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American Airlines v. Dept. of Revenue

OPINION FILED SEPTEMBER 17, 1974.

AMERICAN AIRLINES, INC., ET AL., APPELLANTS,

v.

THE DEPARTMENT OF REVENUE, APPELLEE.



Appeal from the Circuit Court of Cook County; the Hon. Raymond S. Sarnow, Judge, presiding.

MR. JUSTICE WARD DELIVERED THE OPINION OF THE COURT:

Rehearing denied November 26, 1974.

The principal question presented by this appeal is whether the sales by one of the plaintiffs, Hot Shoppes, Inc., which later became Marriott, Inc. (hereafter, Hot Shoppes), to American Airlines, Inc., the other plaintiff (American), of food that American served on its flights are "sales at retail" and thus taxable under the Illinois Retailers' Occupation Tax Act (the ROT) (Ill. Rev. Stat. 1963, ch. 120, par. 440 et seq.) and the Illinois Use Tax Act (Ill. Rev. Stat. 1963, ch. 120, par. 439 et seq.).

Section 2 (par. 441) of the ROT Act states in part: "A tax is imposed upon persons engaged in the business of selling tangible personal property at retail * * *." Section 1 defines "sale at retail" as: "`Sale at retail' means any transfer of the ownership of or title to tangible personal property to a purchaser, for use or consumption and not for resale in any form as tangible personal property, for a valuable consideration." Section 3 (par. 439.3) of the Illinois Use Tax Act declares: "A tax is imposed upon the privilege of using in this State tangible personal property purchased at retail * * * from a retailer." Another part of said section 3 (par. (d)) provides that if the sale of personal property was not taxable under the ROT Act the use tax shall not apply to the use of the tangible property sold.

The plaintiffs' position is that the sales by Hot Shoppes to American were not sales at retail under section 1 of the ROT Act. They say that they were not transfers of the food for use or consumption by American, but rather they were for resale to American's passengers for a "valuable consideration."

Hot Shoppes, which was engaged in the business of catering food to motels and airlines, had a contract in 1963 with American to supply the airline with meals and non-alcoholic beverages for service to its passengers and crew members. The prices of the meals sold by Hot Shoppes depended on what was to be served. For example, breakfasts cost as little as $.50, while dinners cost approximately $3.75. The price was also affected by the class of service given the passenger. To illustrate, on some dinner flights passengers traveling first class were served filet mignon and coach passengers were served pot roast.

Prior to November 1963, Rule 7(1) of the rules of the defendant, the Department of Revenue, provided:

"1. Vendors of Meals — When Liable for Tax. Persons engaged in the business of selling meals to purchasers for use or consumption incur retailers' occupation tax liability on their receipts from such sales. It is immaterial that no profit is realized from the operation of any such business if the seller is engaged in a commercial enterprise, or if the seller engages in activities which make him taxable under the terms of paragraph 1 of Rule No. 38 of the retailers' occupation tax Rules and Regulations. It is also immaterial that the class of purchasers may be a limited one, such as the employees of a particular employer who operates a cafeteria or other dining facilities for the benefit of his employees.

The foregoing rule includes, but is not limited to, the following types of vendors:

(a) hotels;

(b) restaurants;

(c) caterers;

(d) boarding ...


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