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I.b.m. Corp. v. Korshak

OPINION FILED JUNE 16, 1966.

INTERNATIONAL BUSINESS MACHINES CORPORATION ET AL., APPELLEES,

v.

MARSHAL KORSHAK, DIRECTOR OF REVENUE, ET AL., APPELLANTS.



APPEAL from the Circuit Court of Cook County; the Hon. WILLIAM V. BROTHERS, Judge, presiding.

MR. JUSTICE SCHAEFER DELIVERED THE OPINION OF THE COURT:

This is an action to enjoin the Director of the Department of Revenue and other State officials from enforcing the provisions of the Leasing Occupation Tax Act, the Leasing Use Tax Act, the Municipal Leasing Occupation Tax Act and the County Leasing Occupation Tax Act. The plaintiffs are two New York corporations, International Business Machines Corporation (IBM) and Service Bureau Corporation. IBM manufactures business machines and leases them in Illinois. Service Bureau Corporation is engaged in the business of preparing accounting, statistical and mathematical information, and leases tabulating and electronic data processing machines from IBM. Apt Service Bureau, Inc., an Illinois corporation, which also leases tabulating and electronic data processing machines from IBM, sought and was granted leave to file an intervening petition.

The defendants' motion to dismiss the complaint was overruled and when they elected to stand by their motion a decree was entered which permanently enjoined them from enforcing the statutes. The revenue and questions arising under the constitution of Illinois are involved, and the defendants have appealed directly to this court. Attorneys representing five trade associations were granted leave to file a brief amici curiae.

The first of several constitutional objections urged by the plaintiffs centers upon the titles of the Leasing Occupation Tax Act and the Leasing Use Tax Act. It is contended that the title of each act embraces more than one subject, and so violates section 13 of article IV of the constitution, which provides: "No act hereafter passed shall embrace more than one subject, and that shall be expressed in the title." The title of the Leasing Occupation Tax Act (Ill. Rev. Stat. 1965, chap. 120, pars. 453.101-453.109,) is as follows: "AN ACT in relation to a tax upon persons engaged in the business of renting or leasing tangible personal property to users and to amend Section I of the `Retailers' Occupation Tax Act', approved June 28, 1933, as amended, in connection therewith." The title of the Leasing Use Tax Act (Ill. Rev. Stat. 1965, chap. 120, pars. 453.121-453.140.) is as follows: "AN ACT in relation to a tax upon the privilege of using rented or leased tangible personal property and to amend Section 2 of the `Use Tax Act', approved July 14, 1955, as amended, in connection therewith."

Section 10 of the Leasing Occupation Tax Act amends section I of the Retailers' Occupation Tax Act to provide that the term "sale at retail" as used in the latter act "does not include the sale of tangible personal property to a purchaser who will act as a lessor of such tangible personal property within the meaning of the `Leasing Occupation Tax Act' and the `Leasing Use Tax Act'". (Ill. Rev. Stat. 1965, chap. 120, par. 440.) Section 21 of the Leasing Use Tax Act amends section 2 of the Use Tax Act to provide that the term "use" as used in the latter act "does not include the renting or leasing of tangible personal property to someone else by a person in the course of his acting as a lessor, as `lessor' is defined in the `Leasing Occupation Tax Act' and the `Leasing Use Tax Act.'" Ill. Rev. Stat. 1965, chap. 120, par. 439.2.

Plaintiffs contend that each statute violates section 13 of article IV because each imposes an entirely new tax and also amends an existing taxing statute. Each of the amendments to an existing statute, however, is designed to exclude from its operation transactions that are subject to the new taxes.

In Turner v. Wright, 11 Ill.2d 161, we considered for the first time the validity of the legislative technique of including in a new taxing statute an amendment to an existing act. We there held that the provision of the Use Tax Act, which amended the Uniform Motor Vehicle Anti-Theft Act to provide that the Secretary of State should not issue a certificate of title for a motor vehicle unless the applicant furnished proof that the use tax had been paid or was not due, was "germane" and "obviously relevant to the enforcement of the use tax," and therefore did not violate the constitutional provision. We said that "it is clear that all of the provisions of the act deal with a single subject, — the imposition of a use tax, — which is clearly expressed in its title." 11 Ill.2d at 172.

