APPEAL from the Circuit Court of Cook County; the Hon. THOMAS
C. DONOVAN, Judge, presiding.
MR. JUSTICE MEJDA DELIVERED THE OPINION OF THE COURT:
An action for declaratory judgment, accounting and injunctive relief was commenced in the circuit court of Cook County by plaintiff, individually as a keyholder, and on behalf of all keyholders similarly situated, against Playboy Clubs International, Inc., and the Playboy Club of Chicago, Inc. (hereinafter referred to as Playboy defendants). George E. Mahin, Director of Revenue, was named as a necessary defendant. The complaint challenged the validity of the collection and payment of the Illinois Use Tax and the Retailers' Occupation Tax by the Playboy defendants to the State of Illinois on a separate 15% mandatory service charge which was added to customers' bills for the purchase and consumption of food and beverages served in the Playboy Clubs. Playboy defendants filed answers and counterclaimed against the defendant Director of the Department of Revenue of Illinois. Plaintiff and the Playboy defendants each filed motions for summary judgment. The circuit court granted the motion of Playboy defendants and denied the motion of plaintiff, and held that the service charge was a part of the total selling price of food and beverages and was therefore subject to tax.
Plaintiff's appeal from the above order of the circuit court was originally filed in the Appellate Court, First District. On April 20, 1971, the appeal was transferred to the Supreme Court of Illinois upon motion of defendant Mahin for the reason that this was a case involving "revenue" within the meaning of the then Supreme Court Rule 302(a). The appeal was subsequently transferred back to this court for disposition.
Although several sub-issues are raised on appeal, the central issue presented for review is whether the 15% mandatory service charge separately stated on a bill for food and beverages is properly taxable under either the Illinois Use Tax or the Retailers' Occupation Tax Act.
The pertinent facts are not in dispute. Defendant Chicago Playboy Club, Inc., an Illinois corporation, is a restaurant and night club operated under a franchise from defendant Playboy Clubs International, Inc., a Delaware corporation. George E. Mahin, defendant, is the Director of the Department of Revenue of the State of Illinois.
Plaintiff and the class of keyholders he represents purchased tangible personal property (primarily food and beverages) at retail from the Playboy defendants from time to time since May 1, 1967. Since that date to the time of filing the instant complaint, a 15% mandatory service charge was separately stated on and added to all checks or bills of patrons who purchased food and beverages for on-the-premises consumption. The tax paid by Playboy defendants to the State of Illinois was computed upon the "total bill" which was comprised of the sub-total charges for food and drink, together with a separately stated "service charge 15% includes gratuities." Food and beverages are served to the patrons exclusively by female employees called "bunnies." All sums collected as and for Illinois State tax on these bills are remitted to the Department of Revenue less, when applicable, the 2% discount permitted by law.
Tipping is not prohibited by defendant Chicago Playboy Club. Prior to June 16, 1969, Chicago Playboy paid to each "bunny" as compensation, in addition to hourly wages, only a portion of the 15% service charge paid by her customers upon weekly gross sales in excess of $550. After June 16, 1969, Chicago Playboy paid compensation, in addition to an hourly wage, equal to at least the 15% service charges on her checks.
On March 2, 1967, in response to an inquiry by defendant Chicago Playboy, the Illinois Department of Revenue issued a letter that "* * * the so-called service charge will be considered to constitute an increase in the taxable amount of the bill" if all of the following conditions are not met: "(1) Tipping is in fact prohibited; (2) the service charge is in fact stated separately on each bill; and (3) all of the proceeds of the service charge are in fact turned over to the employees who would normally have received tips had the service charge policy not been introduced." On October 1, 1969, counsel for defendant Chicago Playboy received a letter from the Department of Revenue advising that the requirement that tipping be prohibited had been deleted as a requirement from the Department's letter of March 2, 1967.
Prior to the trial, defendant Director answered certain interrogatories propounded to him by defendant Chicago Playboy as follows:
"The 15% service charge will not be subject to the tax if all of the following conditions are met: (1) the service charge is in fact stated separately on each bill; and (2) all of the proceeds of the service charge are in fact turned over to the employees who would normally have received tips had the service charge policy not been introduced.
If both of the above conditions are not met, then the so-called service charge will be considered to constitute an increase in the taxable amount of the bill."
The Illinois Retailers' Occupation Tax Act (Ill. Rev. Stat. 1971, ch. 120, par. 440 et seq.) and the Use Tax Act (Ill. Rev. Stat. 1971, ch. 120, par. 439 et seq.) are basically similar in their provisions with the exception that the former provides for the imposition of a tax upon persons engaged in the business of selling tangible personal property at retail (a tax upon the occupation of selling) and the latter imposes a tax upon the privilege of using in Illinois tangible personal property purchased at retail from a retailer (a tax upon the use of property). The tax is imposed at a fixed rate of either the gross receipts from sales of tangible personal property (Retailers' Occupation Tax Act) or the selling price of such property (Use Tax Act). Under the former Act "gross receipts" means the total selling price of the tangible personal property sold. Under both the Retailers' Occupation Tax Act and the Use Tax Act, the "selling price" or the amount of sale means "the consideration for a sale valued in money * * * without any deduction on account of the cost of the property sold, the cost of materials used, labor or service cost or any other expense whatsoever * * *." (Ill. Rev. Stat. 1971, ch. 120, pars. 440 and 439.2.)
• 1 No tax is imposed under either of the above Acts upon the business of providing entertainment. Massell v. Daley (1949), 404 Ill. 479, 89 N.E.2d 361.
Plaintiff maintains that the service charge is not a part of the selling price as defined above because (1) the service charge, as stated separately on each bill, constitutes a gratuity; or (2) the service charge as ...