APPEAL from the Circuit Court of Cook County; the Hon. GEORGE
H. HIGGINS, Judge, presiding.
MR. JUSTICE JOHNSON DELIVERED THE OPINION OF THE COURT:
Rehearing denied January 23, 1981
This is an action seeking to enjoin the Department of Revenue from assessing and collecting $13,219.82 in use tax, penalties and interest from plaintiff, Teletype. Plaintiff paid the disputed tax under protest and sought a refund in the circuit court of Cook County. The case was submitted on stipulated facts, and on September 14, 1979, the trial court held that Teletype's use of photomasks was exempt from taxation under Rule 3(2) of the Illinois Retailers' Occupation Tax Rules and Regulations. Defendants have appealed from that judgment, and we reverse.
The issue presented for review is whether plaintiff's purchase of photomasks and the use of these photomasks in Illinois is taxable under the Use Tax Act. (Ill. Rev. Stat. 1977, ch. 120, par. 439.1 et seq.) Defendants assert the use is subject to tax.
On February 15, 1978, the Illinois Department of Revenue issued a notice of tax liability against plaintiff in the amount of $13,219.82. On February 28, 1978, Teletype paid the amount under protest, and on March 13, 1978, it filed an action for an injunction seeking a declaration that its use of photomasks was exempt from taxation. Defendants answered the complaint and a stipulation of facts was executed by the parties. The stipulation explained in technical terms how photomasks were made and the use to which they were put.
On September 14, 1979, after reviewing the facts, the trial court entered an order declaring that plaintiff's use of photomasks in Illinois was exempt from taxation under Rule 3(2) of the Retailers' Occupation Tax Rules and Regulations. The court found that:
"[A] photomask * * * is an element of equipment used in a process of photography and computerization rather than tangible personal property * * * and that it has use or value only for the specific purpose for which it is produced and has use of [sic] value only to the purchaser."
Defendants made a motion for reconsideration of the decision, contending that plaintiff failed to meet the test for exemption set forth in Rule 3(2). This motion was denied on October 11, 1979.
On November 7, 1979, defendant appealed from both the judgment order entered on September 14 and the October 11 order denying their motion to reconsider the decision.
Defendants contend that the photomasks purchased by plaintiff were not exempt from taxation under Rule 3(2) of the Retailers' Occupation Tax Rules and Regulations. Rule 3(2) states in pertinent part:
"WHEN NOT LIABLE FOR RETAILERS' OCCUPATION TAX
The seller of a special machine, tool, die, jig, pattern, gauge or other similar item is engaged primarily in a service occupation, rather than in the business of selling tangible personal property, and so does not incur retailers' occupation tax liability with respect to the sale, if the following tests for exemption are all met in the transaction:
(a) The purchaser employees [sic] the seller primarily for his engineering or other scientific skill to design and produce the property on special order for the purchaser and ...