APPEAL from the Circuit Court of Cook County; the Hon. THOMAS
C. DONOVAN, Judge, presiding.
MR. CHIEF JUSTICE UNDERWOOD DELIVERED THE OPINION OF THE COURT:
Rehearing denied January 27, 1972.
Plaintiff Spagat purchased wall-to-wall carpeting from plaintiff Polk Bros., Inc. at a price of $607.65 and was charged an additional $30.38 as tax pursuant to the Use Tax Act (Ill. Rev. Stat. 1967, ch. 120, pars. 439.2 et seq.) A charge of $120.33 for installation was not subjected to any tax.
Plaintiffs, each suing individually and on behalf of all persons similarly situated, sought a declaratory judgment that the sale of wall-to-wall carpeting does not constitute a sale at retail and is therefore properly taxable under the Service Use Tax Act (Ill. Rev. Stat. 1967, ch. 120, pars. 439.31 et seq.) rather than the Use Tax Act. The Retailers' Occupation Tax Act and the Use Tax Act are gross receipt taxes while the tax under the Service Occupation Tax Act and Service Use Tax Act is measured by the cost of goods to the "serviceman" or 50% of gross receipts if specific proof of cost is not supplied. Plaintiffs also allege that the imposition of a tax on the transaction in question as a sale at retail is a violation of both State and Federal guarantees of due process and equal protection.
The trial court held that Polk Bros., Inc. was a "serviceman" as to the transfer of wall-to-wall carpeting and thus subject only to the Service Occupation Tax Act. In accord, Spagat was held to be liable only under the Service Use Tax Act. Having reached this conclusion, the trial court did not find it necessary to rule on the constitutional questions presented.
The sole issue presented is whether the sale of wall-to-wall carpeting is a sale at retail of tangible personal property to which the service rendered is incidental, or a sale of service to which the transfer of tangible personal property is incidental. Plaintiffs and the trial court rely heavily on Oscar L. Paris Co. v. Lyons, 8 Ill.2d 590, in which this court concluded that since the sale of wall-to-wall carpeting was an occupation closely analogous to several occupations specifically exempted from the Illinois retailers' occupation tax by Departmental rules of long standing, the lower court determination that plaintiffs were engaged primarily in a service, not a selling, occupation should be affirmed. Defendants argue, however, that due to subsequent legislative and departmental enactments, Paris is no longer dispositive.
In 1961, section 1 of the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1961, ch. 120, par. 440) and section 2 of the complementary Use Tax Act (Ill. Rev. Stat. 1961, ch. 120, par. 439.2) were identically amended to broaden the tax base by providing in part:
"A person who holds himself out as being engaged (or who habitually engages) in selling tangible personal property at retail shall be deemed to be a person engaged in the business of selling tangible personal property at retail hereunder with respect to such sales (and not primarily in a service occupation) notwithstanding the fact that such person designs and produces such tangible personal property on special order for the purchaser and in such a way as to render the property of value only to such purchaser, if such tangible personal property so produced on special order serves substantially the same function as stock or standard items of tangible personal property that are sold at retail." Laws of 1961, p. 1742.
The Service Occupation Tax Act and the Service Use Tax Act were adopted at that same session and became effective on August 1, 1961, together with the Retailers' Occupation Tax and Use Tax amendments. Immediately thereafter, the Department of Revenue promulgated new rules, including Rule 20 which provides:
Persons who engage in the business of selling portieres, drapes, curtains, marquee curtains, slip covers, floor covering, tents, tarpaulins and other similar items incur retailers' occupation tax liability when selling such items (with or without installation by the seller) to purchasers for use or consumption and not for resale whether such items are sold as stock or standard items or whether the seller produces such items on special order for the purchaser.
The same is true when custom-made Venetian blinds, window shades, awnings, screen doors, window screens, storm doors and storm windows are sold at retail "over-the-counter" without installation by the seller as a construction contractor under paragraph 3 of Rule No. 6 of the retailers' occupation tax Rules and Regulations. This is true because such items, when produced on special order, serve substantially the same function as stock or standard items of tangible personal property which is sold at retail.
In computing retailers' occupation tax liability on the retail sale of custom-made items, no deduction may be taken for the cost of labor involved in producing the finished item for sale. This is true whether such production labor is included in a lump sum price with the tangible personal property or whether such production labor is priced separately from the tangible personal property. The thing that is being sold is the finished item (drapes, carpeting, etc.), and the cost of labor involved in ...