Ogden Chrysler Plymouth, Inc. v. Bower

• Court: Appellate Court of Illinois
• Citation: Ogden Chrysler Plymouth, Inc. v. Bower, 348 Ill. App. 3d 944, 809 N.E.2d 792, 284 Ill.Dec. 226 (Ill. App. 2004)
• Decision Date: 07 May 2004
• Docket Number: No. 2-03-0194.,2-03-0194.
• Parties: OGDEN CHRYSLER PLYMOUTH, INC., Plaintiff-Appellee and Cross-Appellant, v. Glen L. BOWER, as Director of The Department of Revenue, and The Department of Revenue, Defendants-Appellants and Cross-Appellees.

809 N.E.2d 792

348 Ill. App.3d 944

284 Ill.Dec. 226

OGDEN CHRYSLER PLYMOUTH, INC., Plaintiff-Appellee and Cross-Appellant, v. Glen L. BOWER, as Director of The Department of Revenue, and The Department of Revenue, Defendants-Appellants and Cross-Appellees.

No. 2-03-0194.

Appellate Court of Illinois, Second District.

May 7, 2004.

Lisa Madigan, Attorney General, Gary S. Feinerman, Solicitor General, Diane M. Potts, Assistant Attorney General, Chicago, for Glen L. Bower, Illinois Department of Revenue.

Fred O. Marcus, David A. Hughes, Horwood Marcus & Berke, Chartered, Chicago, for Ogden Chrysler Plymouth, Inc.

Justice CALLUM delivered the opinion of the court:

Following an audit of plaintiff's, Ogden Chrysler Plymouth, Inc.'s (Ogden's), records for the period January 1996 through September 1998, the Department of Revenue (Department) concluded that Odgen's receipt of payments from DaimlerChrysler Motors Corporation (Chrysler) pursuant to Chrysler's Employee/Retiree New Vehicle Purchase/Lease Program (Program) should be included in Ogden's gross receipts and subject to the retailers' occupation tax (ROT) (35 ILCS 120/1, 2-10 (West 2002)). The Department issued a notice of tax liability, proposing to assess $3,490 in tax plus interest. Ogden timely protested. Subsequently, both parties filed cross-motions for summary judgment, and no hearing was held. An administrative law judge (ALJ) recommended granting Ogden's motion and denying the Department's motion. The Director of the Department (Director) rejected the ALJ's recommendation and granted the Department's motion and denied Ogden's motion. The Director found that Chrysler's payments constituted gross receipts, and he rejected Ogden's request for attorney fees based upon its argument that the Department enacted an invalid rule through private letter ruling (PLR) pronouncements.

Ogden sought judicial review of the Director's decision. 35 ILCS 120/12 (West 2002). The circuit court reversed on the gross receipts issue and affirmed the Director's decision with respect to Ogden's request for attorney fees.

The Director and the Department appeal the circuit court's order addressing the gross receipts issue. Ogden cross-appeals that part of the circuit court's order affirming the Director's denial of attorney fees. Thus, we must first decide whether payments received by Ogden from Chrysler as part of a Chrysler employee incentive program constitute "gross receipts" within the meaning of sections 1 and 2-10 of the Retailers' Occupation Tax Act (Act) (35 ILCS 120/1, 2-10 (West 2002)) and are therefore subject to the ROT. The second issue we must decide is whether the Department failed to follow proper rulemaking procedures in enacting its rule on employee purchase programs, thereby entitling Ogden to attorney fees. We reverse the circuit court's ruling on the first issue and affirm with respect to the second issue.

I. BACKGROUND

Chrysler dealers who are parties to a valid sales and service agreement with Chrysler are eligible to participate in the Program. Under the Program, active or retired Chrysler employees and their family members may purchase or lease Chrysler vehicles at a reduced price. A participating dealer must sell or lease a vehicle at the employee purchase price listed on the factory invoice. During the relevant period, Ogden was a participating dealer in the Program. The Program further provides that an eligible purchaser cannot negotiate the price with a dealer, and the dealer cannot charge the purchaser or lessee any preparation, documentation, delivery, or handling fees. A dealer is required to show a copy of the factory invoice to the eligible customer so that he or she can verify the employee purchase price. A regular customer may not review the factory invoice.

In exchange for participating in the Program, with respect to each eligible sale, the dealer receives from Chrysler 6% of the employee purchase price, plus $75. At the time a dealer purchases a vehicle from Chrysler, neither the dealer nor Chrysler is able to determine if the vehicle will be sold under the Program. Payments are processed by electronic funds transfer or as a reduction in the amount the dealer owes Chrysler as listed on the monthly dealer parts account. Chrysler does not inform its employees or their family members about the dealer payment. Eligible customers receive all consumer rebates in addition to the reduced purchase price provided under the Program.

