APPEAL from the Circuit Court of Madison County; the Hon. I.H.
STREEPER, Judge, presiding.
MR. CHIEF JUSTICE UNDERWOOD DELIVERED THE OPINION OF THE COURT:
This is a revenue case appealed directly to this court from the circuit court of Madison County which declared that three final tax assessments issued by the Department of Revenue were contrary to the manifest weight of the evidence. The question presented is whether the taxpayer's sales of sheet metal fabrications pursuant to special orders constituted "the business of selling tangible personal property at retail" within the meaning of the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1963, ch. 120, par. 440 et seq.), so as to sustain the tax liability represented by the Department's final assessments, or was a service occupation, exempt from the tax.
Four hearings were held before a Department of Revenue hearing officer, whose conclusion that the taxpayer's occupation was taxable to the extent of all sales in issue was adopted by the Department. A very large number of sales was involved, and it was agreed during the course of the hearings that evidence adduced as to four pages of sales involved, exhibits D, E, F and G, would be representative, pro rata, of a specified group of sales amounting to approximately $191,000. A similar agreement was reached as to an additional $80,000 in sales, with the selected invoices of exhibit K as the pro-rata basis.
The Department established its prima facie case at the hearings through presentation of amended tax returns prepared by it for the taxpayer, and presented no further evidence to controvert taxpayer's contention that the occupation involved was primarily a service occupation. Taxpayer offered extensive testimony and other evidence to support its qualification for exemption under the Department of Revenue's Rule No. 3, which in relevant portions provides:
"SELLERS OF MACHINERY, TOOLS AND THE LIKE
1. WHEN LIABLE FOR RETAILERS' OCCUPATION TAX
Sellers of machinery, tools, dies, jigs, patterns, gauges and the like to users or consumers incur retailers' occupation tax liability except as specified in paragraph 2 hereof. This is true whether the seller installs such tangible personal property for the purchaser or not.
The fact that it is not a stock item and is only produced after an order is received, or is an alteration of a standard item, is not sufficient to exempt it from retailers' occupation tax unless it meets all the exemption tests of paragraph 2 below.
Even if the sale would otherwise qualify for exemption under paragraph 2 of this rule, the sale is taxable if the designing of the property that is to be sold is done by the purchaser, or by someone other than the seller hired by the purchaser, but the sale is not taxable if the seller is responsible for furnishing the service of designing such property or for contributing substantially to the designing of such property.
"2. WHEN NOT LIABLE FOR RETAILERS' OCCUPATION TAX
The seller of a special machine, tool, die, jig, pattern, gauge or other similar item is engaged primarily in a service occupation, rather than in the business of selling tangible personal property, and so does not incur retailers' occupation tax liability with respect to the sale, if the following tests for exemption are all met in the transaction:
(a) The purchaser employs the seller primarily for his engineering or other scientific skill to design and produce the property on special order for the purchaser and to meet the particular needs of the purchaser;
(b) the property has use or value only for the specific purpose for which ...