APPEAL from the Circuit Court of Cook County; the Hon. WILLIAM
V. BROTHERS, Judge, presiding.
MR. JUSTICE SCHAEFER DELIVERED THE OPINION OF THE COURT:
Rehearing denied May 20, 1957.
The plaintiff, a resident of Illinois, bought an automobile in Indiana, brought it into Illinois and used it here. Under the terms of the Use Tax Act, (Ill. Rev. Stat. 1955, chap. 120, pars. 439.1-439.18,) a tax thereupon became due. He paid it under protest, and brought this action to secure a refund. The circuit court dismissed his complaint and he appeals.
The Use Tax Act was enacted in 1955. It imposes a tax "upon the privilege of using in this State tangible personal property purchased at retail * * * from a retailer." (Section 3.) It applies whether the property is purchased in Illinois or elsewhere. The term "use" is defined basically to mean the exercise "of any right or power over tangible personal property incident to the ownership of that property." (Section 2.) The use tax is imposed at the same rate as the tax under the Retailers' Occupation Tax Act, (Section 3; cf. Ill. Rev. Stat. 1955, chap. 120, par. 441.) It does not apply to out-of-State transactions that would not measure a tax under the Retailers' Occupation Tax Act if they occurred in Illinois, nor is it applicable to the use of property purchased outside of Illinois on which a sale or use tax has been paid to another State, to the extent of the tax so paid. (Section 3.) The tax is to be collected by the retailer, but to the extent that a retailer remits the tax imposed by the Retailers' Occupation Tax Act, he is not required to remit the tax imposed by the Use Tax Act. (Section 9.) An out-of-State retailer may be licensed by the Department of Revenue to collect and remit the tax. (Section 6.) One who purchases from an out-of-State retailer who is not so licensed is required to pay the tax directly to the Department. (Section 10.) The act incorporates by reference many of the administrative provisions of the Retailers' Occupation Tax Act. (Section 12.)
The validity of the statute under the commerce clause of the Federal constitution is not challenged, but numerous other constitutional objections are advanced by the plaintiff and by amici curiae who were given permission to file a brief. The plaintiff concedes that the General Assembly has the power to pass a use tax, and directs his attack at specific provisions of the present act. Amici curiae, however, contend that the constitution of Illinois prohibits the passage of any general use tax. This is the most fundamental objection raised, and we consider it first.
The argument starts with the broad dictum of Bachrach v. Nelson, 349 Ill. 579, that the constitution restricts the taxing power of the General Assembly to (1) property taxes on an ad valorem basis, (2) occupation taxes and (3) franchise or privilege taxes. It is then pointed out that the present tax is obviously not a franchise or occupational tax, and that it cannot be sustained as a property tax because it is not levied on an ad valorem basis, or as a privilege tax because it does not involve conduct over which the General Assembly has "a special power of control."
The present tax purports to be a privilege tax, like the use taxes in effect in many other States. (129 A.L.R. 223; 153 A.L.R. 609.) Substantially the same argument that is made here was advanced against the Cigarette Use Tax Act in Johnson v. Halpin, 413 Ill. 257. The court there analyzed the pertinent decisions and rejected the argument, saying: "On the basis of the foregoing analysis, it is apparent that the concept of `privilege' with reference to the taxing power has not been limited in Illinois, or in other States, to conduct previously authorized by the legislature, or which the legislature could entirely abolish, or to benefits conferred by the State. For the right to use the streets and the highways, and the right to make inter vivos gifts which are effective at death, all of which have been sustained as taxable privileges in Illinois, were regarded as common rights open to all persons prior to legislative action thereon. Therefore, a taxable privilege may involve lawful rights and conduct enjoyed without previous legal authority, but over which the legislature has some power of control or classification. A tax upon such rights would be valid provided the classification were reasonable, and the statute provided for uniformity among the constituents of the class. Harder's Storage Co. v. City of Chicago, 235 Ill. 58." 413 Ill. at 270.
In the Johnson case the court pointed to an additional ground upon which the cigarette use tax could be sustained, saying: "Moreover, the selection of this particular privilege upon which to levy a tax is both reasonable and proper, since it is designed to complement the valid Cigarette Tax Act, and prevent the avoidance of the payment of that tax." (413 Ill. at 271.) The same considerations support the present tax.
It has been authoritatively said that "[m]any years of litigation have not resolved the uncertainties and ambiguities in the nonproperty provisions of Sections 1 and 2" of article IX of the constitution. (Cushman, Proposed Revision of Article IX, 1952 Ill. Law Forum, 226, 237.) Section 2 provides: "The specification of the objects and subjects of taxation shall not deprive the general assembly of the power to require other subjects or objects to be taxed in such manner as may be consistent with the principles of taxation fixed in this constitution." This provision of the revenue article of the constitution has received varying interpretations. See, e.g., Illinois Central Railroad Co. v. County of McLean, 17 Ill. 291; People v. Worthington, 21 Ill. 170; Raymond v. Hartford Fire Insurance Co. 196 Ill. 329; Harder's Fire Proof Storage and Van Co. v. City of Chicago, 235 Ill. 58; Bachrach v. Nelson, 349 Ill. 579; Reif v. Barrett, 355 Ill. 104; Johnson v. Halpin, 413 Ill. 257.
