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Deere & Co. v. Allphin

OPINION FILED JUNE 14, 1977.

DEERE & COMPANY ET AL., PLAINTIFFS-APPELLANTS,

v.

ROBERT H. ALLPHIN, DIRECTOR OF REVENUE OF THE STATE OF ILLINOIS, ET AL., DEFENDANTS-APPELLEES.



APPEAL from the Circuit Court of Peoria County; the Hon. CHARLES IBEN, Judge, presiding.

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

Plaintiffs, Deere and Company and Edward Hine Company, brought this declaratory judgment action against the Director of Revenue, the State Treasurer, and the Attorney General to determine plaintiffs' liability for service use taxes and municipal service occupation taxes with respect to certain advertising brochures. Deere purchased brochures and other printed material from Hine, a commercial printer located in Peoria, Illinois. Hine, at the request of Deere, delivered the material to Deere's agent, Desaulniers and Company, in Moline where the printed materials were placed in envelopes, addressed, sorted and mailed to dealers and customers of Deere residing both within and without the State of Illinois. Hine collected the service use tax and the municipal service occupation tax from Deere, and paid that portion of the taxes attributable to out-of-State mailings to the Department of Revenue under protest. Deere and Hine then filed this action to recover the amounts paid under protest.

The case was submitted to the trial court on motions for summary judgment filed by both plaintiffs and defendants, and judgment was entered for defendants, thereby imposing tax liability on plaintiffs. On appeal, plaintiffs contend, first that the printed materials are not subject to either the use tax or the service occupation tax, and, second, if the tax statutes are construed to impose these taxes, then the taxes are an unconstitutional burden on interstate commerce. We find neither contention persuasive.

The Service Use Tax Act (Ill. Rev. Stat. 1975, ch. 120, par. 439.33) provides:

"A tax is imposed upon the privilege of using in this State real or tangible personal property acquired as an incident to the purchase of a service from a serviceman."

• 1 There is no question but that printed materials are tangible personal property acquired as an incident to the purchase of a service from a serviceman within the meaning of the statute.

In section 2 (par. 439.32) of the Act, "use" is defined as "the exercise by any person of any right or power over tangible personal property incident to the ownership of that property * * *."

• 2 The Service Use Tax Act (Ill. Rev. Stat. 1975, ch. 120, par. 439.31 et seq.) and the Service Occupation Tax Act (Ill. Rev. Stat. 1975, ch. 120, par. 439.101) are intended to supplement the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1975, ch. 120, par. 440) and to prevent tax avoidance by business primarily engaged in furnishing services at retail. Section 3 of the Service Occupation Tax Act (Ill. Rev. Stat. 1975, ch. 120, par. 439103) provides:

"However, such tax is not imposed upon the privilege of engaging in any business in interstate commerce or otherwise, which business may not, under the Constitution and statutes of the United States, be made the subject of taxation by this State."

Plaintiffs attempt to present two separate issues: first, whether Deere used the printed matter in Illinois so as to subject it to a use tax, and, second, whether imposition of a use tax would violate the prohibition of the commerce clause in the United States Constitution (U.S. Const., art. I, § 9). However, we view one question as determinative: Did Deere exercise in Illinois any right of ownership over the printed materials, which would amount to a use taxable by the State, before the materials entered the stream of interstate commerce?

The commerce clause of the United States Constitution was explained in Southern Pacific Co. v. Gallagher (1939), 306 U.S. 167, 177-78, 83 L.Ed. 586, 593, 59 S.Ct. 389, as follows:

"The prohibited burden upon commerce between the states is created by state interference with that commerce, a matter distinct from the expense of doing business. A discrimination against it, or a tax on its operations as such, is an interference. A tax on property or upon a taxable event in the state, apart from operation, does not interfere. This is a practical adjustment of the right of the state to revenue from the instrumentalities of commerce and the obligation of the state to leave the regulation of interstate and foreign commerce to the Congress." Also, Sundstrand Corp. v. Department of Revenue (2d Dist. 1975), 34 Ill. App.3d 694, 339 N.E.2d 351.

In cases such as this, when property is intended for interstate movement, the crucial question is the exact point at which the goods enter the stream of interstate commerce. The general rule originated in the days when lumber companies floated logs from northern forests downriver to sawmills located in other States. In Coe v. Errol (1886), 116 U.S. 517, 528, 29 L.Ed. 715, 719, 6 S.Ct. 475, the Supreme Court ruled that the movement of goods in interstate commerce does not begin until the goods have been shipped or otherwise begun to move from one state to another. The court said:

"The carrying of them in carts or other vehicles or even floating them to the depot where the journey is preliminary work, performed for the purpose of putting the property in a state of preparation and readiness for transportation. Until actually launched on its way to another State, or committed to a common ...


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