APPEAL from the Circuit Court of Winnebago County; the Hon.
ROBERT C. GILL, Judge, presiding.
MR. JUSTICE HALLETT DELIVERED THE OPINION OF THE COURT:
In January of 1968 the taxpayer paid an Illinois "use" tax of $34,150.77 on a jet aircraft purchased by it in 1967 but, in 1971, filed a claim for refund on the ground that the payment had been made under a mistake of law in that said tax constituted a constitutionally impermissible burden on interstate commerce. The Department of Revenue, after a hearing, denied the claim; the circuit court, on administrative review, reversed and ordered a refund; and the Department has appealed, contending that the application of the Illinois Use Tax Act to this transaction does not burden interstate commerce. We agree and reverse.
The taxpayer, a Delaware Corporation with its principal office in Rockford, Illinois, in 1967 purchased a jet plane from Beckett Aviation, Youngstown, Ohio, for $850,000. On December 5, the plane was flown by one of Beckett's crews to Rockford, where it was tested and accepted by the taxpayer. Later that day the plane was flown by one of the taxpayer's crews back to Youngstown, where the Beckett crew left the plane, and then back again to Rockford. The next day it was put into service, transporting the taxpayer's personnel, guests and customers, and occasionally freight, almost exclusively in long haul flights to points outside of Illinois. Sundstrand already had three similar aircraft and the new plane was based at Rockford and was registered with the Illinois Department of Aeronautics during 1968-1971.
The plane is never used for hire. According to the stipulation of the parties the plane was employed in 1440 flights between December 6, 1967, and May 31, 1971. Of these only 48 flights involved successive take-offs and landings at airports within Illinois. Of these 32 were part of interstate flights where the ultimate destination or original departure points were made outside the State of Illinois and an intermediate stop was made in Illinois to pick up or discharge passengers. The major maintenance and repair work on the airplane has been done in other States; there are no facilities in Illinois for performing major repairs on this type of aircraft. These facts do not, however, give the full picture of the contacts of the aircraft with the State of Illinois. The airplane was kept in Illinois between interstate flights for maintenance and to await the next flight. Indeed it appears from the flight records that in most instances the plane returned to Rockford either on the same day or on the next day after its departure from there. In fact in 11 of the months involved there were no flights which did not return to Rockford on the same or the following day. It is obvious therefore that the airplane not only was technically based in Illinois but spent nearly all of its ground time in this State.
No Ohio tax of any kind was paid on the purchase of the airplane. In the purchase order, Sundstrand indicated that the airplane was subject to Illinois tax. And in January, 1968, Sundstrand paid a use tax on the airplane in the amount of $35,689.27 to the State of Illinois. (As the result of an audit of the taxpayer's return, this amount was later reduced by $1,538.50.) On June 28, 1971, the taxpayer filed a claim for a refund, contending that the payment had been made under a mistake of law in that such a tax upon the purchase constituted under these facts an unconstitutional burden on interstate commerce. The Department of Revenue after a hearing denied the claim. However, the circuit court on administrative review agreed with the taxpayer's contention and reversed, ordering a refund.
• 1 The Illinois statute provides for a use tax to be imposed upon the privilege of using (that is, exercising any right over property incident to its ownership), in this State any article of tangible personal property purchased at retail. (Ill. Rev. Stat. 1973, ch. 120, par. 439.3.) The use tax is complementary to the retail sales tax and is not applicable to property already subjected to a retail sales tax whether here or in another State. Assessment of the use tax is integrated with the assessment of the retail sales tax on sales consummated within the State of Illinois, the amount of each tax being based upon the purchase price of the taxable property. The appellee's basic contention is that a levy of the tax on the plane in question would be an unconstitutional burden on interstate commerce.
