APPEAL from the Circuit Court of Champaign County; the Hon.
ROBERT J. STEIGMANN, Judge, presiding.
MR. JUSTICE MILLS DELIVERED THE OPINION OF THE COURT:
But more particularly was the supermarket gimmick used here taxable under the provisions of the Retailers' Occupation Tax Act?
The trial court said it was.
The J.M. Jones Company sought to recover certain taxes paid but the Department of Revenue denied Jones' claim for credit. A complaint for administrative review was filed by Jones in the circuit court and the Department's ruling was affirmed. Hence, this appeal.
Jones operates a wholesale grocery enterprise which services stores in central Illinois, Iowa, and western Indiana. In addition to its normal wholesale operation, Jones sold a supermarket bingo-type game called Gamerama to its customers. This appeal challenges the application of the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1977, ch. 120, pars. 440-453) to the sale of these games.
Although the facts are not in dispute, a somewhat detailed narrative of them is necessary to appreciate Jones' argument.
Two separate games are involved in this case but they were both played and administered in identical fashion. Jones purchased the games from Dansico Associates of Southfield, Michigan, at a price of $45.75 per case of tickets. All applicable Retailers' Occupation taxes were paid by Jones on this transaction with Dansico. Jones then distributed the tickets and game cards to the participating supermarkets and billed an amount of $115 for each case of tickets. This amount was based upon the statistical projections supplied to Jones by Dansico as the amount necessary to cover the cost of the tickets, to establish a cash prize account, and to pay for advertising which publicized the games during the period of their operation. Thus, $69.25 per case (the difference between $115 and $45.75) was allocated to the establishment of a cash prize account and for advertising costs.
Customers of the supermarkets obtained a game card at the checkout counter. Each card was available free of charge to the customer and had the rules of the game printed on it. On each subsequent shopping junket the customer received a ticket packet which contained four cardboard playing pieces. The playing pieces were then used to attempt to complete a row on the game card which would result in a winning card and a cash prize. The prizes ranged from $1 to $1,000.
To insure that sufficient funds were available to disburse to winning customers, Jones deposited the money received from the supermarkets above the actual cost of the tickets into a special cash prize account. A triumphant customer submitted the winning tickets and game card to the manager's office at the local supermarket. The local market would immediately pay prizes of $1, $2, and $5, but winning game cards for larger prizes were submitted to the offices of Jones for verification by use of a special black light. Upon determination of authenticity, Jones authorized the local store to disburse the prize. Jones filed all necessary forms with the Internal Revenue Service, and also collected prize agreements and receipt forms which had been signed by the customer.
Participating supermarkets sent the prize receipt forms to Jones for weekly tabulation. Once tabulated, Jones credited the local supermarket with the amount of prizes it had awarded. This amount was then used as a credit against the store's wholesale grocery bill from Jones in the following week. Basically, Jones debited the cash prize account and entered a corresponding credit to the local store's wholesale account. At the conclusion of each game, the amount remaining uncredited in the prize account since all winning tickets were not redeemed was refunded on a pro rata basis to the local supermarkets.
During the course of the Gamerama operation, Jones billed a total of $566,490 to the local stores for 4,926 cases of tickets. Of this total figure, $303,044.44 consisted of credit for cash prizes, $21,754.50 was used to purchase advertising, and $27,123.53 was refunded to the supermarkets on a pro rata basis.
The Department of Revenue amended Jones' 1976 sales tax return stating that the Retailers' Occupation Tax and the Municipal Retailers' Occupation Tax were owed on the entire amount billed the supermarket less the cash refunds actually made by Jones. (The Department originally relied on ...