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09/24/87 Answer Iowa, Inc., v. the Department of Revenue

September 24, 1987





514 N.E.2d 488, 161 Ill. App. 3d 247, 112 Ill. Dec. 825

Appeal from the Circuit Court of Sangamon County; the Hon. John B. Crain, Judge, presiding. 1987.IL.1425


JUSTICE GREEN delivered the opinion of the court. SPITZ, P.J., and McCULLOUGH, J., concur.


The plaintiff, Answer Iowa, Inc., appeals a circuit court order entered September 9, 1986, which affirmed a decision of defendant Department of Revenue of the State of Illinois (Department), holding it liable for taxes under sections 1 and 2 of the Messages Tax Act (Act) (Ill. Rev. Stat. 1983, ch. 120, pars. 467.1, 467.2). (The above provisions of the Messages Tax Act were repealed effective August 1, 1985 (Pub. Act. 84-126, art. VI, secs. 22, 25 (84 Ill. Laws 1457)), and are no longer in force. They were replaced by the Telecommunications Excise Tax Act (Ill. Rev. Stat. 1985, ch. 120, pars. 2001 through 2021).)

On December 22, 1980, the Department issued a notice of messages tax liability on the part of Answer Iowa for the period July 1977 through May 1980. The total amount claimed due was $33,731.15. Upon request of Answer Iowa a hearing concerning this tax assessment was held.

Randy Stemsrud, a revenue auditor, testified that he audited Answer Iowa's books in order to determine the company's messages tax liability. His basis for imposing messages tax liability on Answer Iowa was its leasing equipment to "Illinois customers," which those customers used in Illinois.

On cross-examination, Stemsrud stated, "[My] audit taxes the gross receipts from Illinois customers that were renting pagers and mobile equipment." His criterion for determining whether payments by individual customers were subject to the messages tax was the customer's mailing address in Answer Iowa's sales journal. The tax was applied to transactions involving those customers who had Illinois billing addresses. Stemsrud made no determinations concerning where messages were transmitted or received, where customers utilized leased equipment, or whether any of the messages subjected to the messages tax were messages in interstate commerce. He gave no credit for any Iowa tax shown to have been collected and paid by Answer Iowa "on this same customer service."

John Lund, Answer Iowa's president, testified that the company provides telephone answering, radio paging, and mobile telephone services. The messages to all subscribers to Answer Iowa's paging service pass through the company's Davenport, Iowa, office. Answer Iowa has no way of knowing the origin of calls to subscribers to its paging service. The company's reliable service area is approximately 15 to 20 miles from its transmitter, which is located in Iowa. Any paging message received in Illinois by an Answer Iowa customer would have to travel across the Illinois-Iowa State line.

Most of the above is also true of Answer Iowa's mobile telephone service. All calls must pass through the company's Davenport, Iowa, office, and the company has no way of knowing the origin of calls, or the location of one of its mobile telephones when a customer initiates a call.

Answer Iowa paid a 3% Iowa service tax, which is similar to a sales tax, on all of the revenues upon which the Department imposed the messages tax.

The billing addresses listed in Answer Iowa's accounts receivable do not identify the addresses where customers will be receiving service. It is not uncommon for Answer Iowa's customers to have billing addresses considerable distances from the area in which they receive Answer Iowa services. Answer Iowa is not licensed to do business in Illinois. All of its radios and pagers are issued to customers from the company's Davenport, Iowa, office.

On cross-examination by the hearing referee, Lund admitted that Answer Iowa has one transmitter in Illinois, but did not state that it was in use during the time that the revenues here at issue were received. (At oral argument, the parties appeared to agree that the Illinois transmitter was for the use of an Illinois subsidiary of Answer Iowa and was not in use during the relevant time period.) Lund further stated that Answer Iowa charges separately for the lease of pager boxes and for use of its system to forward messages to the pager boxes. He acknowledged that Answer Iowa has customers residing in Illinois who use its pager equipment.

Kenneth Rakers, an audit supervisor, stated that the Department was attempting to tax Answer Iowa's gross receipts from rental of its equipment, specifically pager boxes and "mobile equipment," to "customers in Illinois."

On cross-examination, Rakers testified it was his understanding that the messages tax was assessed on charges for pager leasing and "pager dispatch" services provided all Answer ...

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