill.Dec. 584, 898 N.E.2d 631. In determining intent, we may consider the statute in its entirety and its purpose and goals. Abruzzo, 231 Ill.2d at 332, 325 Ill.Dec. 584, 898 N.E.2d 631. When interpreting tax exemption statutes, we strictly construe the statute in favor of taxation and against exemption. Quad Cities Open, Inc. v. City of Silvis, 208 Ill.2d 498, 507, 281 Ill.Dec. 534, 804 N.E.2d 499 (2004). The taxpayer seeking exemption carries the burden of proving entitlement by clear and convincing evidence. The Streeterville Corp. v. Department of Revenue, 186 Ill.2d 534, 539-40, 239 Ill.Dec. 578, 714 N.E.2d 497 (1999).

The noun "individual" is defined by Webster's Third New International Dictionary as:

"1: a single or particular being or thing or group of beings or things: as a: a...

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