XL Disposal Corp., Inc. v. Zehnder, 4-98-0554

• Decision Date: 07 April 1999
• Docket Number: No. 4-98-0554,4-98-0554
• Citation: 237 Ill.Dec. 307,304 Ill.App.3d 202,709 N.E.2d 293
• Parties: , 237 Ill.Dec. 307 XL DISPOSAL CORPORATION, INC., Plaintiff-Appellee, v. Kenneth ZEHNDER, Director of the Department of Revenue, and the Department of Revenue, Defendants-Appellants.
• Court: United States Appellate Court of Illinois

Page 293

709 N.E.2d 293

304 Ill.App.3d 202, 237 Ill.Dec. 307

XL DISPOSAL CORPORATION, INC., Plaintiff-Appellee, v. Kenneth ZEHNDER, Director of the Department of Revenue, and the Department of Revenue, Defendants-Appellants.

No. 4-98-0554.

Appellate Court of Illinois Fourth District.

Argued Feb. 17, 1999.

Decided April 7, 1999.

Rehearing Denied May 11, 1999.

James E. Ryan, Atty. Gen., Barbara A. Preiner, Sol. Gen., Darryl B. Simko, Asst. Atty. Gen. (argued) (Court-appointed), Chicago, for Dept. of Revenue.

Mark A. LaRose (argued), Mark A. LaRose, Ltd., Chicago, J. Patrick Joyce Jr., Emmet A. Fairfield, Brown, Hay & Stephens, Springfield, for XL Disposal Corp., Inc.

Presiding Justice KNECHT delivered the opinion of the court:

Defendants, Illinois Department of Revenue (Department) and its Director, appeal from a determination by the circuit court of Sangamon County that plaintiff, XL Disposal Corporation, Inc. (XL Disposal), was entitled to exemption from taxation under the Use Tax Act (Act) (35 ILCS 105/1 et seq. (West 1996)) because (1) the vehicles used in its garbage hauling business qualified as rolling stock used in interstate commerce and as component parts of a pollution-control facility; and (2) a specific piece of equipment was part of a pollution-control facility. We reverse the circuit court and affirm the Department's determination XL Disposal did not qualify for exemption from taxation.

I. BACKGROUND

Following administrative hearings, on March 17, 1997, the Department rendered a determination of tax liability under the Act against XL Disposal. XL Disposal paid under protest the sum of $187,513.14, the tax, penalty, and interest determined by the Director of the Department to be due.

On May 13, 1997, XL Disposal sought administrative review in the circuit court from the Department's determination pursuant to the Administrative Review Law. 735 ILCS 5/3-101 et seq. (West 1996). XL Disposal asserted it was exempt from taxation under section 2a of the Act, pertaining to pollution-control facilities (35 ILCS 105/2a (West 1996)), and under section 3-55 of the Act, pertaining to rolling stock of an interstate carrier for hire (35 ILCS 105/3-55 (West 1996)). The circuit court reversed the Department's decision to tax XL Disposal, finding the company qualified for the exemptions provided under both sections of the statute. This appeal followed.

The case was submitted to the Department at the administrative hearing on stipulated facts. The submissions on behalf of XL Disposal included two affidavits of Ed Pruim, president of XL Disposal, and related exhibits. The Department submitted only its notice of tax liability, which established its prima facie case. See 35 ILCS 120/4 (West 1996); Elkay Manufacturing Co. v. Sweet, 202 Ill.App.3d 466, 470, 147 Ill.Dec. 718, 559 N.E.2d 1058, 1060 (1990). No live testimony was presented.

Evidence as to the nature of XL Disposal's business is found solely in the affidavits of Pruim and is not disputed by the Department. XL Disposal engaged in the business of picking up, sorting, and disposing of garbage discarded by its residential, commercial, and municipal customers. The garbage was of a "nonhazardous" type "routinely produced" consisting of "waste food products from homes, restaurants and stores, paper products, yard waste, plastics, metal, glass," as well as "packaging * * * toiletries, soaps" and "cleaning materials" such as paint thinners and disinfectants. Pruim stated the household waste contained some items, e.g., solvents, petroleum-based cleaning products, paint materials, thinners, preservatives, disinfectants, caustic cleaners, shoe polish, dyes, and cleaning supplies, that were not classified as hazardous waste only because they were in such small quantities.

XL Disposal used its vehicles and equipment to pick up garbage from its customers, separate out recyclables at one of its "transfer" stations, and take the garbage to final disposal sites, either recycling facilities or landfills it did not own. Some of the landfill sites were outside the State of Illinois.

The hauling aspect of XL Disposal's business is the focus of this case. XL Disposal provided Dumpsters for its customers to deposit and collect their garbage. Then the company used garbage trucks, which it refers to as "packer" trucks, to collect the garbage and transport it to the transfer centers. The packer trucks compacted the garbage under pressure to reduce volume for ease in transport and more efficient disposal. The packer trucks were designed to prevent leakage of liquids and control odors during transport.

