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 J. Arkiss, Judge, presiding.
JUSTICE SIMON DELIVERED THE OPINION OF THE COURT:
By this action filed in 1973 in the circuit court of Cook County plaintiff, Illinois Bell Telephone Company (Bell), seeks to have certain of its revenues declared exempt from the Illinois messages tax (Ill. Rev. Stat. 1979, ch. 120, par. 467.1 et seq.) and to enjoin the defendant, the Department of Revenue (the Department), from collecting the taxes at issue. The Department moved to dismiss on the ground Bell had failed to exhaust its administrative remedy, and this motion was denied by the circuit court. This court, after allowing a direct appeal under its Rule 302(b) (73 Ill.2d R. 302(b)), affirmed the circuit court. Illinois Bell Telephone Co. v. Allphin (1975), 60 Ill.2d 350.
The parties then went to trial in 1979 on two issues: (1) Did the Messages Tax Act apply during the period in dispute (1967 to 1973) to revenues Bell received from its participation in the transmission of messages which originate or terminate outside this State (interstate messages); and (2) Does Bell owe the messages tax on revenues paid to and retained by other telephone companies for their participation in the transmission of intrastate toll messages pursuant to contracts with Bell and on which the other companies themselves pay a message tax.
On the first issue, the circuit court concluded that the messages tax applied to Bell's interstate revenue during the period in dispute, and that Bell owed the State $115,150,855 for this period for back taxes, penalties and interest. On the second issue, which involved approximately $13,160,000 in claimed taxes, the circuit court held in favor of Bell, concluding that payments Bell made or credits it allowed to other telephone companies pursuant to traffic agreements approved by the Illinois Commerce Commission were proper deductions from the Bell revenues subject to the tax. The appellate court reversed the judgment for back taxes, penalties and interest on interstate messages and affirmed the circuit court's holding that Bell was not obligated to pay a messages tax on the amounts paid or credited to other telephone companies on intrastate calls. (95 Ill. App.3d 115.) We allowed the Department's petition to appeal to this court.
The appellate court gave three reasons for reversing the circuit court on this aspect of the case. First, the language and history of the statute do not permit a construction which includes interstate messages within the scope of the authorized tax. Second, even if the statute permitted taxation of interstate revenues, the Department is bound by the written regulations it promulgated and the tax forms it disseminated, and imposition of the tax retroactively would be contrary to those regulations and forms. Finally, if the statute were to be applied in the manner the Department contends it should be, the statute would be vague and uncertain and thus violative of due process requirements. We affirm the appellate court because we believe the language and history of the statute make it inapplicable to interstate revenues. This makes it unnecessary to consider the two additional grounds on which the appellate court relied.
In taxing the transmission of messages, the State may exclude interstate revenues and apply the tax only to revenues from messages which begin and end in this State. (Adler v. Illinois Bell Telephone Co. (1978), 72 Ill.2d 295.) The wording of the taxing statute, the law in effect when it was passed controlling a State's authority to tax interstate messages, the statute's relationship to its predecessor and companion statutes, the Department's own interpretation of the statute, and the fact that the statute was subsequently amended with no change in the portion directly involved in this dispute indicate that the legislature intended to impose that kind of tax.
The portion of the Messages Tax Act which we are called upon to construe and apply is section 2. It provides:
"A tax is imposed upon persons engaged in the business of transmitting messages in this State at the rate of three per cent (3 %) of the gross receipts from such business * * *. However, such tax is not imposed upon the privilege of engaging in any business in interstate commerce or otherwise to the extent to which such business may not, under the Constitution and statutes of the United States, be made the subject of taxation by this State." (Emphasis added.) Ill. Rev. Stat. 1945, ch. 120, par. 467.2.
