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Acme Brick & Supply v. Dep't of Revenue

OPINION FILED MAY 31, 1985.

ACME BRICK AND SUPPLY COMPANY, PLAINTIFF-APPELLANT,

v.

THE DEPARTMENT OF REVENUE ET AL., DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Lake County; the Hon. John L. Hughes, Judge, presiding.

JUSTICE UNVERZAGT DELIVERED THE OPINION OF THE COURT:

The plaintiff, Acme Brick and Supply Company (Acme), appeals from the judgment of the circuit court of Lake County which affirmed a decision of the Illinois Department of Revenue (Department), which assessed Acme in the amount of $23,827.64 for overcollection of taxes.

Acme, located in Waukegan, is engaged in the business of selling building supplies to the public. Some of Acme's sales and deliveries are made in the State of Wisconsin. Acme is registered in Illinois for tax purposes but not in Wisconsin. It is subject to the Illinois Retailers' Occupation Tax Act (ROTA) (Ill. Rev. Stat. 1979, ch. 120, par. 440 et seq.).

A test check of Acme's records was done during an audit by the Department. It was discovered that during the period January 1977 through September 1979, Acme collected a tax on nontaxable sales. Acme was notified of its tax liability in June 1980. It protested the notice of tax liability and requested a hearing on the matter.

A hearing was conducted before a hearing officer on November 7, 1980. Testimony at the hearing showed that Acme paid (taxes) on a receipts' basis rather than a sales' basis. The Department examined Acme's invoices and found that Acme collected a 4% tax from the purchaser on interstate sales. The tax was stated on the invoices as "4%," "4% OE," "4% tax," or "4% Wisconsin tax." The parties agreed that the tax was collected on interstate sales.

Acme claimed it collected the 4% tax on the interstate sales because it thought it would have to pay Wisconsin, although it was not registered to pay taxes in that State. It later learned it was not required to register in Wisconsin. Acme did not pay the taxes to Wisconsin or Illinois, nor did it refund the money to the purchasers.

The Department assessed Acme for the amount of the taxes Acme collected on the interstate sales pursuant to Department rules and regulations. The rule, identified as article 8, section 1f, in the record, provided that if a seller collected an amount which purported to reimburse the seller for Retailers' Occupation Tax (ROT) liability measured by receipts where no such tax was assessed, the seller was liable to pay the Department the amount collected where the amount was not refunded to the purchaser.

A final assessment was issued by the Department and a revised final assessment was issued on October 22, 1982. Acme filed a complaint for administrative review of the assessment.

The trial court affirmed the Department's assessment against Acme. The Department did not assess a tax on Acme's sales in interstate commerce but based Acme's liability on section 2 of the ROTA. (Ill. Rev. Stat. 1979, ch. 120, par. 441.) The trial court found that Acme collected an amount from Wisconsin customers to reimburse itself for tax liability to which it was not subject because the transactions were exempt as sales in interstate commerce under section 2. The trial court determined that the purpose of section 2 was to prevent the unjust enrichment of the seller, which was a sufficient reason to allow the State to retain the amount of tax money Acme collected. It also held that express statutory authority existed for the Department to use an administrative assessment proceeding. (Ill. Rev. Stat. 1979, ch. 120, pars. 443, 444.) The trial court found that the decision of the Department was not contrary to the manifest weight of the evidence.

Acme appeals and enumerates three issues for review, which are: (1) whether the Department can collect a tax on sales made in interstate commerce and delivered in Wisconsin; (2) whether the Department acted beyond its authority when it sought to collect the money from Acme that Acme erroneously collected as a tax on sales made in interstate commerce; and (3) whether an administrative hearing was the proper procedure to collect the money from Acme that Acme erroneously collected as a tax on sales made in interstate commerce.

The ROT is not a tax on sales but is a tax on occupation (Howard Worthington, Inc. v. Department of Revenue (1981), 96 Ill. App.3d 1132), even though the tax is measured by the receipts from sales of goods (Pierce v. Pacini (1970), 127 Ill. App.2d 1). At the time this action began, the ROT imposed upon persons engaged in the business of selling tangible personal property at retail was 4% of the gross receipts. (Ill. Rev. Stat. 1979, ch. 120, par. 441.) Excluded from the gross receipts were the proceeds from certain sales as provided in (a) through (d) (hereinafter exemptions (a) through (d)). Generally, these sales were of farm chemicals; sales made to any government body, charitable, religious, or educational organizations; sales made to interstate carriers for hire for use as rolling stock; or the sale of machinery and equipment to be used primarily in the process of manufacturing property for resale. Section 2 further provided in the fourth paragraph that the ROT was not "imposed upon the privilege of engaging in any business in interstate commerce or otherwise." Ill. Rev. Stat. 1979, ch. 120, par. 441.

It is the last paragraph of section 2 which is the main source of controversy herein. It provides:

"If any seller collects an amount (however designated) which purports to reimburse such seller for retailers' occupation tax liability measured by receipts which are not subject to retailers' occupation tax, or if any seller, in collecting an amount (however designated) which purports to reimburse such seller for retailers' occupation tax liability measured by receipts which are subject to tax under this Act, collects more from the purchaser than the seller's retailers' occupation tax liability on the transaction is, the purchaser shall have a legal right to claim a refund of such amount from such seller. However, if such amount is not refunded to the purchaser for any reason, the seller is liable to pay such amount to the Department. This paragraph does not apply to an amount collected by the seller as reimbursement for the seller's retailers' occupation tax liability on receipts which are subject to tax under this Act as long as such collection is made in compliance with the tax collection brackets prescribed by the Department in its Rules and Regulations." Ill. Rev. Stat. 1979, ch. 120, par. 441.

In the first issue Acme argues the familiar general proposition that a State cannot interfere with interstate commerce by imposing a tax on interstate commerce. It then claims that the sales involved herein were sales in interstate commerce and, thus, were not taxable transactions. It argues the sales were ...


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