It is clear that while the airplane was being delivered to Illinois, it is merchandise being transported in interstate commerce and therefore not taxable by the State of Illinois. It is also true that the ability to tax property being used in interstate commerce is limited. Nevertheless, we must start with the basic proposition that "`[i]t was not the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of the tax burden even though it increases the cost of doing the business.'" (General Motors Corp. v. Washington (1964), 377 U.S. 436, 439, 12 L.Ed.2d 430, 434, 84 S.Ct. 1564; Western Live Stock v. Bureau of Revenue (1938), 303 U.S. 250, 82 L.Ed. 823, 58 S.Ct. 546.) "`Interstate business must pay its way' (Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 254), provided it does not pay too much or too often." (Martin Ship Service Co. v. City of Los Angeles (1950), 34 Cal.2d 793, 796, 215 P.2d 24, 26.) "[T]he mere fact that property is used for interstate commerce or has come into an owner's possession as the result of interstate commerce does not diminish the protection which he may draw from a State to the upkeep of which he may be asked to bear his fair share. But a fair share precludes legislation obviously hostile or practically discriminatory toward interstate commerce." (General Trading Co. v. State Tax Com. (1944), 322 U.S. 335, 338, 88 L.Ed. 1309, 1312, 64 S.Ct. 1028; Scripto, Inc. v. Carson (1960), 362 U.S. 207, 212, 4 L.Ed. 660, 80 S.Ct. 619.) "A tax or other burden obviously does not discriminate against interstate commerce where `equality is its theme'." (Nelson v. Sears, Roebuck & Co. (1941), 312 U.S. 359, 364-65, 85 L.Ed. 888, 892, 61 S.Ct. 586.) And the "exemption of those engaged in interstate commerce from the taxation others bear should not be extended beyond the necessity of keeping that commerce free from interference." Coverdale v. Arkansas-Louisiana Pipe Line Co. (1938), 303 U.S. 604, 610, 82 L.Ed. 1043, 58 S.Ct. 736.
• 2 As stated in Henneford v. Silas Mason Co. (1937), 300 U.S. 577, 582-83, 81 L.Ed. 814, 818-19, 57 S.Ct. 524:
"Things acquired or transported in interstate commerce may be subjected to a property tax, non-discriminatory in its operation, when they have become part of the common mass of property within the state of destination. * * * For like reasons they may be subjected, when once they are at rest, to a non-discriminatory tax upon use or enjoyment. * * * The privilege of use is only one attribute, among many, of the bundle of privileges that make up property or ownership. * * * A state is at liberty, if it pleases, to tax them all collectively, or to separate the faggots and lay the charge distributively. * * * Calling the tax an excise when it is laid solely upon the use * * * does not make the power to impose it less, for anything the commerce clause has to say of its validity, than calling it a property tax and laying it on ownership. `A nondiscriminatory tax upon local sales * * * has never been regarded as imposing a direct burden upon interstate commerce and has no greater or different effect upon that commerce than a general property tax to which all those enjoying the protection of the State may be subjected.' Eastern Air Transport, Inc. v. South Carolina Tax Comm'n, 285 U.S. 147, 153. A tax upon the privilege of use or storage when the chattel used or stored has ceased to be in transit is now an impost so common that its validity has been withdrawn from the arena of debate."
• 3 A tax on property or upon a taxable event in the State, apart from operation, does not interfere with interstate commerce (Southern Pacific Co. v. Gallagher (1939), 306 U.S. 167, 83 L.Ed. 586, 59 S.Ct. 389), and "`[p]ractical continuity' does not always make an act a part of interstate commerce." (Southern Pacific Co. v. Gallagher (1939), 306 U.S. 167, 177, 83 L.Ed. 586, 593, 59 S.Ct. 389.) Thus what is important is whether there was a taxable moment in the State when the plane had reached the end of its interstate transportation and had not yet begun to be consumed in interstate operation. If so the tax on storage and use-retention and exercise of a right of ownership, respectively was effective. (Southern Pacific Co. v. Gallagher (1939), 306 U.S. 167, 83 L.Ed. 586, 59 S.Ct. 389.) Thus, in Southern Pacific and in its companion case Pacific Telephone & Telegraph Co. v. Gallagher (1939), 306 U.S. 182, 83 L.Ed. 595, 59 S.Ct. 396, the assessment of a use tax by California was upheld even though the equipment was installed immediately upon arrival in California. In our case the plane was delivered in Illinois on one day and was not put into service until the next; the taxable moment, applying the Southern Pacific Doctrine was clearly present.
