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03/31/87 Gas Research Institute, v. the Department of Revenue

March 31, 1987

GAS RESEARCH INSTITUTE, PLAINTIFF-APPELLEE

v.

THE DEPARTMENT OF REVENUE, DEFENDANT-APPELLANT



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, SECOND DIVISION

507 N.E.2d 141, 154 Ill. App. 3d 430, 107 Ill. Dec. 477 1987.IL.394

Appeal from the Circuit Court of Cook County; the Hon. Earl Arkiss, Judge, presiding.

APPELLATE Judges:

JUSTICE HARTMAN delivered the opinion of the court. SCARIANO, P.J., and STAMOS, J., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE HARTMAN

The Department of Revenue (Department) appeals the circuit court's reversal of its administrative finding that the Gas Research Institute was not entitled to a purchaser's charitable tax exemption from the Illinois sales tax. Ill. Rev. Stat. 1983, ch. 120, par. 441.

Plaintiff, Gas Research Institute , is a not-for-profit corporation organized in 1976 in response to the energy crisis of the early 1970s with the stated purpose of funding, encouraging, and conducting research and development of natural gas resources and uses. It has been exempted from Federal taxation and Illinois income tax as a charitable, educational, or scientific organization and is funded through a congressionally authorized $ .01-per-unit surcharge on interstate pipeline transfers of natural gas; the surcharge is passed directly on to consumers. GRI also receives royalties and licensing fees from products which it develops and markets to manufacturers and distributors. All licensing and royalty funds received by GRI are put back into research and development.

Products developed and marketed by GRI include: (1) a "burner insert" which reduces emissions in home furnaces; (2) a "ladle heater" which has reduced gas consumption by the steel industry; (3) a "post-combustion furnace" which has a 95% efficiency rating and saves homeowners with gas heat from $200 to $300 per year; (4) a "rock fracturing" technique which makes more natural gas accessible; and (5) a test for detecting gas leaks in residential furnaces and heat exchangers. GRI ranks proposed projects on the basis of ultimate benefit to the consumer, cost, practicality, and feasibility in order to allocate research money. The results of its research are made known through publication by the National Technology Information Service, sponsored by the United States Department of Commerce.

GRI possessed a sales tax exemption prior to September 29, 1983, apparently as a charitable not-for-profit corporation. On that date, it responded to a letter from the Department of Revenue (Department) which had questioned its tax exemption. On February 16, 1984, the Department, responding to GRI's letter, stated that it was not entitled to a tax exemption. On March 6, 1984, GRI requested a hearing on the "revocation" of its exempt status.

A hearing was held on June 14, 1984, at which GRI presented a number of exhibits. William Burnett, vice-president of GRI, appeared as the only witness. On July 11, 1984, GRI submitted a "supplemental brief" to the Department. Thereafter, the Department hearing officer found "that the end result of 's research is to make gas products . . . more competitive in the energy market" and "that the primary benefit of [its] activity [inures] to the gas industry with the public, at best, incidental beneficiaries." The hearing officer then held that he was "not persuaded that 's activity, however meritorious, should be subsidized by the people's tax dollars and therefore recommend[ed] that the denial of tax exempt status to Gas Research Institute by the Department of Revenue be sustained." On April 1, 1985, the Director of Revenue accepted the hearing officer's recommendation and issued an order sustaining the denial of tax exempt status to GRI.

On May 2, 1985, GRI timely filed a complaint in the circuit court of Cook County seeking administrative review (Ill. Rev. Stat. 1985, ch. 110, par. 3-101 et seq.) contending that the decision was "not in accordance with law." Following an exchange of memoranda, the circuit court reversed the Department's decision and, on March 17, 1986, ordered an exemption issued to GRI. The court found that the administrative decision too harshly tested the benefit conveyed to the public by GRI and that the accrual of benefits to the gas industry did not automatically preclude the transfer of benefits to the public at large as well. The Department appeals.

The Department contends that the circuit court erred and that it correctly revoked GRI's retail sales tax exemption after finding that the primary benefit of its activities inured to the gas industry and that the public was only an incidental beneficiary.

Section 3-110 of the Code of Civil Procedure concerning administrative review (Ill. Rev. Stat. 1983, ch. 110, par. 3-110) provides that the Department's factual findings and Conclusions are to be considered prima facie true and correct by the circuit court. (Murdy v. Edgar (1984), 103 Ill. 2d 384, 391, 469 N.E.2d 1085; Hammond v. City of Chicago (1985), 139 Ill. App. 3d 98, 101, 487 N.E.2d 87.) The circuit court's review is limited to determining whether the Department's finding was against the manifest weight of the evidence or whether its authority was exercised in an arbitrary and capricious manner (Murdy v. Edgar (1984), 103 Ill. 2d 384, 391); the court, however, is not bound by the Department's application or Conclusions of law (Board of Education v. Educational Labor Relations Board (1986), 143 Ill. App. 3d 898, 906-07, 493 N.E.2d 1130). In reviewing the administrative decision, the circuit court may not substitute its judgment for that of the Department (Gilliland v. Board of Education (1977), 67 Ill. 2d 143, 153, 365 N.E.2d 322; Green v. Edgar (1986), 151 Ill. App. 3d 163, 167, 502 N.E.2d 1193; Board of Education v. Educational Labor Relations Board (1986), 143 Ill. App. 3d 898, 906-07); the reasonableness or attractiveness of an opposite or alternative result is not a sufficient basis upon which to warrant judicial reversal of the Department's decision (Agans v. Edgar (1986), 142 Ill. App. 3d 1087, 1093, 492 N.E.2d 929; O'Boyle v. Personnel Board (1983), 119 Ill. App. 3d 648, 653, 456 N.E.2d 998). In order to set aside the findings of the Department as against the manifest weight of the evidence, the court must necessarily find the opposite Conclusion clearly evident from the evidence presented. Agans v. Edgar (1986), 142 Ill. App. 3d 1087, 1093, 492 N.E.2d 929; United Air Lines, Inc. v. Fair Employment Practices Com. (1979), 69 Ill. App. 3d 519, 523, 387 N.E.2d 875.

In the case sub judice, the circuit court did not explicitly find that the Department's decision was against the manifest weight of the evidence. Nevertheless, the reversal of the Department's decision was premised on the circuit court's finding that GRI conferred its primary benefit onto the public at large and not merely incidentally as the Department had found. Such a finding is one of fact, ...


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