In our opinion Turner v. Wright controls the disposition of the present contention. The amendments to the other taxing statutes are germane to the subjects of the acts here in question. The legislative understanding of the unity of the subject matter is unmistakably expressed. Section 9 of the Leasing Occupation Tax Act provides: "It is the expressed intention of the General Assembly that if the tax that is imposed by this Act should be held unconstitutional, then Section 10 of this Act amending Section I of the Retailers' Occupation Tax Act shall be held unconstitutional, as it is not intended that Section 10 of this Act should be regarded as being severable from the rest of this Act under any circumstances." (Ill. Rev. Stat. 1965, chap. 120, par. 453.109." Section 21 of the Leasing Use Tax Act contains a similar provision. (Ill. Rev. Stat. 1965, chap. 120, par. 453.140.) The new acts and the amendments to the existing acts are plainly part of a common scheme of taxation. The veto power of the Governor is in no way threatened, and we perceive no opportunity for "log-rolling." (See 11 Ill.2d at 172.) We hold, therefore, that section 13 of article IV of the constitution has not been violated. As we said in Turner v. Wright, "The legislative technique here used invites close scrutiny. It has an inherent potential that, if not closely confined, would trespass upon the objectives of the constitution. In this instance, however, the provision in question is germane both to the new statute and to the statute that is amended, and so it does not conflict with the constitution." 11 Ill.2d 161, 173.

The next attack upon the validity of the new statutes centers upon the fact that the base upon which the two taxes are computed is not identical. The Leasing Occupation Tax Act is based upon "gross receipts", which are defined to mean "the total rental price or leasing price. Except that amounts received by the lessor which are in excess of the fair market value, which shall not be less than cost to the lessor, of the tangible personal property on the date the lease was entered into shall not be considered `Gross Receipts' under this Act." (Ill. Rev. Stat. 1965, chap. 120, par. 453.102.) The Leasing Use Tax is based upon the "rental price" or "leasing price" which is defined as the consideration for renting or leasing tangible personal property. It does not contain a comparable limitation based upon the fair market value of the property leased. Ill. Rev. Stat. 1965, chap. 120, par. 453.122.

Concerning the fair market value exception the Rules and Regulations of the Department of Revenue provide: "This exception applies only to a single lease whose term is long enough to bring the ceiling on the tax base that is provided for into operation and cannot be invoked and applied to a series of leases of the same item of tangible personal property. The foregoing exemption from `Gross Receipts' applies for State and local leasing occupation tax purposes, but not for State leasing use tax purposes. Said exemption is not in the Leasing Use Tax Act and so has no effect (as far as State tax is concerned) except as to the form in which the tax is to be remitted by the lessor to the Department when rental receipts exceed the fair market value limitation referred to hereinabove. In other words, when the rental receipts exceed the fair market value of the leased property on the date when the lease was entered into, the lessor must continue to collect the leasing use tax from the lessee, but he will remit such tax to the Department as leasing use tax instead of as leasing occupation tax since he will then have no offsetting leasing occupation tax liability which would entitle him to retain the leasing use tax collected. The lessor is allowed to retain the leasing use tax collected only to the extent to which he has an offsetting leasing occupation tax liability with respect to the same rental receipts."

The plaintiffs and the amici curiae express somewhat divergent views as to the consequences that should flow from the discrepancy between the two statutes. The plaintiffs assert that the Leasing Use Tax Act is thereby rendered invalid because it imposes a "grossly unequal and discriminatory burden on lessee-users." It is their position that "[E]conomic equality as a policy in taxation is obviously frustrated when a compensating or complementary use tax imposes a greater burden than that which is imposed under the occupation tax it supposedly protects." They acknowledge that any rent collected by a lessor from a lessee after the fair market value exception comes into play would be required to be remitted to the Department of Revenue. They suggest that the fair value exception should be read into the leasing use tax, citing Union Portland Cement Co. v. State Tax Commission (1947) 110 Utah, 176 P.2d 879, and Ogden Union Railway and Depot Co. v. State Tax Commission (1965) 16 Utah 2d 255, 399 P.2d 145.

The amici curiae assert that the inclusion of the fair market value limitation in the Leasing Occupation Tax Act and the omission of such a limitation in the Leasing Use Tax Act creates discrimination and lack of uniformity which makes both acts unconstitutional. They concede the reasonableness of the Department's regulation which requires that the fair-market-value limitation be applied to each separate lease of the same item of property, but they contend the effect of this construction is to create a lack of uniformity between lessors, with long term lessors being favored and short term lessors being discriminated against. It is also their position that under the statutes and the regulations a lessor may retain any amounts collected as use tax from his lessee after the fair-market-value limitation has been reached. Like the plaintiffs, the amici suggest that the fairvalue exception should be read into the Leasing Use Tax Act.

We are unable to agree that the discrepancy between the two statutes creates any discrimination among lessees or among lessors. As to lessees, the leasing use tax, without the fair-market-value exception, falls equally upon all lessees. No lessee is treated differently from any other lessee. Indeed, to import a subclassification among lessees into the leasing use tax might create problems of potential discrimination which have been avoided by its omission. In the case of successive leases of the same item of tangible personal property, for example, the lessee under a lease executed after the lessor has already received an amount equal to the fair market value of the property ...


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