Two occupation taxes on transmission of messages in Illinois were adopted before the present statute. The first was a part of the Public Utility Tax Act enacted in 1935 (Ill. Rev. Stat. 1935, ch. 120, par. 440 et seq.). The second was included in the public utilities revenue act passed in 1937 (Ill. Rev. Stat. 1937, ch. 120, par. 468 et seq.). These statutes, in the words of the 1937 act, covered the gross receipts of "persons engaged in the business of transmitting telegraph or telephone messages or of distributing, supplying, furnishing or selling gas or electricity to persons for use or consumption and not for resale * * *." (Ill. Rev. Stat. 1937, ch. 120, par. 469.) Both statutes provided that the "taxes are not imposed with respect to any transaction in interstate commerce, or otherwise, which transaction may not, under the constitution and statutes of the United States, be made the subject of taxation by this State." Ill. Rev. Stat. 1935, ch. 120, par. 441; Ill. Rev. Stat. 1937, ch. 120, par. 469.
At the time of these taxing measures, New Jersey Bell Telephone Co. v. State Board of Taxes & Assessment (1930), 280 U.S. 338, 74 L.Ed. 463, 50 S.Ct. 111, represented the prevailing law. That decision announced that although a State might tax property used to carry on interstate commerce, it could not tax or burden interstate commerce or tax gross earnings derived therefrom or impose "a license fee or other burden upon the occupation or the privilege of carrying on" interstate commerce, whatever may be the means employed to that end. That case prohibited a State from collecting a direct tax on gross receipts from interstate commerce. Cooney v. Mountain States Telephone & Telegraph Co. (1935), 294 U.S. 384, 79 L.Ed. 934, 55 S.Ct. 477, followed the same principle, holding that a State tax on telephone instruments used in making both intrastate and interstate calls was a privilege or occupation tax imposed through an indiscriminate application to instrumentalities common to both intrastate and interstate service, and as such the tax was an unconstitutional burden on interstate commerce.
The regulations promulgated by the Department relating to the 1935 and 1937 taxes on messages provided that the tax was not imposed on revenues from the transmission of any message that either "originates" or "terminates" "outside of Illinois." These regulations described such messages as being in interstate commerce and not taxable. They also provided that, where the message originates in Illinois and is transmitted to a second point in Illinois, the transaction is taxable even when a portion of the lines used for the transmission are outside Illinois. It is thus clear that the predecessors of the tax which is involved in this case authorized a tax only with respect to revenues from the transmission of intrastate messages notwithstanding the proviso in those statutes quoted above stating that taxes were not being imposed on transactions in interstate commerce which may not under the Constitution and statutes of the United States be taxed by Illinois.
The legislature adopted the Messages Tax Act with which we are concerned in this case in 1945. (Ill. Rev. Stat. 1945, ch. 120, par. 467.1 et seq.) There is nothing in the history of that statute or in the wording of the statute in comparison with its predecessor statutes adopted in 1935 and 1937 to suggest that the legislature intended to enact a different type of tax in 1945. Moreover, the history of the Messages Tax Act and its wording, as compared with the wording of two other tax acts contemporaneously adopted in 1945, indicate the contrary. In that year the General Assembly divided the public utilities revenue act into three separate taxing statutes the Messages Tax Act, applying to transmittal of messages, the Gas Revenue Tax Act (Ill. Rev. Stat. 1945, ch. 120, par. 467.16 et seq.), applying to the business of selling gas, and the Public Utilities Revenue Act (Ill. Rev. Stat. 1945, ch. 120, par. 468 et seq.), taxing the business of selling electricity. When these three statutes were enacted, the law continued to prohibit the taxation of receipts from interstate messages. See Joseph v. Carter & Weekes Stevedoring Co. (1947), 330 U.S. 422, 432-34, 91 L.Ed. 993, 1003-04, 67 S.Ct. 815, 821.