At both of XL Disposal's transfer stations, the garbage from the packer trucks was combined and consolidated for hauling to landfills or, in the case of one of the transfer sites, separated for hauling to a recycling facility. In hauling the garbage from the transfer sites, XL Disposal used two types of trailers, both pulled by truck cabs the company referred to as "power units." "Transfer" trailers looked like semi-truck trailers but had moving floors that allowed the units to be emptied without tipping on the uneven ground of a landfill. The other trailers were "dump trailers," which looked and operated like the back half of a dump truck. XL Disposal also purchased "tank trucks" for hauling hazardous waste. The company did not have a license for hazardous waste disposal. Pruim's affidavit stated these trucks were leased to other companies that were authorized to dispose of hazardous waste. Those companies are not identified in the record.

Separate from its hauling operation, XL Disposal also purchased a wood shredder, known as a Grassan shredder. Its purpose was to reduce the bulk of wood and yard waste, making it more amenable to transportation and acceptance for disposal at the company's landscape waste compost site.

XL Disposal operated pursuant to numerous state and federal environmental, commercial, and transportation regulations. The garbage collection services were performed pursuant to contract with the City of Chicago and suburban municipalities in Cook County. Pruim stated the company's duties extended through ultimate disposal in approved landfills both in and outside Illinois. He identified an exhibit attached to his affidavit as an example of conditions imposed upon the company by its contracts. The exhibit is actually a set of specifications the City of Chicago provides for prospective contract bidders. The record does not contain any actual contracts. The exhibit in question requires the bidder to provide the name of the landfill to be used and requires assurances the bidder will comply with applicable government regulations but does not allow the city to designate a specific landfill to be used.

The record also contains XL Disposal's authorization from the Illinois Commerce Commission (Commission) to haul waste within a 30-mile radius of Chicago. XL Disposal also held certificates from the Commission authorizing it to engage in various intrastate hauling. The company was registered as an exempt interstate carrier by the Commission and Pruim admitted XL Disposal did not require authorization by the Interstate Commerce Commission to haul garbage.

XL Disposal claimed exemption from the Act pursuant to (1) the pollution-control exemption for all of its packer trucks, tractors or power units, transfer trailers, dump trailers, the Grassan shredder, and the hazardous-waste tank trucks; and (2) the exemption for rolling stock used in interstate commerce for all the equipment except the Grassan shredder.

The administrative law judge (ALJ) ruled on both of XL Disposal's claims as a matter of law after considering the evidence in the record. The ALJ ruled in favor of the Department on both claims and ordered XL Disposal to pay the taxes in question. In announcing her decision, the ALJ noted while the facts presented were uncontradicted, she need not accept any conclusory statements or representations made in the company's affidavit that were not supported by documentary evidence. On March 17, 1997, the Director accepted the ALJ's recommended decision as dispositive of the issues, and on April 11, 1997, the Department issued its final tax assessment.

When XL Disposal filed a complaint for administrative review, the circuit court held, as a matter of law, both of the claimed exemptions applied to all the equipment claimed by the company. The Department has appealed pursuant to section 3-112 of the Administrative Review Law. 735 ILCS 5/3-112 (West 1996).

II. ANALYSIS

In reviewing a final decision under the Administrative Review Law, we review the administrative agency's decision and not the circuit court's determination. Richard's Tire Co. v. Zehnder, 295 Ill.App.3d 48, 56, 229 Ill.Dec. 587, 692 N.E.2d 360, 366 (1998). An administrative agency's decisions on questions of fact are entitled to deference and are reversed only if against the manifest weight of the evidence. Abrahamson v. Illinois Department of Professional Regulation, 153 Ill.2d 76, 88, 180 Ill.Dec. 34, 606 N.E.2d 1111, 1117 (1992). Questions of law decided by such an agency are not entitled to deference and are reviewed de novo. Envirite Corp. v. Illinois Environmental Protection Agency, 158 Ill.2d 210, 214, 198 Ill.Dec. 424, 632 N.E.2d 1035, 1037 (1994).

On questions of mixed law and fact, an administrative agency's decisions are accorded deference. City of Belvidere v. Illinois State Labor Relations Board, 181 Ill.2d 191, 205, 229 Ill.Dec. 522, 692 N.E.2d 295, 302 (1998). Where a case involves the examination of the legal effect of a given set of facts, the agency's determination should be affirmed unless clearly erroneous. City of Belvidere, 181 Ill.2d at 205, 229 Ill.Dec. 522, 692 N.E.2d at 302. In this case, the facts surrounding XL Disposal's garbage hauling business are not in dispute; the issue is whether certain exemptions provided by the Act apply to it. The Department's...