APPEAL from the Circuit Court of Jefferson County; the Hon.
BRUCE IRISH, Judge, presiding.
JUSTICE JONES DELIVERED THE OPINION OF THE COURT:
This is an appeal from a judgment of the circuit court of Jefferson County affirming an assessment of tax liability made by the Illinois Department of Revenue (Department) against American Welding Supply Company (American Welding) pursuant to the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1979, ch. 120, par. 440 et seq.). On appeal American Welding contends that it was deprived of due process when the Department rendered its final tax assessment without participation by the officer who presided at the administrative hearing. Additionally, American Welding challenges certain rulings made by the Department in disallowing deductions taken by the taxpayer. We affirm in part and reverse in part.
American Welding is in the business of selling welding equipment and supplies as well as welding gases and medical grade oxygen. On November 29, 1973, the Department issued a notice of tax liability against American Welding which totaled $6,091.52 for the period of July 1, 1970, through June 30, 1973. American Welding filed a notice of protest, and on January 21, 1974, an administrative hearing was held before hearing officer Lawrence J. Starman.
At the hearing the Department's revenue auditor testified for the Department as to the manner in which plaintiff's tax liability was determined. He stated that during the course of the audit he examined sales invoices, summary sheets, journal sheets and copies of both plaintiff's Federal income tax returns and retailer's occupation tax returns. He did not examine monthly statements or accounts receivable ledgers. The total sales as reflected in the sales invoices were compared with the taxpayer's sales summary sheets. If an item was returned and a credit memo given, he did not include that cancelled invoice in the list of taxable ones.
Deductions taken by the taxpayer were disallowed in three principal areas: delivery charges on gas sales, certain sales for resale, and certain sales for use in installation of pollution control equipment. The auditor stated that the only justification he found for the delivery charge deductions was a letter of the taxpayer to its customers stating that after a certain date 5% of the gas price would be considered a delivery charge. The auditor found this to be insufficient to qualify under the Department's rule that delivery charges must be separately contracted for in order to be deductible, and he accordingly disallowed the taxpayer's deduction of 5% of the gas sales as a delivery charge.
The auditor also disallowed deductions taken by the taxpayer on certain sales for resale despite the fact that the taxpayer had obtained certificates of resale from its customers on these sales. The auditor stated that he did not accept the certificates when the items sold were delivered to a contract job site or when it was unlikely that the items would be resold due to the nature of the purchaser's business or the nature of the items sold. One of the certificates, made by the Roberts & Schaefer Company, was disregarded because of an invalid registration number.
The auditor similarly disallowed a deduction taken for items sold for construction of a pollution control plant although the purchaser had furnished the taxpayer with a letter certifying that the plant was exempt from tax as a "pollution control facility." The basis for the auditor's decision was that items such as those in question — welding gas, goggles, gloves, welding helmets, lenses and their repair parts, and hand cleaner — "do not become a part of the pollution control equipment" so as to be deductible under Department rules. The auditor said that he had not seen the plant in question and did not know what parts may have been put in it but that it was the taxpayer's burden under the applicable Department rule to prove that the goods were installed in the plant.
Following the presentation of the Department's evidence, Joe Lawrence, president of American Welding, was called as a witness for the taxpayer. He testified that American Welding's sales tax returns were prepared from monthly statements sent to customers rather than from sales tickets or invoices. Lawrence identified the pollution control certificate and the various resale certificates that had been introduced into evidence and stated that he had relied upon them in making the sales in question. He had been informed by representatives of each of the purchasers who provided resale certificates that they do resell merchandise. Lawrence stated that when a certificate of resale is offered, he accepts the certificate for what it says and does not investigate further.
A hearing disposition was filed on June 21, 1976, finding tax due in the amount of $5,571.56, including interest and penalties. This figure reflected an adjustment made to correct the auditor's error of disallowing the 5% gas sales deduction twice — once as a delivery charge and again when claimed resales of gas were disallowed. The author of the hearing disposition, Willard Ice, stated that hearing officer Starman was no longer with the Department and had turned in the case file without preparing a written hearing recommendation, thereby making it necessary for Ice to write the recommendation from a review of the record. Due to the hearing officer's delay in submitting the file to the Department, Ice recommended that interest on the amount due be waived for the interval between the hearing date and the disposition.
In his disposition Ice approved the auditor's disallowance of deductions for 5% of the gas sales, finding that the taxpayer failed to prove the existence of a separate contract for delivery charges. He also agreed that the certificates for resale presented to the auditor did not entitle the taxpayer to resale deductions because they were blanket certificates covering all purchases by a given purchaser and the taxpayer did not show that all the purchases were for resale. Ice stated that "[e]ven if some small percentage of the sales might conceivably have been for resale, and even if this were admitted, it would still be the taxpayer's burden to show which ones were for resale," citing Belleville Shoe Manufacturing Co. v. Department of Revenue (1956), 7 Ill.2d 574, 131 N.E.2d 511. Likewise, with respect to the deductions taken for sales for utilization in pollution control equipment, Ice determined that "[w]ith the possible exception of some repair parts, the types of items [sold] would rather clearly not become a part of the pollution control facility and so would not qualify for the pollution control facility exemption." Ice stated that even if some of the repair parts might have been for the pollution control facility itself, and not, as the auditor testified, for welding equipment used in installing the facility, the taxpayer did not sustain his burden of proving this. As for the pollution control certificate obtained from the purchaser, Ice concluded that most, if not all, of the items involved could not reasonably be said to be classifiable as "pollution control facilities," and thus the taxpayer was not justified in accepting and relying upon such a certificate.
The Department issued its final assessment on July 12, 1976, for $5,571.56, and American Welding sought administrative review. The trial court affirmed the Department's disposition and entered judgment against the taxpayer in the total amount of $5,205.15. The record contains no explanation for the discrepancy between the amount of the judgment and that assessed by the Department.
On appeal from this judgment American Welding initially raises an issue regarding the sufficiency of the record on appeal. We have, of course, examined the entire record, and we deem the record before us sufficient to consider all the issues addressed by the parties on appeal. Accordingly, we find it unnecessary to consider American Welding's arguments regarding the sufficiency and content of the record.
We turn, then, to a consideration of American Welding's contention that the Department's decision, rendered without participation by the hearing officer, constituted a denial of due process. The general rules as to the requirements of due process in proceedings before an administrative agency have been set forth by our supreme court in Homefinders, Inc. v. City of Evanston (1976), 65 Ill.2d 115, 357 N.E.2d 785. The court there held that, absent a statute to the contrary, due process is satisfied when the decision-making body "considers the evidence contained in the report of proceedings before the hearing officer and bases its determinations thereon. [Citations.]" (65 Ill.2d 115, 128, 357 N.E.2d 785, 791.) Thus, the due process principle that "the one who decides must hear" does not preclude the "practicable administrative procedure" of having a hearing officer take evidence and another officer make the decision as long as the officer making the decision considers the evidence which justifies it. Morgan v. United States (1936), 298 U.S. 468, 80 L.Ed. 1288, 56 S.Ct. 906.
American Welding makes no claim that the decision makers in the case at bar failed to consider the record of the proceedings before hearing officer Starman. It contends, however, that the credibility of the Department's auditor was in question at the hearing and that in such a case due process requires that the decision-making body have the benefit of the hearing officer's findings and impressions of the witness' testimony. Thus, American Welding asserts, the Department's disposition of the hearing, written from the record by Willard Ice ...