The language the legislature used in contemporaneously taxing the transmission of messages, the sale of gas, and the delivery of electricity is significant. The phrase "in this State," as used in section 2 of the Messages Tax Act quoted above, is not found in the Gas Revenue Tax Act at all, while the Act taxing sales of electricity uses the phrase in an entirely different context. The statute relating to the business of selling electricity taxes "persons engaged in this State in the business of" selling electricity. (Ill. Rev. Stat. 1945, ch. 120, par. 469.) The use of the limiting phrase "in this State" in the Messages Tax Act, as compared with its use in the Public Utilities Revenue Act to modify "persons" and its complete omission from the Gas Revenue Tax Act, demonstrates that the legislature used the phrase in the Messages Tax Act to modify "messages." The use and placement of the phrase "in this State" indicate that it was employed as a limitation upon the area in which such messages must move, that is, "in this State" as compared with wholly or in part outside Illinois.
Turning to the specific language of section 2 of the Messages Tax Act of 1945, we reach the same conclusion. We are not persuaded by the Department's argument that the phrase "in this State" modifies "persons" and has nothing to do with the scope of the tax. The tax applies to the "business of transmitting messages in this State" at a specified percent of the "gross receipts from such business." (Ill. Rev. Stat. 1945, ch. 120, par. 467.2.) The business referred to is transmitting messages in this State. The words "in this State" modify "messages," not "persons," and declare which gross receipts are subject to the tax. Under the last-antecedent rule of statutory construction, which is followed in Illinois (City of Mount Carmel v. Partee (1979), 74 Ill.2d 371, 375), the qualifying phrase "in this State" modifies the immediate preceding word "messages." This supports the conclusion that the Act authorized taxation only on messages which both begin and end in Illinois.
The result we reach also follows from the presumption that the legislature in 1945 intended to enact a valid taxing statute. Statutes are to be interpreted in a manner consistent with "the state of the law existent at the time of their enactment." (People v. Boreman (1948), 401 Ill. 566, 571-72.) Adhering to this principle this court in Adler v. Illinois Bell Telephone Co. (1978), 72 Ill.2d 295, 297, construed a city of Chicago message tax adopted when Federal constitutional law barred taxes on interstate revenues as not applicable to such revenues even though the ordinance on its face was not limited to intrastate calls. In examining section 2 of the Messages Tax Act we conclude that the General Assembly did not intend to tax interstate revenues either in 1935, 1937 or 1945 because Federal constitutional law, as construed and applied in judicial decisions, prohibited such taxation at those times. Again we observe that the terms of the Messages Tax Act expressly reflected the specific regulations previously applicable to the 1935 and 1937 acts and were consistent with the Federal prohibition against burdening interstate commerce with a direct tax on gross receipts from interstate messages.
New Jersey Bell Telephone Co. v. State Board of Taxes & Assessment and Cooney v. Mountain States Telephone & Telegraph Co., both referred to above, held prior to the enactment of the 1945 messages tax that a State privilege or occupation tax on interstate commerce is constitutionally prohibited. In the latter case the Supreme Court, addressing this question, said:
"There is no question that the State may require payment of an occupation tax from one engaged in both intrastate and interstate commerce. But a State cannot tax interstate commerce; it cannot lay a tax upon the business which constitutes such commerce or the privilege of engaging in it. And the fact that a portion of a business is intrastate and therefore taxable does not justify a tax either upon the interstate business or upon the whole business without discrimination." Cooney v. Mountain States Telephone & Telegraph Co. (1935), 294 U.S. 384, 392-93, 79 L.Ed. 934, 941, 55 S.Ct. 477, 481-82.
Years before the Supreme Court had held that express companies whose vehicles were used to haul both intrastate and interstate shipments out of New York City were immune from a city licensing fee. (Barrett v. City of New York (1914), 232 U.S. 14, 58 L.Ed. 483, 34 S.Ct. 203.) Again in Freeman v. Hewit (1946), 329 U.S. 249, 252, 91 L.Ed. 265, 271, 67 S.Ct. 274, 276, in prohibiting an Indiana gross income tax on an Indiana broker, the court observed that the commerce clause "by its own force created an area of trade free from interference by the States." That tax contained a proviso similar to that in section 2 of the Illinois Messages Tax Act excepting from its scope "such gross income as is derived from business conducted in commerce between this state and other ...