Appeal from the Appellate Court for the Third District; heard
in that court on appeal from the Circuit Court of Peoria County,
the Hon. Charles W. Iben, Judge, presiding.
MR. JUSTICE KLUCZYNSKI DELIVERED THE OPINION OF THE COURT:
This appeal involves the review of an administrative decision by the defendant, the Department of Revenue (Department), that the plaintiff, Du-Mont Ventilating Company, must pay taxes under 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 the cost of materials used in the construction of the intake side of a push-pull air system installed in the Caterpillar Tractor Company's Mapleton foundry. The defendant issued a final assessment for taxes, penalties and interest in the amount of $27,457.90. On appeal, the circuit court of Peoria County affirmed. The appellate court reversed, with one justice dissenting (52 Ill. App.3d 59). We allowed the Department's petition for leave to appeal under our Rule 315 (65 Ill.2d R. 315).
The purchase, employment and transfer of pollution control facilities is not a purchase, use or sale of tangible personal property under the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1975, ch. 120, par. 440a) and the Use Tax Act (Ill. Rev. Stat. 1975, ch. 120, par. 439.2a). Thus, the issue is whether the air system involved here is a pollution control facility for purposes of the statutory tax exemption. More specifically, the issue is whether the intake side of a system designed to clean inside air and collect the dust removed from a foundry is a pollution control facility.
The applicable statutory provisions define a pollution control facility as:
"* * * any system, method, construction, device or appliance appurtenant thereto sold or used or intended for the primary purpose of eliminating, preventing, or reducing air and water pollution as the term `air pollution' or `water pollution' is defined in the `Environmental Protection Act,' * * * or for the primary purpose of treating, pretreating, modifying or disposing of any potential solid, liquid or gaseous pollutant which if released without such treatment, pretreatment, modification or disposal might be harmful, detrimental or offensive to human, plant or animal life, or to property." (Emphasis added.) (Ill. Rev. Stat. 1975, ch. 120, pars. 439.2a, 440a.)
The Environmental Protection Act defines air pollution as:
"* * * the presence in the atmosphere of one or more contaminants in sufficient quantities and of such characteristics and duration as to be injurious to human, plant or animal life, to health, or to property, or to unreasonably interfere with the enjoyment of life or property." Ill. Rev. Stat. 1975, ch. 111 1/2, par. 1003(b).
The air system installed was a push-pull ventilation system. On the intake side, air is drawn through louvres in the wall of a penthouse which sits on the roof of a work area and encloses a large fan housing, motor, and belt guard. The fan pushes the air through ducts and out into the work area through an outlet in a register which directs the air towards the dust collection system 30 feet away. On the exhaust side, polluted air is pulled through hoods and then ducts to a point outside the building. The ducts carry the exhaust 45 feet into the air and then turn back into the building and terminate at the fan on the dust collector. The fan pulls the air through filter media. After leaving the filter media, the then clean air goes through the fan and discharges into the outside atmosphere.
At issue here is the disallowance of the exemption on the cost of materials used in the construction of the intake side only. Du-Mont installed part of the exhaust side and put together a dust collector furnished by Caterpillar and apparently was not taxed on materials used therein.
The undisputed testimony of witnesses for both the Department and Du-Mont was that the push-pull ventilation system could not work without both an intake and exhaust side. If the exhaust section fails to operate, the building becomes pressurized, and the intake side cannot push more air into the building. If the intake side is not working, the operation of the exhaust side largely ceases for lack of air to pull out; practically no pollutants would be exhausted. If the intake side alone is operating, it would merely blow the pollutants around inside the building. In addition, the air pushed through the registers on the intake side reduces the amount of force necessary to pull the air out on the exhaust side.
In sum, the evidence was that the intake section was part of an overall or single system for the removal of pollutants from the foundry in such a manner that they were filtered through a dust collector. The Department's hearing disposition concluded:
"* * * [T]he evidence does show that such items are related to and connected with the Mapleton pollution control facilities, and that such facilities would not properly operate or fulfill their purpose or purposes of preventing pollution in the foundry * * * without the in-take ventilating system."
The hearing disposition concluded, however, by interpreting rule 6 of article II of the Retailers' Occupation Tax Act (promulgated by the Department in 1969 pursuant to section 12 of the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1969, ch. 120, par. 451)) to bar the exemption because the intake side was not a physical component of the pollution control facilities at the plant. That rule provides that:
"This exemption includes not only the pollution control equipment itself, but also replacement parts therefor, but does not extend to chemicals used in any such equipment, to fuel used in operating any such equipment nor to any other tangible personal property which may be used in some way in connection with such equipment, but ...