APPEAL from the Circuit Court of Lake County; the Hon. HARRY
D. STROUSE, JR., Judge, presiding.
MR. JUSTICE UNVERZAGT DELIVERED THE OPINION OF THE COURT:
This is an appeal by the Illinois Department of Revenue from the judgment of the circuit court of Lake County reversing an assessment for use tax made by the Department in the amount of $9,691.
The taxpayer, Trans-Air Corporation, is a dealer in aircraft. It was assessed a use tax of $9,691 in connection with the acquisition and use of several airplanes, only one of which was new, the others, according to the taxpayer, being trade-ins from individuals. It is claimed by the Department of Revenue that these planes were not held in the taxpayer's inventory of goods for sale but were primarily used for rental or leasing and therefore did not come within the exception from the use tax which is allowed for property acquired by the taxpayer if, applying Illinois-Use Tax-Rule No. 3.2 (paraphrased) of the Department:
1. The owner of the property is normally engaged in the business of selling that kind of property at retail, and
2. The property is not held primarily for renting or leasing, but is carried in the inventory of goods for sale and is held primarily for sale, and
3. The leasing is done to prospective buyers for the purpose of allowing them to ascertain whether or not the property suits their particular needs, and
4. The leasing is done to prospective buyers for the purpose of trying to induce them to purchase the property being leased.
It is claimed by the Department that the taxpayer's accounts indicate the planes and parts for which the use tax is being assessed were carried in their capital account and were depreciated for income tax purposes, and thus were obviously not property held primarily for sale but were primarily held for rental for income producing purposes. Thus, the Department contends, the planes do not come within the exception under Rule 3.2 stated above and, failing that test, are subject to the tax. In this case, the taxpayer took depreciation on the planes and equipment in question which, the Department contends, indicates that the property was regarded by the taxpayer as either (1) used in the trade or business or (2) held for the production of income, since property held only as inventory for sale would not be subject to depreciation allowance.
However, as to the inconsistency of claiming depreciation on inventory held for sale, it was conceded by the Department's own examiner, Wegner, that the taxpayer had an agreement with the Internal Revenue Service that if an aircraft was bought in the first six months of the year, it could be depreciated. Whether the property being assessed was purchased during the first or the last six months of the calendar year was not revealed by the testimony of either party.
The word "use" is defined in connection with the Use Tax Act by section 2 of the act (Ill. Rev. Stat. 1979, ch. 120, par. 439.2), as "the exercise by any person of any right or power over tangible personal property incident to the ownership of that property, except that it does not include the sale of such property in any form as tangible personal property in the regular course of business to the extent that such property is not first subjected to a use for which it was purchased, and does not include the use of such property by its owner for demonstration purposes: * * *."
Additional definitions in section 2 of the act define "`Purchase at retail'" as "the acquisition of the ownership of or title to tangible personal property through a sale at retail," and the word "`Purchaser'" as "anyone who, through a sale at retail, acquires the ownership of tangible personal property for a valuable consideration." The phrase "`Sale at retail'" is defined to mean "any transfer of the ownership of or title to tangible personal property to a purchaser, for the purpose of use, and not for the purpose of resale in any form as tangible personal property to the extent not first subjected to a use for which it was purchased, for a valuable consideration. * * *."
These various definitions have been construed by the Department of Revenue in its "Illinois-Use Tax-Rules." Rule 1 states:
The use tax is a privilege tax imposed on the privilege of using, in this State, any kind of tangible personal property that is purchased anywhere at retail from a retailer, ...