Appeal from the Circuit Court of St. Clair County; the Hon.
Joseph F. Cunningham, Judge, presiding.
JUSTICE JONES DELIVERED THE OPINION OF THE COURT:
Plaintiff, Lake View Memorial Gardens, Inc. (Lake View), brought the instant action for administrative review of a decision by the Illinois Department of Revenue (Department) that Lake View was liable for retailers' occupation tax (see Ill. Rev. Stat. 1981, ch. 120, par. 440 et seq.) on its sales of burial vaults. The trial court reversed the Department's decision, finding that the sales of burial vaults were incidental to the plaintiff's sales of interment services and were, therefore, not taxable. On appeal the Department contends that the plaintiff's activity of selling burial vaults was separable from its activity of providing interment services and that the plaintiff was thus liable for tax on the sales of the vaults as tangible personal property. We agree and accordingly reverse the judgment of the trial court.
The plaintiff, Lake View, is a not-for-profit, federally tax-exempt corporation that operates a cemetery in Belleville, Illinois. In addition to selling burial lots, the plaintiff provides concrete containers, or burial vaults, to house caskets for burial purposes.
The Department issued a notice of tax liability against Lake View for retailers' occupation tax of $7,208.64 on its sales of burial vaults from January 1976 through March 1979, and a hearing was held pursuant to protest by the plaintiff. At the hearing David Tognarelli, an auditor for the Department, testified that he had audited the plaintiff and had found that the plaintiff, when contracting with purchasers of cemetery lots, had also sold burial vaults without charging tax on the sale price of the vaults. These vaults had been fabricated by the plaintiff above ground, and concrete had not been poured directly into the graves. Mr. Tognarelli stated that he had assessed a tax based upon the purchase price of the vaults but had given the plaintiff credit for tax that had already been paid on the cost of sand and other material used in making the vaults.
Loran Glock, manager of Lake View, testified that it is Lake View's business to provide suitable space for the interment of deceased human beings and to maintain the burial site perpetually. According to Mr. Glock, it is necessary to the proper maintenance of a burial site that the casket be placed in a concrete vault to prevent the grave site from caving in when it rains. In order to keep maintenance costs reasonable, the plaintiff's rules require that every interment be made with a concrete or steel burial vault. Thus, Mr. Glock stated, the plaintiff manufactures concrete vaults and makes them available to its customers at cost so as to make compliance with this requirement as easy as possible.
Mr. Glock testified further that the concrete vaults are sold only to lot owners on a "pre-need" basis and are not sold to the public at large. He stated, however, that families who purchase lots from Lake View are free to purchase the required vaults from a funeral director or other source, as Lake View is "not in the vault business." According to Mr. Glock, the average charge for interment rights at present is $300, and the purchase price of a burial vault is $200. These two figures would be listed separately on a sales contract rather than being stated as a lump sum covering both the interment rights and the burial vault. The reason for this is to give the lot owners the option of buying a permanent container from whomever they wish. The plaintiff's records showed that in 1978 it sold 184 vaults at an average price of $76.84 per container for a total amount of $14,140.
Harry Bloomer, an administrative assistant for the plaintiff, testified that the use of concrete vaults in the cemetery greatly reduces the maintenance required for a burial lot because it eliminates the need for filling in, resodding and reseeding the ground in case the grave sinks in. He stated that as far as he knew there was no other useful purpose for the concrete containers sold by the plaintiff. In response to questioning by the defendant, Mr. Bloomer acknowledged that the cost of care and maintenance of a burial site is the same regardless of whether the permanent container used is furnished by the plaintiff or purchased from another source. The proceeds from the sales of the vaults are kept by the plaintiff in a separate fund, and no part of the fund is used to cover the cost of maintenance.
Following the hearing, the Department adopted the hearing officer's recommendation that the assessment against the plaintiff be upheld. This recommendation was based upon a determination that the Department's rules regarding funeral directors and vendors of memorial stones evidenced a regulatory intent to tax the sales of the vaults even though these sales had been incorporated into a burial service. The hearing officer concluded, therefore, that the plaintiff's sales of burial vaults were subject to retailers' occupation tax despite the fact that the plaintiff operated a cemetery rather than a funeral parlor.
Upon administrative review the trial court reversed the Department's decision and entered judgment for the plaintiff. In an extensive memorandum of judgment, the court found that the plaintiff's "real" occupation was the selling of interment rights and that the sales of burial vaults were a necessary part of this service and thus incidental to the primary business of the plaintiff. The court stated:
"In the case at bar, the article sold, the concrete vault, has absolutely no value to the purchaser except as a necessary part of the services rendered by Lake View. In no way can the vault sales be construed to be the substance of the transaction. Rather, the sales of the vaults are merely incidental to Lake View's service of providing suitable internment [sic] space."
On appeal from this judgment the Department contends that the trial court misapplied the principles set forth by our supreme court for determining when a vendor is engaged in the business of selling at retail so as to be subject to retailers' occupation tax. In particular, the Department asserts, the court failed to recognize that the plaintiff was engaged in two separable activities: the taxable selling of vaults at retail and the nontaxable furnishing of interment and maintenance services. The Department maintains that since the value of the vaults sold by the plaintiff was readily ascertainable apart from the value of the services rendered, and since the plaintiff's maintenance services failed to affect or enhance the value of the vaults, the plaintiff came within the rule providing for taxation of a part of a taxpayer's business involving the sale of personal property, even when that sale is carried on in connection with or in aid of another part of the taxpayer's business that is itself exempt from tax.
Under the Retailers' Occupation Tax Act, at issue in this appeal, a tax is imposed upon "persons engaged in the business of selling tangible personal property at retail * * *." (Ill. Rev. Stat. 1981, ch. 120, par. 441.) This tax is an occupation tax, imposed for the privilege of conducting a retail business, and is not a tax upon sales. (Snite v. Department of Revenue (1947), 398 Ill. 41, 74 N.E.2d 877.) Thus, not all sales of personal property sold at retail for "use or consumption, and not for the purpose of resale" (Ill. Rev. Stat. 1981, ch. 120, par. 440) are subject to tax under the Act, as such sales may be an inseparable part of a special service rendered the purchaser. In that case, "the occupation of the vendor is that of furnishing service, and he is not engaged in the business of selling, since he does not undertake to sell any articles except those necessary and incidental to the service rendered the purchaser; * * *." Snite v. Department of Revenue (1947), 398 Ill. 41, 45, 74 N.E.2d 877, 879.
Because the tax applies only to the business of selling tangible personal property at retail and not to the business of furnishing service, questions calling for the characterization of a taxpayer's business have frequently arisen. (Sterling Steel Casting Co. v. Department of Revenue (1955), 7 Ill.2d 244, 130 N.E.2d 262.) In Snite v. Department of Revenue (1947), 398 Ill. 41, 46, 74 N.E.2d 877, 879-80, the supreme court set forth the applicable rules for determining when a vendor is engaged in the business of selling at retail. The court stated:
"If the article sold has no value to the purchaser except as a result of services rendered by the vendor and the transfer of the article to the purchaser is an actual and necessary part of the service rendered, then the vendor is engaged in the business of rendering service and not in the business of selling at retail. If the article sold is the substance of the transaction and the service rendered is merely incidental to and an inseparable part of the transfer to the purchaser of the article sold, then the vendor is engaged in the business of selling at retail, and the tax which he ...