APPEAL from the Circuit Court of Cook County; the Hon. LOUIS
J. GILIBERTO, Judge, presiding.
JUSTICE HARTMAN DELIVERED THE OPINION OF THE COURT:
The Illinois Department of Revenue (Department) appeals from an adverse decision on administrative review in an action by which it sought to collect the Retailers' Occupation Tax (Ill. Rev. Stat. 1977, ch. 120, par. 440 et seq.) (ROT) and Municipal Retailers' Occupation Tax (Ill. Rev. Stat. 1977, ch. 24, par. 8-11-1) (MROT) *fn1 allegedly due from United Technical Corporation (United). The sole issue raised on appeal is whether partial prepayment of the purchase price of tangible personal property is taxable at the time of receipt thereof by the seller.
United is a holding company whose subsidiary Marshall & Huschert is a machine tool distributor of a complete line of tools used in the metalworking industry.
United issued a series of invoices seeking prepayments of part of the purchase price of various pieces of equipment for which it received said payments, but which were not included in its ROT returns. There were seven such transactions in which certain companies *fn2 ordered machinery to be manufactured. Prepayments were made by these companies to United from the time the orders were acknowledged until the machines were shipped. That time period spanned between eight and 14 months after the original purchase orders, except in one case in which the machine had not yet been shipped at the time of hearing.
On June 14, 1979, the Department issued and sent to United a notice of tax liability for the period July 1, 1976, through September 30, 1978. United filed a notice of protest of the tax assessment and requested a hearing, which was granted. During the hearing, evidence was adduced by the Department predicating the alleged deficiency upon the prepayment receipts not included in United's ROT returns. Witnesses for United testified that in accordance with industry practice, equipment was shipped free on board, with title passing when the machines were placed on trucks to be delivered to the customers, except for imports, wherein title would pass at the port of entry. Further, the purpose of requiring customers to make prepayments against the purchase price was to finance the manufacturer's engineering, labor and material costs incurred in connection with the manufacturing process. When purchase orders were received by United, such orders would be subject to cancellation; equipment could be retained or shipped over a period of time; and a machine might never be shipped if it could not perform to the satisfaction of the customer, in which case the purchase price would be cancelled. Finally, industry practice required payment of one-third of the purchase price after the order was acknowledged, one-third when the machinery was successfully "run off," and the balance 30 days after shipment. The hearing referee determined that the tax was payable upon receipt by the seller of prepayment and rendered a final tax assessment of $145,303.87.
The trial court reversed the assessment of the referee on the grounds that: section 2 of the ROT imposes a tax on gross receipts from sales at retail (Ill. Rev. Stat. 1977, ch. 120, par. 441); a sale at retail is defined as any transfer of ownership of or title to tangible personal property to a purchaser for use and consumption (Ill. Rev. Stat. 1977, ch. 120, par. 440); and, because United's customers did not acquire ownership of the machine tools when prepayment was made, such payments did not constitute gross receipts from a sale at retail and, therefore, were not taxable. From this order, the Department appeals.
The ROT is not a privilege tax on the consumer, nor a property tax on the goods, nor a sales tax on the transaction; rather, it is an occupation tax on entities engaged in the business of making "sales at retail," i.e., selling tangible personal property at retail. (Central Television Service, Inc. v. Isaacs (1963), 27 Ill.2d 420, 426-27, 189 N.E.2d 333; H. Kohnstamm & Co. v. Department of Revenue (1956), 9 Ill.2d 182, 183-84, 137 N.E.2d 354; Ahern v. Nudelman (1940), 374 Ill. 237, 239, 29 N.E.2d 268.) The initial consideration must be whether, under the facts of each case, the putative taxpayer is engaged in a taxable occupation; if so, all of that entity's gross receipts from sales, whenever received, are taxable. (Automatic Voting Machine Corp. v. Daley (1951), 409 Ill. 438, 100 N.E.2d 591.) United does not challenge the propriety of its amenability to the tax, a point which it concedes. The issue which it postulates, and in which the Department in essence concurs, is "[t]he question [of] * * * when [prepayments] are subject to tax." (Emphasis added.)
United argues that gross receipts referred to in the ROT cannot be taxed until there has been a transfer of ownership of or title to tangible personal property from the seller to the buyer. Conceding that prepayments by purchasers to United are indeed gross receipts, it insists nevertheless that because no transfer of ownership or title to the machinery has as yet taken place no tax may yet be imposed. A litany of factors are set forth by United in support of this theory, which include:
(a) the subject goods were not plainly identified to the contract at the time prepayments were received;
(b) the subject goods were not even in existence at the time prepayments were received;
(c) no delivery of the goods had been made at the time prepayments were received;
(d) title to the goods had not passed at the time prepayments had been received.
From the foregoing, United concludes that the statutory definition of "sale at retail" limits the inclusion of "gross receipts" which are subject to the tax.
The Department counterposes that the statutory definition of a "sale at retail" is not meant to apply as a limitation on the Department's ability to tax particular receipts; rather, the definition applies to determine whether the taxpayer is engaged in an occupation which is subject to taxation under ...