But the uncertainty that has persisted as to the precise scope of section 2 of article IX need not trouble us in this case. Use taxes were developed, as the plaintiff points out, to prevent evasion of the tax that applies when retail purchases are made within the State, and to protect the local retail merchant against diversion of his business to out-of-State sellers. Those are the purposes of the present tax. Such a protective tax can depend for its justification upon the tax that it supports. The principle is not new in our law. Upon this basis completed gifts inter vivos that are not subject to revocation have been included in the estate of the donor for inheritance tax purposes if they were made in contemplation of death. And the statute fixes a presumption that gifts made within two years of the donor's death were made in contemplation of it. (Ill. Rev. Stat. 1955, chap. 120, par. 375.) Such a provision has been regarded as necessary to protect the base of the inheritance tax. (See Rosenthal v. People, 211 Ill. 306; In re Estate of Benton, 234 Ill. 366; People v. Danks, 289 Ill. 542.) A supplemental tax so levied to protect an admittedly valid tax from evasion or avoidance is clearly, in our opinion, a tax that is "consistent with the principles of taxation fixed in this constitution." We hold, therefore, that the General Assembly is not without power to enact a use tax.
While the plaintiff concedes that the constitution does not prohibit the imposition of a complementary use tax, he argues that the present statute is invalid. He points to the fact that other States that have use taxes impose them only upon the purchase of property outside the State for use within it, and he argues that the Illinois tax is not complementary because it falls upon purchases made within the State as well as upon those made outside, and thus introduces a new tax upon domestic transactions. The act requires the Illinois retailer to collect the use tax upon the sales he makes. It does not require him to remit that tax to the State, however, to the extent that he remits the retailers' occupation tax with respect to the sale of the same property. (Section 9.) Plaintiff also contends that this setoff provision provides for a gift of public funds to private individuals, permits the commutation of taxes and provides for the cancellation of a debt due to the State, all in violation of the constitution. Const., art. IX, secs. 6 and 7; art. IV, sec. 23.
The statute provides for a use tax that falls alike on those who purchase at retail within the State and those who purchase outside of it. That tax is to be collected by the Illinois retailer, but to the extent that he remits the tax due under the Retailers' Occupation Tax Act he is not required to remit the tax due under the Use Tax Act. The tacit assumption of the statute is that by this mechanism the tax advantage that was enjoyed by the buyer who purchased outside the State will be eliminated, without increasing the burden upon the buyer who purchases within the State. The accuracy of that assumption is not challenged. The Illinois retailer is required to remit one tax of 2 1/2 per cent with respect to each sale within the State. That is the same tax that is levied with respect to each out-of-State purchase for use within the State. It is true that the scheme of this tax is more complex than that of a use tax that falls only on out-of-State purchases. But its purpose and its results are those of the typical use tax, and the formal differences in the method by which those purpose are accomplished do not affect the validity of the statute.
It is not intended that both taxes shall reach the treasury with respect to a single transaction. It is intended and provided that one tax, and only one, shall reach the State treasury with respect to each purchase of property for use within the State, whether or not the purchase is made within Illinois. To that end the statute provides that the use tax collected by the retailer does not constitute a debt owed by him to the State when he "is relieved of the duty of remitting such tax to the Department by virtue of his being required to pay the tax imposed by the Retailers' Occupation Tax Act upon his gross receipts from the same transaction." (Section 8.) Only if the way in which the two taxes are interrelated is ignored is it possible to say that there is here a gift of public funds, commutation of taxes, or the cancellation of a debt owing to the State. The method by which the two taxes are integrated may be cumbersome, but it is not unconstitutional.
There is, however, one respect in which the use tax does not precisely complement the retailers' occupation tax. The former tax is based upon "selling price," the latter on "gross receipts" from sales. "Selling price" is defined in both statutes to mean the consideration for a sale valued in money whether received or paid in money or otherwise, "including cash, credits, service and property of every kind or nature * * *." (Ill. Rev. Stat. 1955, chap. 120, pars. 439.2, 440.) By an amendment in 1955, however, the definition of "gross receipts" in the Retailers' Occupation Tax Act was amended so that it "means the total selling price * * *, excluding therefrom any amount allowed as credit for tangible personal property taken in trade." (Ill. Rev. Stat. 1955, chap. 120, par. 440.) The result of this discrepancy in definitions is that in cases in which property is received in trade as a part of the purchase price, the tax due may not be the same under the two statutes. For example, if a new car is purchased for $3000 and the buyer's old one is received in trade at $1000, the use tax will be $75. Under the Retailers' Occupation Tax Act, however, the value of the old car would not be included in the "gross receipts" on which the tax is computed, so that the tax would be $50. The retailer, however, is required to remit to the Department the full $75, because he is excused from remitting the use tax that he collects only to the extent that he remits the retailer's tax with respect to the same transaction. No ...