APPEAL from the Circuit Court of Sangamon County; the Hon.
RICHARD J. CADAGIN, Judge, presiding.
MR. JUSTICE MILLS DELIVERED THE OPINION OF THE COURT:
Or — to be more precise — several tax questions.
It's a mixed bag — we affirm in part, reverse in part and remand.
Allemed, Inc., is in the business of selling drugs, equipment, supplies, pharmaceuticals, and biologicals to veterinarians. Its headquarters are in Missouri; it has no office, place of business, or stock of goods in Illinois. Allemed has three salesmen who, together, spend approximately 10 man-days per month in Illinois. These salesmen work exclusively for Allemed and cover roughly defined territories. However, most customers place their orders by phone with Allemed's Missouri office rather than with a salesman. Even the few orders that salesmen do write up must be accepted at the Missouri headquarters. Most deliveries are made through common carrier, though Allemed itself delivers some orders.
From June 1974 through November 1977, Allemed paid no Illinois Use Tax or Illinois Service Occupation Tax on its sales to Illinois veterinarians. The Department of Revenue (Department) audited Allemed for that period and issued a notice of tax liability of $69,761.56. At the administrative hearing held on this matter, Allemed's president, Walter Allen, testified that he had previously worked for a similarly operated company, which had paid no Illinois tax on its Illinois sales. Furthermore, Allemed had twice been assured — from both the East St. Louis and the Springfield offices of the Department — that it was not subject to Illinois tax since it had no place of business in Illinois. Allen testified that he thought some kind of tax should be paid and thus collected Missouri sales tax on Allemed's Illinois sales.
Following the hearing, the Department performed a reaudit because it had changed its interpretation of a particular statutory exemption. Thereafter, the Department issued a final assessment of $55,256, consisting of a $34,535 tax delinquency, a $6,907 penalty, and $13,814 interest. Allemed brought an action for administrative review, and the circuit court affirmed the Department's assessment.
Allemed initially contends that the commerce clause of the Federal Constitution precludes Illinois from requiring it to collect its Use Tax and Service Occupation Tax. Use taxes and service occupation taxes are common means used by States to supplement their sales tax schemes. By these taxes, a State attempts to reach goods which have originated in another State but which are purchased by the taxing state's residents for use in the taxing State. Although the consumer is the party taxed, States have sought to simplify administration of these taxes by requiring sellers to collect them. Thus arise problems concerning due process and the commerce clause. See J. Nowak, R. Rotunda & J. Young, Handbook of Constitutional Law 357-61 (1978).
Illinois' taxing scheme recognizes that its Use Tax and Service Occupation Tax cannot be imposed in such a way as to burden interstate commerce. (See Ill. Rev. Stat. 1979, ch. 120, pars. 439.3, 439.103, and 440.) However, the Use Tax is to be collected by any retailer "[h]aving * * * any agent or other representative operating within this State under the authority of the retailer * * * irrespective of whether such * * * agent * * * is located here permanently or temporarily * * *." (Ill. Rev. Stat. 1979, ch. 120, par. 439.2.) Similar coverage is given under the Service Occupation Tax. Ill. Rev. Stat. 1979, ch. 120, par. 439.102.
Our analysis of whether Allemed may constitutionally be made subject to the Illinois Use Tax and Service Occupation Tax must begin with General Trading Co. v. State Tax Com. (1944), 322 U.S. 335, 88 L.Ed. 1309, 64 S.Ct. 1028. In that case, the court upheld imposition of the Iowa Use Tax upon a seller which maintained no office, branch, or warehouse in Iowa though it sent traveling salesmen into that State. These salesmen solicited orders, which were subject to acceptance at the seller's Minnesota office. The goods were shipped from Minnesota to the buyer by common carrier. Summarizing the law on the subject, the court said:
"[N]o State can tax the privilege of doing interstate business. [Citation.] That is within the protection of the Commerce Clause and subject to the power of Congress. On the other hand, the mere fact that property is used for interstate commerce or has come into an owner's possession as a result of interstate commerce does not diminish the protection which he may draw from a State to the upkeep of which he may be asked to bear his fair share." 322 U.S. 335, 338, 88 L.Ed. 1309, 1312, 64 S.Ct. 1028, 1029.
In Miller Brothers Co. v. Maryland (1954), 347 U.S. 340, 98 L.Ed. 744, 74 S.Ct. 535, on the other hand, the court held that Maryland could not require a Delaware seller to collect its use tax where the seller maintained a Delaware retail outlet to which Maryland residents came to make purchases. Many purchasers took the goods home from the seller's store; delivery was made to other Maryland buyers by common carrier or by the seller's own truck. The seller's only solicitation in Maryland consisted of general advertising. The court distinguished General Trading on the basis of the amount of activity the respective sellers performed in the taxing States and said, "[D]ue process requires some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax." (347 U.S. 340, 344-45, 98 L.Ed. 744, 748, 74 S.Ct. 535, 539.) Although the Maryland buyers were clearly liable for the use tax, there was no jurisdictional basis for requiring the seller to collect that tax.
Also relevant to our inquiry is Scripto, Inc. v. Carson (1960), 362 U.S. 207, 4 L.Ed.2d 660, 80 S.Ct. 619, wherein a Georgia seller had no office, warehouse, or other place of business in Florida, nor did it have a regular employee in that State. Its orders were solicited by 10 residents of Florida who had specific territories and received commissions on orders they took. These people had contracts with Scripto and were referred to as "independent contractors." They did not spend full time soliciting sales for Scripto. Orders were sent to Georgia for acceptance or refusal; no money changed hands between customers and the independent contractors. The court decided that General Trading controlled and that the nexus required by Miller Brothers between a vendor and a taxing State was present. "The test is simply the nature and extent of the activities of the appellant in Florida." (362 U.S. 207, 211-12, 4 L.Ed.2d 660, 664, 80 S.Ct. 619, 622.) The court distinguished Miller Brothers largely on the fact that there the buyers had gone to the seller's place of business. Scripto has been described as ...