Appeal from the Circuit Court of Cook County; the Hon. Earl
Arkiss, Judge, presiding.
JUSTICE MCGILLICUDDY DELIVERED THE OPINION OF THE COURT:
This administrative review action was brought by Cerro Wire and Cable Company (Cerro) against the Illinois Department of Revenue and Robert M. Whitler, its director (hereinafter collectively referred to as the Department), to contest the Department's final assessment of $21,390.85 in taxes, penalties and interest due under the Retailers' Occupation Tax Act (the Act) (Ill. Rev. Stat. 1973 & 1975, ch. 120, pars. 440 to 453, hereinafter cited to Ill. Rev. Stat. 1975) and the Municipal Retailers' Occupation Tax Act (Ill. Rev. Stat. 1973 & 1975, ch. 24, par. 8-11-1) for the period January 1973 through December 1975. The circuit court reversed the Department's determination of tax liability. The Department appeals.
The issues presented by the parties on appeal are: whether the provisions of the Act apply to a portion of Cerro's sales; whether Cerro's noncompliance with section 2c of the Act (Ill. Rev. Stat. 1975, ch. 120, par. 441c) transforms a portion of its wholesale sales transactions into retail sales transactions subject to taxation; whether section 2c of the Act violates the Illinois Constitutions of 1870 and 1970; and whether Cerro is entitled to a refund for use taxes collected by the Department when Cerro's products subsequently were resold.
The retailers' occupation tax is imposed upon persons engaged in the business of selling tangible personal property at retail. (Ill. Rev. Stat. 1975, ch. 120, par. 440.) A sale at retail is defined as "any transfer of the ownership of or title to tangible personal property to a purchaser, for the purpose of use or consumption, and not for the purpose of resale * * *." The Act further provides that the term "sale at retail" includes "any transfer of the ownership of or title to tangible personal property * * * for resale in any form as tangible personal property unless made in compliance with Section 2c of this Act." (Ill. Rev. Stat. 1975, ch. 120, par. 440.) Section 2c states that with certain exceptions:
"no sale shall be made tax-free on the ground of being a sale for resale unless the purchaser has an active registration number or resale number from the Department and furnishes that number to the seller in connection with certifying to the seller that any sale to such purchaser is nontaxable because of being a sale for resale." Ill. Rev. Stat. 1975, ch. 120, par. 441c.
Cerro manufactures and sells wire and cable products at wholesale and retail. In 1977, the Department audited Cerro's books and records for the calendar years 1973, 1974 and 1975. During this period, Cerro paid retailers' occupation taxes in the amount of $3,033.67 based on retail sales of $75,841.75 and gross receipts of $4,907,714.47. Cerro and the Department signed an agreement authorizing the test check audit and specifying that the average monthly margin of error arrived at by the test check audit would be applied against the entire audit period. The audit was based on a test check of Cerro's sales records for the months of August 1973, October 1974 and April 1975. The auditor determined that Cerro improperly treated five sales, totaling $24,136.33, as wholesale sales. These sales were made to: Freeman Coal Mining ($718.13); Fife Florida Electric Supply Company ($1,834.96); and Nelson Electric Supply ($21,583.24). Although Cerro had claimed the sales were not subject to the retailers' occupation tax because they were sales for resale, the auditor rejected this argument because Cerro did not obtain the purchasers' registration or resale numbers as required by section 2c of the Act.
Cerro protested the assessed deficiency, and a hearing was held pursuant to section 4 of the Act (Ill. Rev. Stat. 1975, ch. 120, par. 443). At the hearing, Cerro presented statements signed by officials of Fife Florida Electric Supply Company and Nelson Electric Supply stating that the materials purchased during the questioned transactions were purchased for resale. The Department's hearing examiner rejected these statements and recommended issuance of the tax assessment because Cerro had not obtained resale numbers in compliance with section 2c of the Act.
In connection with the administrative review action in the circuit court of Cook County, Cerro submitted an opening memorandum which stated that neither Fife Florida Electric Supply Company nor Nelson Electric Supply had Illinois registration numbers; that Fife had mistakenly paid a 4% use tax to the State of Florida on its resale; and that a use tax had been paid to the Illinois Department of Revenue by Northern Petrochemical, an Illinois corporation which purchased Cerro's products from Nelson. Cerro also admitted in this memorandum that the sale to Freeman Coal Mining was not a sale for resale so that Cerro was liable for the retail tax thereon.
Based upon the recently decided Illinois Supreme Court case of Dearborn Wholesale Grocers, Inc. v. Whitler (1980), 82 Ill.2d 471, 413 N.E.2d 370, the circuit court reversed the Department's assessment and ordered the Department to repay to Cerro the amount of $21,390.85 plus interest from the date that amount had been paid. Specifically, the circuit court found that Cerro's customers were not purchasers as defined and contemplated by the Act and that, therefore, Cerro was not required to comply with section 2c of the Act.
In Dearborn Wholesale Grocers, Inc. v. Whitler, the court held that the Retailers' Occupation Tax Act did not apply to a seller of tangible personal property who was not engaged in the retail business. The taxpayer in that case had presented testimony that it made no sales at retail and that all of its sales, including those which were the subject of the assessment, had been made to retail grocery stores for the purpose of resale. On this basis, the court found that the taxpayer's customers were not purchasers since they had not acquired the tangible personal property through a sale at retail (Ill. Rev. Stat. 1979, ch. 120, par. 440) and thus the taxpayer was not subject to the Act or its reporting requirements.
In the instant case, Cerro relies on Dearborn and contends that it, too, is a wholesaler and that its disputed sales were in fact sales for resale and that those sales should not have been taxed as sales at retail merely because of a technical noncompliance with section 2c of the Act. The facts in the instant case are distinguishable, however, since Cerro, unlike Dearborn Wholesale Grocers, Inc., did engage in retail sales. Cerro admitted this fact in its pleadings and actually paid the retailers' occupation tax on sales totaling $75,841.75 during the tax years audited.
• 1 Furthermore, arguments similar to those made by Cerro were recently rejected in Illinois Cereal Mills, Inc. v. Department of Revenue (1982), 106 Ill. App.3d 53, 435 N.E.2d 774, appeal allowed (1982), 91 Ill.2d 569. In that case, the taxpayer sold its products almost entirely for resale but made a small amount of sales to ultimate consumers. The taxpayer had not complied with the documentation and verification requirements of section 2c of the Act but attempted to present other evidence that the disputed sales were for resale. This court held that section 2c applied to taxpayers who sell mainly for resale but who make some sales at retail and affirmed the Department's tax assessment since the taxpayer had not complied with section 2c. For similar reasons, we hold that Cerro was required to comply with section 2c of the Act and that its failure to do so subjected it to the tax liability assessed by the Department.
As alternative support for the circuit court's reversal of the tax assessment, Cerro contends that section 2c and section 1's reference to section 2c are unconstitutional. Cerro argues that these sections violate article IV, section 13 of the 1870 Illinois Constitution (Ill. Const. 1870, art. IV, sec. 13), which limited the contents of an act to the subject expressed in its title. Cerro also argues that sections 1 and 2 of the Act violate article IX, section 2 of the 1970 Illinois Constitution (Ill. Const. 1970, art. IX, sec. 2) because the exemption created by the Act for sales for resale is unreasonable.
Since the applicable provisions of sections 1 and 2c of the Act were enacted in 1965 and 1967, they are subject to the limitations of article IV, section 13 of the 1870 Constitution. (Dearborn Wholesale Grocers, Inc. v. Whitler.) As stated in Reif v. Barrett (1933), 355 Ill. 104, 188 N.E. 889, ...