Union Elec. Co. v. Department of Revenue

• Decision Date: 30 May 1990
• Docket Number: 68527,No. 68406,68406
• Citation: 144 Ill.Dec. 769,556 N.E.2d 236,136 Ill.2d 385
• Parties: , 144 Ill.Dec. 769 UNION ELECTRIC COMPANY, Appellee, v. The DEPARTMENT OF REVENUE, Appellant. GEORGIA POWER COMPANY, Appellee, v. ARCH OF ILLINOIS, INC. (Roger D. Sweet, Director of Revenue, et al., Appellants).
• Court: Illinois Supreme Court

Page 236

556 N.E.2d 236

136 Ill.2d 385, 144 Ill.Dec. 769

UNION ELECTRIC COMPANY, Appellee, v. The DEPARTMENT OF REVENUE, Appellant.

GEORGIA POWER COMPANY, Appellee,

v.

ARCH OF ILLINOIS, INC. (Roger D. Sweet, Director of Revenue,

et al., Appellants).

No. 68406, 68527.

Supreme Court of Illinois.

May 30, 1990.

Neil F. Hartigan, Atty. Gen., Springfield (Robert J. Ruiz, Sol. Gen., and Jennifer A. Keller, Asst. Atty. Gen., Chicago, of counsel), for appellants.

Thompson & Mitchell, Belleville (Robert L. Broderick and Mark J. Stegman, of counsel), for appellee Union Electric Co.

Richard A. Hanson, Nancy T. Owens and Diane E. Olson, McDermott, Will & Emery, Chicago (John E. Gaggini and David J. Duez, of counsel), for appellee Georgia Power Co.

Justice CLARK delivered the opinion of the court:

At issue in this consolidated appeal is whether the purchases of coal from Illinois companies by nonresident power companies for use in their out-of-state power generating facilities are subject to the Illinois Use Tax Act (Use Tax Act) (Ill.Rev.Stat.1987, ch. 120, par. 439.1 et seq.) or the Retailers' Occupation Tax Act (ROTA) (Ill.Rev.Stat.1987, ch. 120, par. 440 et seq.). In No. 68406, both the trial court and the appellate court held that appellee, Union Electric Company (Union Electric), was not liable for the use tax. The same conclusion was reached by both the trial court and the appellate court in No. 68527 with respect to appellee Georgia Power Company (Georgia Power). Upon petition by the Illinois Department of Revenue (Department), we granted leave to appeal pursuant to Rule 315(a) (107 Ill.2d R. 315(a)) and consolidated the two cases. For the reasons that follow, we affirm the judgments of the appellate court.

No. 68486

Appellee, Union Electric, is a Missouri corporation authorized to do business in Illinois. From 1981 through 1984 Union Electric purchased coal from two coal mining operations, Old Ben Coal Company (Old Ben) and Inland Steel Coal Company (Inland), located in Franklin County, Illinois, for use in its Meramec power plant located in Missouri.

Union Electric's power plant in Missouri is not equipped to receive coal shipments by rail, but is equipped to receive coal shipments by barge. Consequently, the coal was shipped via the Missouri Pacific Railroad Company, a common carrier, from the mines in Franklin County to Cora Dock Corporation located at Cora, Illinois, on the Mississippi River. At Cora Dock, the coal received from Inland was loaded onto barges operated by Federal Barge Lines, Inc., a common carrier, and transported across the Mississippi River to Union Electric's Meramec plant; the coal received from Old Ben was transported to Meramec by United Barge Company, a common carrier.

In April 1985, following an audit of Union Electric's books covering the period from July 1, 1981, to June 30, 1984, the Department notified Union Electric that a sum of $4,235,861 was due and owing under the Use Tax Act. An additional amount of $211,793 in penalties and $2,227,962.43 in interest made the total amount claimed by the Department to be $6,675,616.43.

Union Electric paid the entire amount under protest and filed suit in Sangamon County seeking declaratory and injunctive relief against the Department. Union Electric argued that it was not liable for use tax as a result of these transactions because neither Union Electric, nor its representative, took delivery or used the coal in Illinois.

The circuit court of Sangamon County determined that Union Electric was exempt from the requirements of the Use Tax Act because neither Union Electric nor its representative had received possession of the coal in Illinois. The appellate court affirmed this decision with one justice dissenting. 180 Ill.App.3d 1, 128 Ill.Dec. 583, 534 N.E.2d 1028.

No. 68527

Appellee, Georgia Power, is a Delaware corporation not authorized to do business in Illinois. It does not maintain any offices, facilities or places of business in Illinois and does not have any employees located in Illinois. During December 1987, the period at issue, Georgia Power purchased coal from Arch of Illinois, Inc. (Arch), an Illinois corporation, located in Perry County, Illinois, for use in its power plants located in the State of Georgia. Pursuant to a contract between Georgia Power and Arch, coal mined by Arch at its mines was loaded onto rail cars leased by Arch from a third party. The coal was transported via the Missouri Pacific Railroad, a common carrier, to Ford Dock, a coal loading facility located near Chester, Illinois, on the Mississippi River. At Ford Dock, the coal was loaded onto river barges owned and operated by Central Barge Lines, Inc. (Central Barge), a common carrier, and was transported by barge to Georgia Power's transloading facility in Pride, Alabama. From Pride, the coal was transported to Georgia Power's power generating facilities located in Georgia.

