Appeal from the Circuit Court of Cook County; the Hon. NATHAN
J. KAPLAN, Judge, presiding. Reversed and remanded with
MR. JUSTICE STAMOS DELIVERED THE OPINION OF THE COURT.
On May 30, 1962, William O'Donell, Inc. and the Bowman Dairy Company *fn1 (hereinafter referred to as defendant) entered into an agreement whereby plaintiff would lease eight stainless steel tank trailers and eight tractor-trucks to defendant for the period of five years for a rental price of $6,000 per month.
Plaintiff brought suit against defendant to obtain reimbursement for the State of Illinois use tax paid with respect to the aforementioned equipment. Plaintiff claimed a right to such reimbursement from defendant by virtue of the provisions of the lease agreement.
This appeal is taken from an order granting plaintiff's motion for summary judgment in the amount of $6,799.42 and costs. The issue presented for review is whether the tax for which plaintiff seeks reimbursement is within the lease provision relied upon by plaintiff.
The lease in general reflected the rental, provisions regarding maintenance, repairs, insurance, employment of drivers, a provision allowing defendant to terminate the lease on 30 days' notice and related matters not pertinent to the issue before this court.
The provision of the lease which is the crux of this appeal is paragraph three (3) which provides as follows:
"3. Lessee (defendant) shall pay all license fees, taxes, fuel, oil and greasing expenses arising out of its use or operation of the equipment."
The parties embarked upon their respective obligations under the lease for a period of two and one-half years until January 1, 1965, at which time plaintiff terminated the lease at the request of defendant.
Beginning in March of 1965, correspondence was exchanged between plaintiff and the Department of Revenue, State of Illinois, concerning the liability of plaintiff to pay the Illinois use tax on all of the leased equipment which plaintiff had purchased outside the State of Illinois. Plaintiff on June 23, 1965, paid the sum of $6,181.29 plus the sum of $618.13 as penalty for the use tax to the Department of Revenue, State of Illinois.
On several occasions after termination of the lease and before plaintiff made this payment, plaintiff notified defendant that under the provision of their lease agreement, specifically paragraph three (3), defendant was obliged to make the payment or in the alternative to reimburse plaintiff if plaintiff made the payment. Defendant refused to make any payment and the present litigation ensued.
Defendant in its Answer to plaintiff's Complaint denied that its possession of the equipment under the lease agreement constituted a taxable event or transaction for which it could be adjudged liable for the payment or reimbursement of any use tax, or that paragraph three (3) of the lease imposed an obligation upon defendant to pay the use tax.
Defendant argues that the use tax for which plaintiff seeks reimbursement is not a tax ". . . arising out of its (defendant's) use or operation of the equipment" and if plaintiff had purchased the equipment in Illinois a sales tax would have been imposed on plaintiff at the time the purchase was made.
The purpose of the use tax is to prevent the evasion of the Retailers' Occupation Tax when purchases of tangible personal property used in Illinois are made outside the State and to protect the local retail merchant against diversion of his business to out-of-state sellers. Turner v. Wright, 11 Ill.2d 161, 142 N.E.2d 84 (1957).
The issue before this court is whether the use tax is a tax ". . . arising out of its (defendant's) use or operation ...