APPEAL from the Circuit Court of Cook County; the Hon. EARL
ARKISS, Judge, presiding.
MR. JUSTICE LORENZ DELIVERED THE OPINION OF THE COURT:
The Department of Revenue (Department) appeals from a judgment in an administrative review action which reversed its order assessing plaintiff $14,481.64 for unpaid use taxes plus interest and penalties. It contends (1) plaintiff's employment of materials in the construction of tanks was a taxable use, and (2) the application of the Use Tax Act (Ill. Rev. Stat. 1975, ch. 120, par. 439.1-439.22) to plaintiff's activities does not violate the interstate commerce clause of the United States Constitution.
Following its audit and initial assessment, the Department held a hearing, at plaintiff's request, at which the following pertinent evidence was adduced.
Clarence Goodwin for the Department
He audited plaintiff's books for the period from July 1969 through August 1972.
Plaintiff was involved in the sale of engineering, design, and architectural skills to be applied to the fabrication of metal storage tanks. The tanks were generally produced according to the requirements, needs and specifications of plaintiff's customers. Plaintiff's tanks were not inventoried nor stocked and they could not be purchased at retail from any catalog. Materials to be used in constructing a tank were ordered and received for a specific job. Plaintiff never retained the materials other than for the purpose of applying its engineering and fabricating skills to them. The tanks were assembled at the jobsite.
He considered plaintiff to be a construction contractor who was not subject to the service occupation tax. Consequently, plaintiff could be taxed on the materials he used in construction.
He separated plaintiff's material purchases into five different categories, including one category for fixed assets and one category for consumable supplies. He determined that plaintiff owed unpaid retailers' occupation taxes. However, upon review by the Department, the final assessment was considered to be for use taxes.
J.S. Van Alsburg on plaintiff's behalf
Plaintiff is a fabricator and erector of metal storage tanks for government and industry. It receives inquiries on the cost of constructing a tank of a specified capacity for a specific service or product. It then designs, constructs and tests the tank. Tanks cannot be ordered "off the shelf," by catalog, or in a kit. He admitted that the materials represented by the audit categories fixed assets and consumable supplies were never transferred to plaintiff's customers. In 1968, a representative of the Department showed him how to report plaintiff's tax obligation on a use tax form.
Following this hearing and based upon the recommendation of the hearing referee, the Department issued a final assessment of $14,481 for deficient use taxes for the period beginning July 1969 through August 1972, plus $3,588.48 interest and a $724.08 penalty amounting to a total liability of $18,794.20.
Plaintiff filed its complaint for administrative review praying that the Department's decision be reversed as to the applicability of the use tax to plaintiff's total purchase of fabrication materials, or alternatively, inapplicable to those purchased materials which were subsequently incorporated into a product sold to non-Illinois purchasers.
After reviewing the record and supporting memoranda of law by both parties, the trial court reversed the Department's determination and entered judgment in plaintiff's favor and against defendant. In its "Memorandum of Decision" the trial court noted that plaintiff did not dispute the imposition of the tax on those ...