Appeal from the Appellate Court for the First District; heard
in that court on appeal from the Circuit Court of Cook County,
the Hon. Earl Arkiss, Judge, presiding.
MR. JUSTICE RYAN DELIVERED THE OPINION OF THE COURT:
This case involves the application of the use tax exemption provided by section 3(c) of the Use Tax Act (Ill. Rev. Stat. 1977, ch. 120, par. 439.3(c)). The specific question is whether an Illinois taxpayer who, by contractual agreement, pays an Indiana seller's Indiana gross income tax liability (Ind. Code sec. 6-2-1-1 et seq. (1978)) resulting from the sale of fuel may claim an exemption from its Illinois use tax liability equal to the amount of the Indiana taxes paid. We hold that it cannot.
This litigation began in 1963 when United Air Lines sought to enjoin collection of the Illinois use tax on aviation fuel purchased by United from the Shell Oil Company. The fuel was purchased in Indiana and stored in Illinois for use in United's interstate operations from Illinois airports. After final determination that the tax was applicable (United Air Lines, Inc. v. Mahin (1971), 49 Ill.2d 45, vacated and remanded (1973), 410 U.S. 623, 35 L.Ed.2d 545, 93 S.Ct. 1186, affirmed on remand (1973), 54 Ill.2d 431), United sought a refund from the protest fund into which it had previously paid the Illinois use tax. The requested refund was for an amount of money equal to the sum United paid to Shell Oil Company to satisfy the Indiana gross income tax obligation incurred by Shell as a result of the sale. An order of the circuit court of Cook County denying the refund was reversed by the appellate court. (79 Ill. App.3d 1004.) Upon petition by the Department of Revenue, we granted leave to appeal pursuant to Rule 315(a) (73 Ill.2d R. 315(a)).
The Illinois use tax is a tax upon the privilege of using personal property within this State. (United Air Lines, Inc. v. Mahin (1971), 49 Ill.2d 45, 46.) To avoid "actual or likely multistate taxation," several exemptions from use tax liability are provided in the Act. The exemption relevant to this case provides the tax imposed shall not apply to "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." (Emphasis added.) (Ill. Rev. Stat. 1977, ch. 120, par. 439.3(c).) The question before us is whether United has brought itself within this statutory exemption, thereby qualifying for a refund from the protest fund. In addition to the question concerning the applicability of the section 3(c) exemption to the facts of this case, United raised, and both sides have argued, the issue of whether article I, section 8 (the commerce clause) of the United States Constitution and the cases decided thereunder prohibit the denial of an exemption to United.
The Retailers' Occupation Tax Act (Ill. Rev. Stat. 1977, ch. 120, par. 440 et seq.) was enacted in 1933. Originally, and as amended, the Act imposes a tax upon the privilege of retail selling within this State. The responsibility for paying the tax, which is measured as a percentage of the selling price, rests upon the retailer. (First Chicago Building Corp. v. Department of Revenue (1977), 49 Ill. App.3d 237, 238.) The Act does, however, contain pass-through language that permits the seller to pass the tax on to the purchaser. (See, e.g., Ill. Rev. Stat. 1975, ch. 120, par. 441.) The Retailers' Occupation Tax Act, however, could not reach purchases made outside the State. Consequently, a person purchasing personal property outside Illinois and subsequently transporting the property into the State avoided Illinois tax liability on the transaction.
In 1955, Illinois passed the Use Tax Act. (See Ill. Rev. Stat. 1977, ch. 120, par. 439.1 et seq.) Its basic purposes are to complement the Retailers' Occupation Tax Act by preventing the evasion of tax on purchases made outside the State and to equalize the competitive disadvantage of Illinois retailers who face retailers' occupation tax liability. (Illinois Road Equipment Co. v. Department of Revenue (1965), 32 Ill.2d 576, 580.) As stated earlier, the Illinois use tax is imposed on the privilege of using personal property within the State. The tax imposed applies to all property used in Illinois regardless of where it was acquired. (Ill. Rev. Stat. 1977, ch. 120, par. 439.3.) The Use Tax Act complements the Retailers' Occupation Tax Act in such a fashion so that an Illinois retailer who collects the use tax as an agent of the State is correspondingly relieved of his retailers' occupation tax liability on the transaction. (Ill. Rev. Stat. 1977, ch. 120, par. 439.8.) On the other hand, purchasers who seek to avoid having the retailers' occupation tax liability passed on to them by buying goods outside the State face use tax liability on goods they bring into Illinois.
Indiana imposes a tax burden directly upon retail purchasers. It does so through a combination gross retail sales and use tax. The gross retail sales tax act looks to the transaction of sale itself as the taxable event. (Ind. Code sec. 6-2-1-37 (1978).) Both Indiana use tax and gross retail sales tax place the taxing burden squarely upon the purchaser and relegate the duty of collection to the retailer. (Ind. Code secs. 6-2-1-44, 6-2-1-49 (1978).) These two Indiana taxes have been in effect since 1963. They function in much the same manner as the Illinois retailers' occupation tax and use tax, including a provision which exempts from the Indiana use tax those transactions in which the gross retail sales tax has already been paid. Ind. Code sec. 6-2-1-43 (1978).