In 1987, the Department claimed that Georgia Power owed use tax in the amount of $250,440.13 for the month of December 1987. Georgia Power paid that amount to Arch, under protest, which in turn paid the money, under protest, to the Department. Subsequently, Georgia Power filed suit in Sangamon County seeking declaratory and injunctive relief against the Department, contending that no retailers' occupation tax was due from Arch, and no use tax was due from Georgia Power, because Georgia Power did not take delivery of the coal in Illinois.

The circuit court of Sangamon County determined that there was no delivery of coal within the State of Illinois to either Georgia Power or its representative and, consequently, Arch was exempt from retailers' occupation tax and Georgia Power was exempt from use tax. The appellate court affirmed this decision with one justice dissenting. 180 Ill.App.3d 1109 (unpublished order under Supreme Court Rule 23).

The Illinois use tax is a tax on the privilege of using tangible personal property within this State. (United Air Lines, Inc. v. Johnson (1981), 84 Ill.2d 446, 449, 50 Ill.Dec. 631, 419 N.E.2d 899.) Section 3 of the Use Tax Act provides:

"A tax is imposed upon the privilege of using in this State tangible personal property * * *. Such tax is at the rate of 5% of either the selling price or the fair market value, if any, of such property as provided herein." (Ill.Rev.Stat.1987, ch. 120, par. 439.3.)

"Use" is defined as "the exercise by any person of any right or power over tangible personal property incident to the ownership of that property." (Ill.Rev.Stat.1987, ch. 120, par. 439.2.) The Use Tax Act further provides:

"If the seller of tangible personal property for use would not be taxable under the Retailers' Occupation Tax Act despite all elements of the sale occurring in Illinois, then the tax imposed by this Act shall not apply to the use of such tangible personal property in this State." (Ill.Rev.Stat.1987, ch. 120, par. 439.3.)

The Retailers' Occupation Tax Act (ROTA) (Ill.Rev.Stat.1987, ch. 120, par. 440 et seq.) complements the Use Tax Act. Retailers who collect the use tax are relieved of liability for the retailers' occupation tax. Ill.Rev.Stat.1987, ch. 120, par. 439.8. The Department has promulgated regulations to assist it in applying the ROTA and Use Tax Act to sales of property originating in Illinois. These regulations have the force and effect of law, and must be construed under the same standards which govern the construction of statutes. (Northern Illinois Automobile Wreckers & Rebuilders Association v. Dixon (1979), 75 Ill.2d 53, 58, 25 Ill.Dec. 664, 387 N.E.2d 320.) Section 130.605 of the regulations, which deals with the sales of property originating in Illinois, provides:

"a) Where tangible personal property is located in this State at the time of its sale * * * and then delivered in Illinois to the purchaser, the seller is taxable if the sale is at retail.

1) The sale is not deemed to be in interstate commerce if the purchaser or his representative receives the physical possession of such property in this State.

2) This is so notwithstanding the fact that the purchaser may, after receiving physical possession of the property in this State, transport or send the property out of the State for use outside the State or for use in the conduct of interstate commerce.

* * * * * *

c) * * * [T]he tax [does not] apply to gross receipts from sales in which the seller, by carrier (when the carrier is not also the purchaser) or by mail, under the terms of his agreement with the purchaser, delivers the goods from a point in this State to a point outside this State not to be returned to a point within this State.

d) The place at which title to the property passes * * * is immaterial. * * * Sales of the type described in Subsections (b) and (c) of this Regulation are deemed to be within the protection of the Commerce Clause of the Constitution of the United States." 86 Ill.Admin. Code §§ 130.605(a), (a)(1), (a)(2), (c), (d) (1985).

The Department argues that, under the regulations, the appellees received possession of the coal in Illinois and that they should be subject to the provisions of the Use Tax Act. Because much of the Department's argument is based on the specific provisions in the contracts and shipping documents involved, we will discuss each case separately.

No. 68486

UNION ELECTRIC--INLAND TRANSACTION

Union Electric's purchase orders, used to buy coal from Inland, require that the coal be shipped "via the MoPac R.R. to the Cora Dock, Cora, Illinois, for transshipment beyond to Union Electric's Meramec Plant * * * in Federal Barge Lines barges." The railroad freight costs were prepaid by Inland. The original invoices specified that the coal was to be "f.o.b. mine" and was to be shipped to Labadie Plant, West Labadie, Missouri. The purchase order was later changed to provide that the coal was to be "f.o.b. Cora Dock" and was to be shipped to Meramec. Correspondence from Inland to the Missouri...