Sundstrand in arguing that there never was any break in interstate commerce relies principally on W.R. Grace & Co. v. Comptroller (1969), 255 Md. 550, 258 A.2d 740, which held that two aircraft purchased by the taxpayer were not subject to Maryland's use tax. The facts in Grace are distinguishable from those in the present case. Neither airplane was delivered in Maryland and it would appear that the court held that both became instrumentalities of interstate commerce prior to their arrival in the taxing State. Furthermore, the Maryland court interpreted its use tax to be a tax upon the privilege of using, storing or consuming the article in question within the State (emphasis theirs) whereas our tax, like the California tax construed in Southern Pacific Co. v. Gallagher, is a tax upon the "exercise of a right of ownership." Moreover, the cases cited by the court in Grace do not support its position that the tax may only be imposed if the article is employed in a separate local activity. Southern Pacific Co. v. Gallagher allowed the imposition of a use tax although the specially-ordered material was installed for use in the transportation facilities immediately upon arrival in California. Helson v. Kentucky (1929), 279 U.S. 245, 73 L.Ed. 683, 49 S.Ct. 279, also relied upon by Grace, merely stands for the principle that a tax upon commerce or consumption in commerce is forbidden. (Southern Pacific Co. v. Gallagher (1939), 306 U.S. 167, 83 L.Ed. 586, 59 S.Ct. 389. See also United Air Lines, Inc. v. Mahin (1973), 410 U.S. 623, 35 L.Ed.2d 545, 93 S.Ct. 1186 (court upholding the application of the Illinois use tax to all fuel withdrawn from storage in Illinois for consumption although the consumption was in interstate flight).) In Helson the only contact had by the taxpayer with Kentucky, the taxing State, was the use of the ferry through its waters. The operator purchased and took delivery of fuel in Illinois and the office, place of business and situs of all the taxpayer's property were in Illinois. Thus, clearly the exercise of the right of ownership was in Illinois, not in Kentucky.
The last United States Supreme Court case relied upon by Grace, Michigan-Wisconsin Pipe Co. v. Calvert (1954), 347 U.S. 157, 98 L.Ed. 583, 74 S.Ct. 396, did not involve a use tax but a tax on gathering gasoline in the State and must be limited to the peculiar facts involved.
In recent years there has been a fall from Grace as two more recent cases which involved whether a use tax can validly be levied on an airplane used in interstate commerce have cited Grace and refused to follow it, instead upholding the tax. The first of these cases is Vector Co. v. Benson (Tenn. 1973), 491 S.W.2d 612. In that case the taxpayer was a Tennessee corporation, the planes were brought to Knoxville, Tennessee, the site of the taxpayer's home office and their operations thereafter were continually ordered and directed from there; the planes, when not in use, occupy tie-down space in a Knoxville airport or in airports where they came to rest after a journey; the aircraft have been used in both intrastate and interstate flights, most flights however being interstate; the aircraft were taxed as personalty in Knox County. The court in upholding the tax and distinguishing Grace, pointed out that the planes were Tennessee property.
In the second case *fn1, In re Woods Corp. (Okl. 1975), 531 P.2d 1381, the facts are nearly identical to ours. As in our case, the taxpayer was a Delaware corporation but had its principal office in the taxing State. It engages in business in several States and in foreign countries. In 1969 it purchased an aircraft from a California seller for about $430,000. It was delivered to Woods in Billings, Montana. It was then flown to Bethany, Oklahoma where additional equipment was installed. (While the initial delivery, unlike that in the present case was outside of the taxing State, the court held that there was no evidence to indicate that the flight from Montana to Oklahoma was for any other purpose than delivery of the aircraft to Wood's home office.) Subsequently, the airplane was based at Bethany and used to transport Wood's employees for business purposes. Excluding test flights, 97% of flying ...