APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, FIRST DIVISION
516 N.E.2d 756, 163 Ill. App. 3d 509, 114 Ill. Dec. 601 1987.IL.1689
Appeal from the Circuit Court of Cook County; the Hon. Joseph M. Wosik, Judge, presiding.
PRESIDING JUSTICE QUINLAN delivered the opinion of the court. O'CONNOR and MANNING, JJ., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE QUINLAN
Appellants Illinois Bell Telephone Company and a taxpayer class represented by Michael Frost (Frost) appeal from a decision of the circuit court of Cook County which held that the Chicago Messages Tax Ordinance (Municipal Code of Chicago, § 132 -- 30 et seq. (1984)) applied to revenue that IBT collected in relation to telephone directory advertising. IBT and the class represented by Frost contended that the City tax did not apply to telephone directory advertising. The appellees, City of Chicago (City), the City comptroller, Anthony Fratto (Fratto), and the class represented by James Concannon (Concannon), on the other hand, argued that the City messages tax did apply and that the revenue IBT derived from its contract with Reuben H. Donnelley Corporation (Donnelley) was taxable. Thus, the issue presented was one of statutory construction concerning whether the revenues IBT received from Donnelley pursuant to a contract, in which IBT provided assets and services to Donnelley to assist Donnelley in selling telephone directory advertising, was taxable under the Chicago Messages Tax Ordinance.
The City of Chicago Messages Tax Ordinance is an occupation tax imposed on the "Transmission of Messages by Electricity" and was enacted in December of 1955 pursuant to section 23-113 of the Municipal Code (1955 Ill. Laws 1900, codified at Ill. Rev. Stat. 1957, ch. 24, par. 23-113; Municipal Code of Chicago § 132-31 (1984)). This ordinance, known as the Messages Tax Ordinance, currently imposes a 5% tax upon the gross receipts of "all persons engaged in the business of transmitting messages by means of electricity." The ordinance defines "gross receipts" as "the consideration received for transmission of messages and for all services rendered in connection therewith." (Municipal Code of Chicago, § 132-30 (1984).) The City, Fratto, and the Concannon class argue here, as they did in the trial court, that the contract between IBT and Donnelley by which IBT receives revenue from Donnelley's
The litigation here began in September 1981, when James Concannon filed a class action seeking injunctive and declaratory relief against IBT for monies that Concannon claimed were owed to the City under the Messages Tax Ordinance. Thereafter, IBT filed a petition for writ of certiorari in the circuit court of Cook County in December of 1981, seeking reversal of the City's current administrative interpretation that the Messages Tax Ordinance applied to revenue IBT derived from its contract with Donnelley. In conjunction with its request for a writ, IBT sought to have the circuit court set aside the City Comptroller's notice of tax corrections to IBT for its November 1975 to June 1979 tax returns, which imposed an additional tax of $42,237,136 based on the current administrative determination of the City. In September 1982, IBT additionally filed a declaratory judgment action of its own against the City and Fratto and requested a declaration that the Messages Tax Ordinance did not apply to the revenue from its contract with Donnelley and, further, requested that an escrow fund be established for the taxes it was protesting by the lawsuit. Also in September of 1982, Michael Frost filed an action against the City, Fratto, and IBT, on behalf of a taxpayer class, seeking an adjudication that the application of the Messages Tax Ordinance was improper and a refund of the protested messages taxes collected.
All four suits were consolidated by the trial court. Following the consolidation, the parties agreed to a comprehensive stipulation of facts and eventually also agreed to a partial settlement of the issues presented in the four lawsuits. The partial settlement agreement in fact resolved most of the claims in the consolidated action, including the claim for taxes for directory advertising revenue up to and including September 14, 1983. However, the agreement did not settle the claim for taxes on interstate revenue *fn1 or the additional claim for taxes on directory advertising revenues prospectively, from September 15, 1983. These issues eventually proceeded to trial.
At trial the court rejected IBT's affirmative defenses and specifically found that the City was not estopped, as IBT had claimed, by the City comptroller's failure in the past to assess and collect taxes on advertising revenue. The trial court then held that the Messages Tax Ordinance was applicable to IBT's revenue from its directory advertising contracts, and further found that the so-called "Yellow Pages" that Donnelley published were "an essential instrumentality in connection with the peculiar service which . . . [the] telephone company [offered] for the public benefit and convenience." Consequently, the trial court dismissed the Frost class complaint which had requested a judgment, as a matter of law, that the directory advertising revenues were not taxable to IBT; denied IBT's motion for summary judgment; granted judgment on the complaint to the Concannon class; and awarded the Concannon class costs and attorney fees. IBT and the Frost class have now appealed to this court. The appellants, IBT and Frost, in their appeal contend that the assets and services
and its agreement to provide Donnelley directories to Donnelley's customers free of charge, further demonstrates that IBT's customer services and Donnelley's directory advertising are inextricably intertwined. Hence, the appellees assert that the trial court was correct in its determination that Donnelley's directory advertising was taxable under the ordinance and its decision should be affirmed.
The issue, thus, before this court is whether the Chicago Messages Tax Ordinance includes within its terms IBT's revenue derived from Donnelley's telephone directory advertisement. The Messages Tax Ordinance defines a taxable event in terms of "transmission of messages," which includes, in relevant part, the following:
"[The] furnishing, for a consideration, of services or facilities (whether owned or leased), or both, to persons in connection with the transmission of messages where such persons do not, in turn receive any consideration in connection therewith, but shall not include such furnishing of services or facilities for the transmission of messages to the extent that any such services or facilities for the transmission of messages are furnished for a consideration, by such persons, to other persons, for the transmission of messages." Municipal Code of Chicago, 132 -- 30 (1984).
We begin our analysis by observing that, contrary to IBT's assertions, the Concannon class did have standing to bring this action even though they were not the taxpayers in the first instance in this case. As our supreme court in Getto v. City of Chicago (1979), 77 Ill. 2d 346, 396 N.E.2d 544, stated in addressing the same issue in a different setting: "[clearly] Bell's subscribers, who have fully borne the burden of the city's message tax, have 'a personal claim, status or right which is capable of being affected' [citation], and thus have standing to bring this action." (77 Ill. 2d at 355-56, 396 N.E.2d at 548.) Further, the plaintiff class here has been paying an additional charge on residential telephone service since ...