Web Innovations & Tech. Servs., Inc. v. Dep't of Revenue
| Decision Date | 28 August 2013 |
| Docket Number | NO. 4-12-0907,NO. 4-12-0749,4-12-0749,4-12-0907 |
| Citation | 2013 IL App (4th) 120749 |
| Court | United States Appellate Court of Illinois |
| Parties | WEB INNOVATIONS & TECHNOLOGY SERVICES, INC., Plaintiff-Appellant, v. THE DEPARTMENT OF REVENUE, Defendant-Appellee. WEB INNOVATIONS & TECHNOLOGY SERVICES, INC., Plaintiff-Appellant, v. THE DEPARTMENT OF REVENUE and THE VERMILION COUNTY BOARD OF REVIEW, Defendants-Appellees. |
This order was filed under Supreme Court Rule 23 and may not be cited as precedent by any party except in the limited circumstances allowed under Rule 23(e)(1).
¶ 1 Held: Decisions by the Department of Revenue, denying taxpayer's requests for charitable exemptions from the Retailer's Occupation Tax Act and the Property Tax Code, were not clearly erroneous.
¶ 2 Plaintiff, Web Innovations & Technology Services, Inc. (WITS), sought administrative review of decisions by defendant, the Department of Revenue (Department), to deny its requests for charitable exemptions under the Retailers' Occupation Tax Act (35 ILCS 120/2-5(West 2008)) and the Property Tax Code (35 ILCS 200/15-65 (West 2008)). In separate cases, the circuit courts of Sangamon and Vermilion Counties rejected WITS's arguments and affirmed the Department's decisions. WITS appeals, arguing the Department erred in denying its requests for charitable tax exemptions. WITS's claims were consolidated on appeal. We affirm.
¶ 4 The facts are largely undisputed. WITS recycles and refurbishes electronic equipment. On November 19, 2001, it was organized as a Missouri non-profit corporation and began its operations in St. Louis, Missouri. On June 1, 2007, WITS received a donation of two parcels of property located on Bowman Avenue and Griggs Street in Danville, Illinois. It also began operating at those locations. Its articles of incorporation state its purpose is "to provide low cost/free technology and services to college students who cannot afford it." Further, its mission statement is "to keep reusable materials out of the landfill and improve technology awareness and availability to the underserved through recycling/refurbishing and educational opportunities using recycled and refurbished technologies."
¶ 5 WITS generated funding from three primary sources: (1) monetary donations and grants, (2) selling refurbished electronics, and (3) selling its scrap to end processors who paid WITS on a per pound basis. Through the recycling process, WITS generated money to pay its operating expenses. All money generated by WITS's operations goes back into the corporation. Its president, Angela Haas, does not receive a salary. WITS has no capital stock or shareholders, and no one gains a profit from its operations. Money generated by selling refurbished electronics constitutes only a small portion of WITS's funding and the majority of its funding is gained from the sale of scrap materials generated as a result of the recycling process. On July 10, 2002, theInternal Revenue Service (IRS) made a determination that WITS was exempt from federal income taxes under section 501(c)(3) of the Internal Revenue Code (26 U.S.C. § 501(c)(3) (2000)).
¶ 6 WITS accepted a wide variety of electronic items at its facilities, including computers, monitors, printers, cables, peripherals, networking equipment, servers, telecommunications items, phones, clocks, home electronics, small appliances, audiovisual equipment, washers, dryers, medical and diagnostic equipment, cabling and communications, industrial machinery and equipment, lawn equipment, tools, old mowers, tillers, air conditioners, refrigerators, humidifiers, old motors, transformers and other electrical equipment, car and lead-containing batteries, software, digital video discs (DVDs) and compact discs (CDs), and tapes. All nonreusable material and material that could not be refurbished was demanufactured or recycled. WITS has a 0% landfill policy, meaning its policy is to keep everything out of landfills.
¶ 7 WITS received compensation for some electronic items (including circuit boards, cables, cords, power supplies, and drives) that it took to other vendors for recycling. For electronic items that contained toxic chemicals, WITS had to pay vendors who specialized in the recycling of such products. It charged a hazardous material fee in connection with those items, including a fee of $5 for computer monitors, business appliances, air conditioners, refrigerators, humidifiers, washers, dryers, and furnaces and from $10 to $20 for televisions.
