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05/17/88 Archer Daniels Midland v. the Department of Revenue

May 17, 1988





524 N.E.2d 1010, 170 Ill. App. 3d 1014, 120 Ill. Dec. 828 1988.IL.759

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


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


Plaintiff appeals from a decision of the circuit court of Cook County affirming the decision by the Department of Revenue (the Department) to assess tax, penalty and interest against ADM under the Illinois and municipal use taxes (Ill. Rev. Stat. 1985, ch. 120, par. 439.3; Ill. Rev. Stat. 1985, ch. 24, par. 8-11-6) on three jet aircraft owned by ADM. We affirm the imposition of the Illinois use tax, but reverse on the municipal use tax.

Plaintiff is a Delaware corporation with its world headquarters located in Decatur, Illinois, the management and operation of which are centralized and located primarily at ADM's headquarters in Decatur. Given its centralized management and its operations in all States, it is essential to ADM's business that it own several aircraft. The use of such aircraft is limited to approximately 20 corporate officers and employees, and authorization for their use and approval of all who may be passengers thereon must be had from one of these officers and employees. Each ADM aircraft is used solely and exclusively at the direction of ADM personnel for business purposes.

The three aircraft at issue are: (1) N244A, a Falcon 10 aircraft purchased on December 10, 1979, for $2,906,148; (2) N344A, a Falcon 10 aircraft purchased on July 15, 1980, for $2,353,845; and (3) N444AD, a KingAir Beechcraft aircraft purchased on September 5, 1980, for $1,100,000. Each aircraft was purchased at retail from a retailer in another State, and ADM accepted delivery, took title and registered each aircraft with the Federal Aviation Administration in Wilmington, Delaware, on the date of purchase, although at the time of purchase each aircraft was located and hangared in St. Louis, Missouri. The parties have stipulated that a legitimate business purpose was served by the presence of the aircraft in Missouri. The record does not reveal, and ADM does not allege, that either a use, sale or occupation tax was paid at the time of purchase, or at any time thereafter, in the State of purchase or in any other State. After some interstate flights from Missouri, each aircraft entered Illinois 30 days after its purchase, and each was thereafter hangared and maintained at Decatur, Illinois. In excess of 90% of the flight segments (i.e., one takeoff and one landing) of aircraft N244A and N344A are from Decatur to destinations outside Illinois. With respect to N444AD, in excess of 70% of its flight segments are from Decatur, Illinois, to destinations outside Illinois.

The Department of Revenue conducted a tax audit of ADM for the period from January 1978 through December 1981 (the audit period), and on February 22, 1985, it issued a "Notice of Tax Liability" relating to the ADM aircraft and assessing tax, interest and penalties due under the Illinois and municipal use taxes. ADM timely filed its administrative protest of the NTL on March 5, 1985, and after a hearing the administrative law Judge excluded from the NTL the amounts of tax, penalty and interest assessed upon a fourth aircraft owned by a wholly owned subsidiary, under exclusive control of that subsidiary and which had only 18 Illinois landings or takeoffs out of a total of 400. The remainder of the decision of the administrative law Judge resulted in the issuance of a final assessment on October 1, 1986. ADM appealed this decision to the circuit court.

At the hearing before the trial Judge ADM argued that the taxable moment doctrine, which permits the imposition of a use tax upon the occurrence of an intrastate event which sufficiently interrupts the flow of interstate commerce, is the threshold test to be applied in determining whether such a tax may be imposed on interstate commerce. If a taxable moment has occurred, ADM continued, the four-prong test of Complete Auto Transit, Inc. v. Brady (1977), 430 U.S. 274, 51 L. Ed. 2d 326, 97 S. Ct. 1076, must be applied. The Department contended that Complete Auto overruled the need for the taxable moment doctrine, and that a tax is proper if the Complete Auto test is met. In affirming the decision of the administrative law Judge, the trial Judge traced the development of a State's power to tax interstate commerce, beginning with Gibbons v. Ogden (1824), 22 U.S. (9 Wheat) 1, 6 L. Ed. 23, and noted that

"[the] historical review of the Commerce Clause reveals the shift of positions: (1) originally, the Commerce Clause in essence prohibited State Taxation; (2) then the clause was construed as permitting some taxation (Cooley v. Board of Wardens (1851), 54 U.S. 299); (3-4) direct and indirection [ sic ] then became the guiding distinction. Direct taxes were prohibited and indirect taxes were authorized if the state tax imposed cumulative burdens on interstate commerce which were not imposed on local commerce; (5) generally commentators have now taken the position that Complete Auto Transit is [the proper test.]"

The Judge then concluded that the modern trend was in favor of an economic analysis in which the main inquiry focuses upon the nexus between the taxpayer's activities and the State. He then held:

"The requirement of the 'taxable moment' need not be satisfied if the four prong Complete Auto Transit test is met. There is an overlap between the concept of the 'taxable moment' and the sufficient nexus required under Complete Auto Transit in that the taxable moment may, but need not, constitute the sufficient nexus. The fact that a corporation has headquarters in a state and uses the state as a home base for its property can be sufficient nexus with respect to that property."

ADM appeals from the decision of the circuit court.

Opinion I The Illinois use tax provides in part as follows:

"ยง 3. A tax is imposed upon the privilege of using in this State tangible personal property . . . purchased at retail from a retailer. Such tax is at the rate of 5% of either the selling price or the fair market ...

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