APPEAL from the Circuit Court of Cook County; the Hon. EARL
ARKISS, Judge, presiding.
MR. JUSTICE ROMITI DELIVERED THE OPINION OF THE COURT:
This controversy has its origins in a 1963 action brought by plaintiff, United Air Lines, Incorporated (United), to enjoin assessment and collection of the Illinois use tax (Ill. Rev. Stat. 1975, ch. 120, par. 439.1 et seq.), on aviation fuel purchased by United in Indiana and stored in Illinois for use on United's aircraft departing from Illinois airfields. After final judicial determination that the use tax was applicable (United Air Lines, Inc. v. Mahin (1971), 49 Ill.2d 45, 273 N.E.2d 585, aff'd in part, vacated and remanded in part (1973), 410 U.S. 623, 35 L.Ed.2d 545, 93 S.Ct. 1186, aff'd on remand (1973), 54 Ill.2d 431, 298 N.E.2d 161), United sought an order from the circuit court granting a refund from the protest fund into which the tax had been paid in an amount equal to that which United had paid to the seller, Shell Oil Company, in Indiana for payment of Indiana gross income taxes (Indiana Code 6-2-1-1 et seq. (1976)) incurred by Shell as the result of that sale. On appeal from the denial of that motion United contends that the trial court erred because: (1) United was entitled to an exemption by the express terms of section 439.3 of the Use Tax Act (Ill. Rev. Stat. 1975, ch. 120, par. 439.3 (sixth unnumbered paragraph)); (2) construction of that statute so as to deny the exemption would result in unconstitutional multistate taxation.
By statute in Illinois one who has purchased tangible personal property outside of the State and has paid a tax in that other State "in respect to the sale, purchase or use of such property" is exempt from the Illinois use tax on the use of the property in Illinois to the extent of the amount of tax paid in the other State. We must decide whether this provision applies to the payment of Indiana's gross income tax according to a contractual arrangement, permitted by Indiana law, in which the Illinois purchaser-user pays to the Indiana seller the amount of such tax incurred by the seller, who in turn pays it to the State of Indiana.
The facts are not in dispute. Pursuant to contract in the period at issue, July 1963 to December 1973, United purchased and took delivery of fuel from Shell in Indiana. The purchase contracts provided that any tax incurred by Shell by reason of the sale or delivery of the fuel would be paid by United. Accordingly, during this period United paid to Shell $1,200,747.30 for Shell's liability for the Indiana gross income tax arising from the sales. Shell's total gross income tax payments to the State of Indiana for this period included that sum. United seeks an exemption on its Illinois use tax in this amount.
The Indiana Gross Income Tax Act states in pertinent part:
"Sec. 1. (a) When used in this chapter * * * the term `person' or the term `company' herein used interchangeably, means and includes any * * * corporation * * *.
(m) The term `gross income,' except as hereinafter otherwise expressly provided, means the gross receipts of the taxpayer received * * * from the sale, transfer, or exchange of property, tangible or intangible, real or personal, * * * without any deductions on account of the return of capital invested, the cost of the property sold, the cost of materials used, labor cost, interest, discount, or commissions paid or credited, or any other expense whatsoever paid or credited, and without any deductions on account of losses, and without any other deductions of any kind or character * * *." Indiana Code 6-2-1-1(a), (m) (1976).
"Sec. 2. There is hereby imposed a tax upon the receipt of gross income, measured by the amount or volume of gross income, and in the amount to be determined by such application of rates on such gross income as hereinafter provided. Such tax shall be levied upon the receipt of the entire gross income of all persons resident and/or domiciled in the state of Indiana * * * and upon the receipt of gross income derived from activities or businesses or any other source within the state of Indiana, of all persons who are not residents of the state of Indiana * * *." (Indiana Code 6-2-1-2 (1976).)
The applicable portions of the Illinois Use Tax Act provide:
"To prevent actual or likely multistate taxation, the tax herein imposed does not apply to the use of tangible personal property in this State under the following circumstances:
(c) the use, in this State, of tangible personal property which is acquired outside this State and caused to be brought into this State by a person who has already paid a tax in another State in respect to the sale, purchase or use of such property, to the extent of the amount of such tax so paid in such other State." Ill. Rev. Stat. 1975, ch. 120, par. 439.3 (6th unnumbered paragraph).
United contends that by the plain language of the Illinois act it is entitled to the exemption it sought below. The Department of Revenue (Department) argues that the provision is inapplicable because United did not actually pay a tax and because in any event the Indiana ...