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Quincy Trading Post v. Dept. of Revenue

JULY 5, 1973.

QUINCY TRADING POST, INC., PLAINTIFF-APPELLANT,

v.

THE DEPARTMENT OF REVENUE, DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of Adams County; the Hon. RICHARD F. SCHOLZ, JR., Judge, presiding.

MR. JUSTICE SIMKINS DELIVERED THE OPINION OF THE COURT:

The plaintiff, an automobile dealer, seeks judicial review of an administrative determination by the Department of Revenue which resulted in the plaintiff receiving a notice of tax deficiency due under the Retailer's Occupation Tax.

On June 29, 1970, the plaintiff received a notice of tax liability from the Department of Revenue alleging a total liability of $32,109.83, including penalty and interest, as well as the tax liability. The plaintiff filed a protest with the Department of Revenue requesting a hearing on his alleged tax liability, and such a hearing was held before a hearing officer on October 15, 1970. At that hearing, the plaintiff was represented by counsel. The plaintiff's president was present but did not testify. The plaintiff contended that the Department's assessment was erroneous because some of the sales included by the Department in determining its adjusted assessment were not subject to the tax because they were sales for resale, and the other items were interstate sales exempt from the tax. The plaintiff-taxpayer introduced no evidence.

The Department of Revenue introduced sixteen exhibits, thirteen of which were notices and other writings dealing with the setting of the hearing and the adjusted assessment. Three exhibits and the testimony of two Department of Revenue auditors constitute the substance of the prima facie case.

One auditor testified for the Department of Revenue as follows: He was assigned by the Department to examine the books of the plaintiff covering the period of January 1967 through June 1969. Forms 556 were included in the taxpayer's records for 312 of the 317 transactions involving out-of-state sales. The completion of such forms is the proper procedure for showing a transaction as interstate and a valid 556 form is acceptable evidence of an exempt sale. He found some 556 forms blank, except for the purchaser's signature, he pursued the inquiry and was told by the bookkeeper, to whom the plaintiff had referred him, that the forms were signed in blank at the time of the sale, and then filled in by the bookkeeper, using the purchaser's residence address as the delivery point. The auditor said that when he requested some proof of the expenses of out-of-state delivery; the bookkeeper said that there was none, and that the used car manager told him that the buyers took delivery of the cars at the taxpayer's place of business in Quincy.

The hearing officer found that the defendant's exhibits established a prima facie case, and that the taxpayer's contention that the sales giving rise to the disputed tax were automobiles for resale and automobiles sold out of state did not overcome the prima facie case. It was held that thirty of the thirty-six certificates for resale submitted by the plaintiff to establish the exempt status of some other transactions were insufficient to support the exemption because dated after the period of the audit. As to the alleged sales made out of state, the hearing officer found that the auditor's testimony concerning the questionable reliability of the 556 forms was not hearsay and was admissible, but that the defendant would have established a prima facie case without it. The hearing officer added that the auditor's testimony supported the defendant's prima facie case which clearly showed the plaintiff's sales did not qualify as interstate exempt from the retailer's occupation tax. The hearing officer then upheld the Department of Revenue's findings and issued a final assessment of $33,345.55, including interest and penalties through November 30, 1970.

Plaintiff filed a complaint for administrative review by the circuit court on December 28, 1970. On June 1, 1971, the circuit court affirmed the final assessment, holding that a court cannot review or reweigh the evidence, but rather only determine whether the decision of the administrative agency was contrary to the manifest weight of the evidence. The court found that the plaintiff did not overcome the Department of Revenue's prima facie case, but held that if the plaintiff's contention about the hearsay nature of the testimony of the auditor as to the statement of plaintiff's employees was sustained, and that evidence stricken, then plaintiff's contention that he had shifted the burden back to the defendant would have merit. However, the court held that since the plaintiff was a corporation, the three persons making the statements were employees speaking in the course of their employment and their statements were admissible as an admission of an opponent party, an exception to the hearsay rule. The court stated that the plaintiff had ample opportunity to overcome the defendant's prima facie case by introducing evidence, but chose not to do so.

• 1, 2 The Retailer's Occupation Tax Act (Ill. Rev. Stat., ch. 120, par. 443) provides that:

"As soon as practicable after any return is filed, the Department shall examine such return and shall, if necessary, correct such return according to its best judgment and information, which return so corrected by the Department shall be prima facie correct and shall be prima facie evidence of the correctness of the amount of tax due, as shown therein."

The plaintiff-taxpayer here first asserts that the Department of Revenue did not present a prima facie case sufficient to legally support the total liability alleged. However, there is a statutory burden upon the taxpayer to establish by competent evidence that the corrected return of the Department of Revenue is not correct, and until he provides such proof, the corrected returns are presumptively correct. (Copilevitz v. Department of Revenue, 41 Ill.2d 154, 242 N.E.2d 205.) The plaintiff recognizes that presumption, but still states that the Department of Revenue has a burden to show that the taxpayer made sales that are taxable, and that they were not properly reported. The plaintiff argues that the defendant's exhibits are only copies of notices and conclusions that more tax is owed. In Copilevitz, the taxpayer did not dispute that during the period of time in question, he had receipts from sales exceeding $168,000, which he did not report to the Department. Here the plaintiff-taxpayer does not deny selling the vehicles in question, but asserts that they were exempt because sold to non-Illinois residents. Forms 556 were in existence for almost all of the sales, but the auditor concluded that they were deficient and not corroborated, and assessed the higher amount on the grounds that there was no proof the cars were delivered out of state to the non-resident purchasers. Section 441 of chapter 120 imposes a tax on all tangible personal properties sold and delivered in Illinois. The point of delivery controls, so even if the buyer is a non-citizen of Illinois; if he makes the purchase and takes delivery in Illinois, the tax is due. Superior Coal Co. v. Department of Finance, 377 Ill. 282, 36 N.E.2d 354.

• 3-5 A proposed assessment of the occupation tax, being a correction of the return filed by the taxpayer, is prima facie correct, but where the only competent evidence at the hearing is the taxpayer's books and his own testimony, which is not so inconsistent or improbable itself as to be unworthy of belief, the prima facie case is overcome, and the burden shifts to the Department of Revenue to prove its case by competent evidence. (J.H. Walters & Company v. Department of Revenue, 44 Ill.2d 95, 254 N.E.2d 485.) Plaintiff seems to feel that since the Form 556 is presently the only form required to report claims of tax exempt sales and that by showing the forms were completed for at least most of the sales in issue, he has automatically rebutted the Department's prima facie case. However, section 446 of the Retailer's Occupation Tax Act says:

"It shall be presumed that all sales of tangible personal property are subject to tax under this Act until the contrary is established, and the burden of proving that a transaction is not taxable hereunder shall be upon the person who would be required to remit the tax to the Department if such transaction is taxable. * * *"

As to what is inherently believable, the plaintiff-automobile dealer asserts that it delivered individual used cars to private buyers in states as far away as Washington and Florida, and that would not seem to be the general practice. The plaintiff offers no evidence in support of that contention, not even the 556 forms which it depends upon to establish the tax exemption.

As to overcoming the defendant's prima facie case, in Du Page Liquor Store, Inc., v. McKibbin, 383 Ill. 276, 48 N.E.2d 926, the taxpayer's president personally testified and introduced a daily schedule of alleged sales as recorded in the ledger sheets into evidence to rebut the defendant's corrected returns. The supreme court there said ...


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