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International-stanley Corp. v. Dept. of Revenue

OPINION FILED JULY 6, 1976.

INTERNATIONAL-STANLEY CORP., PLAINTIFF-APPELLEE, CROSS-APPELLANT,

v.

THE DEPARTMENT OF REVENUE ET AL., DEFENDANTS-APPELLANTS, CROSS-APPELLEES.



APPEAL from the Circuit Court of Cook County; the Hon. RAYMOND S. SARNOW, Judge, presiding.

MR. PRESIDING JUSTICE GOLDBERG DELIVERED THE OPINION OF THE COURT:

International-Stanley Corporation (plaintiff) paid certain assessments to the Illinois Department of Revenue (defendant), under protest. (Ill. Rev. Stat. 1975, ch. 127, par. 172.) The assessments related to the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1975, ch. 120, par. 440 et seq.) and the Use Tax Act (Ill. Rev. Stat. 1975, ch. 120, par. 439.1 et seq.). On plaintiff's complaint seeking declaratory and injunctional relief, the circuit court held that those transactions in which the tangible personal property allegedly sold by plaintiff was attached to and became part of rolling stock moving in interstate commerce were not subject to either tax; but, conversely, that those transactions in which tangible personal property was attached to and made a part of rolling stock not moving in interstate commerce were subject to both types of taxes. Defendant appeals and plaintiff cross-appeals.

The pertinent facts appear from a stipulation entered into by the parties before trial and from testimony at trial. Plaintiff is a corporation engaged in the sale of products to railroads for use in connection with shipment of grain and other loose, unpackaged commodities in bulk. The plaintiff's products are grain doors, hopper car covers and the tools and accessories used in connection therewith. Grain doors are corrugated paper panels which are nailed across the inside of railroad boxcar doorways or used to line weakened inside walls of railroad freight cars. Hopper car covers are used to cover open-top railroad cars. In addition, plaintiff sells tools and accessories used in connection with the installation of these grain doors and hopper car covers.

The plaintiff's railroad customers furnish the grain doors, hopper car covers and accessories to bulk shippers. This protects open-car shipments from the elements and prevents loose products, such as grain, from spilling out of freight cars; thus enabling the common carrier railroads to "furnish safe and adequate car service" in compliance with Federal law. 49 U.S.C. § 1(11) (1959).

Regarding shipment and delivery of the grain doors, the parties stipulated that after the doors are delivered to the railroad they are stored at various points along the railroad line pending redelivery to the shippers. These storage points are generally at or near the point where shipment of the bulk product commences. The grain doors are then delivered to shippers along with empty railroad freight cars.

The tariffs provide that the grain doors are to be installed by the shipper at its own expense. But, when the shipper so elects, the railroad will install the grain doors at the point of loading for a charge of $2.54 per car. It is also stipulated that the installation of the grain doors and accessories is "part of the process of loading the freight car." The doors and accessories are used only for one single continuous shipment and are not reused. Rates charged by the railroads for shipment are subject to prior approval by the Interstate Commerce Commission. Generally the rates, as approved, include a charge for the grain doors and accessories furnished to shippers by the railroads. In those few instances where a charge is not included in the rate, the railroad charges the shipper an additional fee for the grain doors and accessories. There was testimony at trial that this extra fee situation is limited to those instances where freight is carried "cross town" within the same terminal.

Plaintiff is a Nebraska corporation owned equally by International Paper Company, a New York corporation, and The Stanley Works, a Connecticut corporation, both of which are licensed to do business in Illinois. The grain doors are manufactured by International Paper at its plant in Illinois. The hopper car covers are manufactured at its plant in Arkansas. The accessories and tools are manufactured by Stanley Works at its Illinois plant. Upon completion of tools and accessories they are shipped to the International Paper plant in Illinois for storage pending further shipment. While thus in storage in Illinois, these items are included in plaintiff's inventory.

Plaintiff employs three salesmen and three engineers who work almost exclusively in Illinois. The salesmen generate and solicit orders. The engineers familiarize users of the grain doors with installation and investigate complaints about these items. The salesmen have no authority to accept orders from plaintiff's customer railroads. Instead, all customers prepare purchase orders which are sent directly to plaintiff's Nebraska office. Although plaintiff is under no duty to accept an order from a customer railroad, it has not rejected any such order within memory. The parties also stipulated that it is difficult to conceive of a situation in which an order would be rejected. Similarly, payment of plaintiff's invoices are made to plaintiff's Nebraska office where collection of accounts originates.

There are five distinct fact patterns regarding shipment and delivery of the grain doors and hopper car covers which are pertinent to this appeal:

1). The customer railroad takes delivery of the grain doors outside of Illinois and functional use of the doors commences outside of Illinois. *fn1

2). The railroad takes delivery of the grain doors in Illinois where functional use begins.

3). The railroad takes delivery of the grain doors in Illinois but transports them out of the State where functional use will then begin.

4). The railroad takes delivery of the doors outside of Illinois but brings them into Illinois where functional use begins.

5). Hopper car covers, manufactured by International paper in Arkansas, are delivered to railroads in Illinois to ...


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