¶ 8 WITS's fees for individuals and nonprofit organizations were less than what it was required to pay the end recycler. Residents and nonprofit organizations were not required to pay a fee for appliances smaller than a microwave and WITS did not request any fees from libraries, schools, seniors, veterans, and disabled individuals. Further, WITS waived fees for those whowere unable to pay. It did not require proof of inability to pay. However, WITS was unable to waive fees associated with electronic items like televisions and computer monitors that had cathode ray tubes because the amount of the fee charged by the end recycler for those items was too large. Individuals who donated items received a "proof of donation," which allowed them to take a tax deduction.
¶ 9 In 2009, WITS recycled approximately 6.5 million pounds of electronics. Approximately 1,750,000 pounds of electronics were collected at WITS's Danville facilities. During the first three quarters of 2009, WITS sold its refurbished computer systems for $75. During the last quarter, it reduced its price to $50 due to the economic downturn.
¶ 10 In 2009, WITS's income included $95,000 from contributions and grants; $21 from investments; and $382,123 from "program service revenue," which included income WITS received from selling the unusable parts of recycled and refurbished items. Revenue from its Danville location totaled $46,270. That amount included approximately $18,886 in recycling revenue; $12,309 in cash donations and recycling fee requests; $7,330 in special event cash donations and recycling fee requests; $2,656 in tech repair fees; and $5,089 in the sale of refurbished items. At its St. Louis facility, WITS generated approximately $16,000 from selling refurbished items. Its total income for 2009 was $477,144 and its total expenses were $500,145, resulting in a loss of $23,001.
¶ 11 At its Danville location, WITS offered several programs, including (1) the Free Computer Program, which offered participants a computer in exchange for volunteering service hours; (2) the Youth/Teen Program, which offered a free computer to high school students that met certain requirements; (3) the Seniors and Veteran Technology Program, which offeredseniors and veterans free computers in exchange for making phone calls; and (4) the Disaster Victims Recovery Program, which was sponsored by the American Red Cross and permitted low income and uninsured disaster victims to receive two or three free electronic items or components. In connection with the Free Computer Program, WITS had a policy of waiving service hours for those unable to donate their time upon proof of inability in the form of (1) proof of low income status, (2) disability/veteran status or physician letter for special circumstances, or (3) a letter requesting special consideration.
¶ 12 The Free Computer Program was advertised on WITS's website. It also disseminated a brochure, explaining its programs. The brochure did not indicate that service hours could be waived for those unable to provide them. In 2009, 50 people received free computers. Of those people, 20 donated service hours and the remaining 30 donated no hours and received their computers through a "Christmas Giveaway" program. In 2009, WITS also donated computers to the Keep Vermilion County Beautiful organization, the Danville Lutheran School, and the Danville Baptist Church.
¶ 13 In 2009, the Department denied WITS's requests for charitable exemptions from retailer's occupation and property taxes. WITS requested a hearing before the Department. Ultimately, the parties agreed to waive a formal hearing and presented the cases to an administrative law judge (ALJ) through the submission of documents and stipulations of fact. On March 11, 2011, the ALJ entered recommendations for disposition in connection with WITS's exemption requests.
¶ 14 In both cases, the ALJ recommended WITS's requests for charitable exemptions under the Retailer's Occupation Tax Act and the Property Tax Code be denied, finding WITSfailed to establish either that it was a charitable organization or that it used its Danville properties primarily for charitable purposes. Initially, she noted that activities at all of WITS's locations were relevant to a determination of whether WITS was a charitable organization and entitled to tax exemptions. The ALJ found WITS should have, but failed, to present evidence of charitable acts at its St. Louis location. Nevertheless, the ALJ also determined that WITS failed to meet its evidentiary burden with regard to evidence it presented regarding its Danville location. The ALJ relied upon the following findings: (1) the majority of WITS's funding was from the sale of scrap materials that were generated as a result of the recycling process rather than through public or private charity, (2) the primary use of WITS's Danville properties was to operate a recycling business from which it made money rather than to provide charity, (3) the recycling process is not a charitable activity because it did not involve a gift and WITS received compensation from its activities, (4) giving away computers in exchange for service...
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