Indiana, however, imposes an additional burden upon all of its residents. Since 1933, prior to the enactment of its retail sales tax and use tax, Indiana has collected revenues under a statute that imposes a tax upon the receipt of income. (Ind. Code sec. 6-2-1-2 (1978).) Under the Indiana Gross Income Tax Act, the taxable event that gives rise to the obligation is the receipt of income. (International Harvester Co. v. Department of Treasury (1944), 322 U.S. 340, 346, 88 L.Ed. 1313, 1317, 64 S.Ct. 1019, 1022; Gross Income Tax Division v. P.F. Goodrich Corp. (1973), 260 Ind. 41, 292 N.E.2d 247.) The Indiana gross income tax is specifically levied upon the privilege of receiving income. (Miles v. Department of Treasury (1935), 209 Ind. 172, 199 N.E. 372; Department of Treasury v. Jackson (1941), 110 Ind. App. 36, 37 N.E.2d 31.) The tax is levied upon all income, regardless of its source, based upon a percentage of the gross amount received in various transactions. While the tax applies to numerous business dealings, including the sale of personal property, it is also levied against earned wages and transactions in which no business is conducted at all. (Ind. Code sec. 6-2-1-1(m) (1978).) As applied to sales, the tax is measured as a percentage of the gross amount received regardless of gain. Gross income, as used in the Indiana Act, does not mean total sales less cost of goods sold, but in fact means gross receipts. (Kroger Co. v. Department of Revenue (Ky. App. 1977), 556 S.W.2d 156; Ind. Code sec. 6-2-1-3(c) (1978).) However, the tax is not imposed on a sale-by-sale basis, but upon the gross amount received from the aggregate of all sales. (See Ind. Code sec. 6-2-1-15 (1978).) This tax is expressly levied in addition to all other taxes. Ind. Code sec. 6-2-1-2 (1978).
In this case we are concerned only with the interaction of the Indiana gross income tax and the section 3(c) exemption from the Illinois use tax. Indiana's gross retail sales tax or its use tax is not involved. The factors which distinguish Indiana's gross income tax from both its gross retail sales and use tax are that the gross income tax applies to the receipt of all income and is levied upon the person receiving it. Although in the case of retail sales transactions the gross income tax may in fact be passed on to purchasers, nothing in the Indiana statutes suggests that this practice is required or authorized. In fact, Regulation 404 of the Gross Income Tax Division of the State of Indiana provided:
"Passing the Tax on. — Since the gross income tax Act is silent upon the matter of adding this tax to the selling price or charges, the adding of such tax to such selling price or charges must be entirely a matter of contractual agreement between the buyer and the seller, and the Department will therefore neither authorize the adding of the tax nor condemn the failure to do so, and will look only to the taxpayer for the tax upon his total gross receipts. Since taxpayers are not made the agents of the State to collect gross income tax, any amount added as the tax and collected by a taxpayer must be considered as an additional price received, and will be a part of the gross receipts of a taxpayer and must be reported as taxable income." (Emphasis added.) (This regulation was repealed in January 1956 and replaced by Instruction 2-2 in substantially the same language.)
The Indiana gross income tax is not a tax on the sales transaction. With respect to the purchaser in a sales transaction, the Indiana gross income tax imposes no burden at all.
Section 3(c) of our Use Tax Act, which we quote above, exempts from the payment of that tax those who have paid a tax in another State "in respect to the sale, purchase or use of such property." United points out that this exemption does not apply only to those who have paid a sales tax or a use tax in another State. It is United's position that the tax it paid in Indiana, though not a sales tax or a use tax, was, nonetheless, a tax in respect to the sale of property and thus falls within the language of the use tax exemption.
United relies heavily upon a statement made by the Kentucky Appellate Court in Kroger Co. v. Department of Revenue (Ky. App. 1977), 556 S.W.2d 156. In that case the court stated that the Indiana gross income tax "is the functional equivalent of a sales tax." (556 S.W.2d 156, 158-59.) Thus, United argues, the tax is a tax in respect to the sale of property and its payment entitles United to an exemption under section 3(c) of our Use Tax Act. The language in Kroger must be viewed in the context of that case. The court was there determining whether the Kroger Company could deduct the Indiana gross income tax in computing its Kentucky corporation income tax liability. The court pointed out that under the Indiana statute, the term "gross income" has a different meaning than it does under the Internal Revenue Code, where it means total sales less costs of goods sold. Under the Indiana statute, "gross income" means gross receipts and is unrelated to any concept of gain. In this respect the term does resemble a sales tax, in that it is to be treated the same as a sales tax and is ...