The payment made by Chrysler to the dealer does not affect the employee purchase price. For its accounting purposes, Ogden treats the payments from Chrysler under the Program as a reduction in its cost of goods sold. However, Ogden treats general consumer rebates as a receipt from the sale of an automobile.

Following a Department audit, the Department issued Ogden a notice of tax liability for failure to pay ROT on payments, it received between January 1996 and September 1998 from Chrysler for the sale or lease of several Chrysler vehicles. The Department alleged that Ogden owed approximately $3,490 in past-due tax and interest.

During the administrative proceedings, both Ogden and the Department agreed that there were no disputed issues of material fact that required a fact-finding hearing. Accordingly, both parties filed cross-motions for summary judgment, and no hearing was held. The ALJ recommended that summary judgment be entered in favor of Ogden. However, the Director disagreed and, on September 11, 2001, entered summary judgment for the Department and against Ogden.

The Director found that the Act and the Department's regulations define "gross receipts" to include all consideration received by the seller and that the definitions focus on how much a seller receives from a particular sale, but do not require that consideration be limited to that tendered by the purchaser., Relying on case law, the Director also found that all of the consideration that a seller receives should be included in the seller's taxable gross receipts if all of the consideration received is directly related to a particular sale., He stated that Ogden's accounting treatment of the payments is not relevant for purposes of the ROT. Finally, the Director noted that Department rulings have consistently held that payments from a manufacturer to a dealer are taxable under the Act. He explained, however, that his decision was not based on the rulings or on a recently proposed regulation that addressed reimbursements or rebates received by a seller. Rather, the Director explained that he relied only on the Act and case law.

Ogden sought administrative review, and, on January 17, 2003, the circuit court reversed the Director's decision, finding that Chrysler's payments were not taxable under the Act because the consideration is limited to that given by the purchaser. The court also found that Ogden was not entitled to attorney fees. The Department appeals, requesting that this court affirm the Director's decision that Chrysler's payments were gross receipts subject to the ROT. Ogden cross-appeals, arguing that the circuit court erred in denying its request for attorney fees.

II. STANDARD OF REVIEW

Under the Administrative Review Law (735 ILCS 5/3-101 et seq. (West 2002)), we review the Department's final decision and not the circuit court's ruling. Blessing/White, Inc. v. Zehnder, 329 Ill. App.3d 714, 726, 263 Ill.Dec. 572, 768 N.E.2d 332 (2002). The standard of review applied by this court turns on the proper characterization of the questions presented. The parties disagree as to whether the gross receipts issue presents a question of law subject to de novo review or a mixed question of law and fact that is subject to review under the clearly erroneous standard. See City of Belvidere v. Illinois State Labor Relations Board, 181 Ill.2d 191, 205, 229 Ill.Dec. 522, 692 N.E.2d 295 (1998).

Relying on recent case law, defendants argue that the clearly erroneous standard applies. Ogden contends that de novo review is appropriate because the facts in this case are undisputed. It distinguishes the cases relied on by defendants, arguing that, in those cases, the administrative agency was required to draw additional factual findings from the undisputed facts, a step it contends the Department did not take here. Furthermore, Ogden argues that, because both the ALJ and the Director could not agree on the meaning of the terms "gross receipts" and "consideration," the agency's legal conclusions are not entitled to any deference. We conclude that the clearly erroneous standard applies.

In City of Belvidere, the supreme court held that whether a city's unilateral decision to contract with a private company to provide paramedic services to the city's residents affected "wages, hours, and other conditions of employment" (5 ILCS 315/7 (West 1994)) so as to constitute a mandatory subject of collective bargaining presented a mixed question of law and fact. City of Belvidere, 181 Ill.2d at 205, 229 Ill.Dec. 522, 692 N.E.2d 295. The court explained that the agency's finding was in part factual because it involved considering whether the facts supported a finding that the city's decision affected wages, hours, and other conditions of employment. The case also concerned a question of law because the phrase "wages, hours, and other conditions of employment" was a legal term requiring interpretation.

Similarly, in AFM Messenger Service, Inc. v. Department of Employment Security, 198 Ill.2d 380, 392, 261 Ill.Dec. 302, 763 N.E.2d 272 (2001), the supreme court held that whether delivery drivers were "independent contractors" (820 ILCS 405/212 (West 2000)) within the meaning of the unemployment insurance statute presented a mixed question of law and fact. The court explained that the agency's decision was in part factual because it involved considering whether the facts supported the agency's finding that the drivers were employees and not independent...