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Sta-ru Corp. v. Mahin

OPINION FILED OCTOBER 1, 1976.

STA-RU CORPORATION, APPELLEE,

v.

GEORGE E. MAHIN, DIRECTOR OF THE DEPARTMENT OF REVENUE, ET AL., APPELLANTS.



Appeal from the Appellate Court for the Fourth District; heard in that court on appeal from the Circuit Court of Macon County; the Hon. Albert G. Webber III, Judge, presiding.

MR. CHIEF JUSTICE WARD DELIVERED THE OPINION OF THE COURT:

The principal question on this appeal is whether sales to the plaintiff, the Sta-Ru Corporation, of paper and plastic containers used by it to contain foods and beverages consumed by the plaintiff's customers on its premises are "sale[s] at retail" and thus taxable under the Illinois Retailers' Occupation Tax Act (hereafter ROTA) (Ill. Rev. Stat. 1975, ch. 120, par. 440 et seq.) and the Illinois Use Tax Act (Ill. Rev. Stat. 1975, ch. 120, par. 439.1 et seq.).

The ROTA provides:

"`Sale at retail' means any transfer of the ownership of or title to tangible personal property to a purchaser, for the purpose of use or consumption, and not for the purpose of resale in any form as tangible personal property to the extent not first subjected to a use for which it was purchased, for a valuable consideration: * * *." (Ill. Rev. Stat. 1975, ch. 120, par. 440.)

The language of the Use Tax Act is identical, except for the words "or consumption," which are omitted. Ill. Rev. Stat. 1975, ch. 120, par. 439.2.

Sta-Ru challenges the validity of Rule 51 of the Department of Revenue's Rules and Regulations, which are promulgated under authority granted the Department by the ROTA (Ill. Rev. Stat. 1975, ch. 120, par. 451.) Rule 51 provides for the taxation of which the plaintiff complains. It provides:

"Sales of paper napkins, drinking straws, paper cups and paper plates to restaurants (including drive-in restaurants) and other vendors of food or beverages for use on the premises as serving equipment in lieu of more durable kinds of serving equipment (such as linen napkins, metal drinking straws, glass or porcelain cups and plates) are taxable retail sales. Sales of paper napkins, drinking straws, paper cups and paper plates to food and beverage vendors are nontaxable sales for resale if the items are resold for a direct and specific charge, or if the items are employed as containers for food or beverages contained therein and are transferred with the food or beverages to the purchaser thereof either by being delivered by the food or beverage vendor away from his premises to his customers or by being delivered on the premises of the food or beverage vendor to customers who take the packaged food or beverages away from such premises with them for consumption elsewhere (i.e., the so-called `carry-out trade'). * * *"

Sta-Ru operates six Dairy Queen-Brazier restaurants in Decatur which sell varieties of ice cream, custard, beverages, hamburgers and other foods. Sta-Ru brought an action in the circuit court of Macon County to enjoin the Department of Revenue from imposing and collecting the retailers' occupation and use taxes on Sta-Ru's purchases of disposable paper and plastic food and beverage containers. George E. Mahin, Director of the Department of Revenue, William J. Scott, the Attorney General, and Alan J. Dixon, Treasurer of Illinois, were named as defendants.

At the hearing on the complaint Sta-Ru's president, Stacy Smith, testified that its customers may consume their purchases either on or off the premises, and that all foods are sold in nonreusable plastic or paper containers whether they are consumed on or off Sta-Ru's premises. He considered that the ownership of the disposable containers was transferred to customers at the time of sales. There was no separate charge for the containers, but their cost was included in the price set for the food or beverage. The circuit court entered a decree declaring Rule 51 to be illegal and permanently enjoining the defendants from imposing or collecting taxes under Rule 51 on sales of containers to the plaintiff. The appellate court affirmed (34 Ill. App.3d 653), and we allowed the defendants' petition for leave to appeal.

The defendants first contend that the circuit court improperly assumed jurisdiction and granted the injunction, since the plaintiff had an adequate remedy at law by way of the administrative procedures in the ROTA (Ill. Rev. Stat. 1975, ch. 120, pars. 443 and 451) and the Administrative Review Act (Ill. Rev. Stat. 1975, ch. 110, par. 264 et seq.).

Generally a court will not assume equitable jurisdiction to grant relief if there is an adequate remedy at law. This court in Owens-Illinois Glass Co. v. McKibbin, 385 Ill. 245, while acknowledging this, held that the taxpayer there might seek an injunction, although it had not first proceeded under available provisions of the ROTA. The court stated:

"[T]he enjoining of the collection of illegal taxes constitutes an exception to the general rule that equity will not take jurisdiction of a cause when there is an adequate remedy at law. It is established that where a tax is unauthorized by law, or where it is levied upon property exempt from taxation, equity will take jurisdiction and enjoin the collection of the tax. This constitutes an independent ground of equitable relief, and in such cases it is not necessary that special circumstances exist to authorize issuing an injunction." 385 Ill. 245, 256.)

In its complaint Sta-Ru alleged the taxation in question to be illegal and unauthorized under the ROTA and therefore, Sta-Ru alleged, it came within the Owens exception that equity may take jurisdiction though there is an existing remedy at law.

In Illinois Bell Telephone Co. v. Allphin, 60 Ill.2d 350, 359, we held that where an administrative remedy was available under the Administrative Review Act the Owens exception would no longer be applicable. However, we did not hold in Illinois Bell that Owens was inapplicable there. Since Illinois Bell had relied on Owens we considered that fundamental fairness required that the merits of the case be decided on the basis of Owens. (60 Ill.2d 350, 359.) There is a like situation here. Sta-Ru, relying on the Owens exception, filed its complaint for an injunction in October of 1972, and the circuit court's decree was entered in April of 1974. Our opinion in Illinois Bell was not handed down until March of 1975. Thus, the ...


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