Appeal from the Circuit Court of Cook County; the Hon. Earl
Arkiss, Judge, presiding.
JUSTICE PERLIN DELIVERED THE OPINION OF THE COURT:
Rehearing denied September 7, 1982.
Following a hearing before the Illinois Department of Revenue (Department), Continental Illinois Leasing Corporation (Continental) received a final assessment for the period from July 1, 1974, through February 28, 1977, of $195,859.17, including penalty and interest allegedly due under the Illinois Use Tax Act (Ill. Rev. Stat. 1979, ch. 120, par. 439.1 et seq.) (Use Tax Act). Continental thereafter filed an administrative review action in the circuit court of Cook County, which court reversed the Department's decision. The Department appeals.
• 1 The State of Illinois imposes a tax upon the privilege of using, in this State, tangible personal property purchased at retail from a retailer. (Ill. Rev. Stat. 1979, ch. 120, par. 439.2.) The tax applies whether the property is purchased in Illinois or elsewhere (Turner v. Wright (1957), 11 Ill.2d 161, 142 N.E.2d 84.) The purchaser incurs the primary liability for payment of the tax. (Klein Town Builders, Inc. v. Department of Revenue (1966), 36 Ill.2d 301, 222 N.E.2d 482.) The tax does not apply to property purchased and used by an institution organized or operated exclusively for charitable purposes. Nor does the tax apply to the use of tangible personal property "purchased from an isolated or occasional seller who is not engaged in the business of selling such tangible personal property." (Use Tax Rules 3(6) and 3(2).) The issue presented for our review is whether Continental purchased certain hospital equipment from a retailer in a sale at retail so as to incur use tax liability.
St. Mary of Nazareth Hospital Center (hospital), an Illinois not-for-profit corporation which operates St. Mary of Nazareth Hospital, is the true plaintiff-in-interest in the instant case. Although the use tax was assessed against Continental, the hospital under its contract with Continental is responsible for payment of the tax.
In 1972 the hospital began construction of a new facility. As part of the hospital's financial plan for equipping and furnishing the new facility, the hospital entered into a "Master Lease Agreement" with Continental on October 20, 1974. This agreement was subsequently amended when on December 16, 1974. Continental and the hospital executed a document entitled "Amended and Restated Master Lease." (Amended lease.)
Under the amended lease, Continental agreed to pay the "acquisition cost" of $3,000,000 worth of "high technology" radiology and radioisotope equipment which was to be selected by the hospital. The term of the lease was to "commence on the date of delivery" of the equipment to the hospital. The lease also provided that:
"10(a) The equipment shall be the exclusive property of Lessor [Continental] and Lessee [hospital] shall have no rights therein except the right to use it so long as Lessee is not in default hereunder.
10(e) Lessee shall place and maintain on each unit of equipment a notice conspicuously disclosing Lessor's ownership."
In acquiring the equipment under the amended lease, the hospital negotiated directly with the manufacturers regarding the type of equipment to be purchased and its purchase price. The equipment was delivered to and accepted by the hospital. The hospital agreed to bear the obligation of all taxes imposed as an incident to the equipment purchases. Continental had the right, for tax purposes, to take the investment tax credit and depreciation on the equipment.
The hospital issued a total of 44 purchase orders directly to various manufacturers for all of the equipment ultimately accepted by it under the lease. The purchase orders were issued between September 10, 1973, and May 13, 1975. Subsequent to the execution of the amended lease, the hospital assigned 21 of these purchase orders to Continental. Each assignment provides:
"The undersigned (`Assignor') hereby assigns to Continental Illinois Leasing Corporation (`Assignee') all of the Assignor's right, title and interest in and to the Purchase Orders * * *."
The record discloses that Continental made all payments directly to the manufacturers for the full amount of the "acquisition cost" of the equipment. The only payments of record which the hospital made were rental payments to Continental under the amended lease. Although the record does not contain original bills of sale or invoices, it does show that the hospital issued a "Confirmatory Bill of Sale" dated January 1977 to Continental which provided:
"* * * in consideration of one dollar and other good and valuable consideration * * * does hereby confirm * * * that immediately prior to or simultaneously with the commencement of the term of lease * * * dated December 16, 1974 * * * [the hospital] sold and assigned to the buyer ...