SUPREME COURT OF ILLINOIS
525 N.E.2d 73, 123 Ill. 2d 95, 121 Ill. Dec. 267 1988.IL.826
Appeal from the Circuit Court of Cook County, the Hon. Earl Arkiss, Judge, presiding.
CHIEF JUSTICE MORAN delivered the opinion of the court.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE MORAN
Canteen Corporation sells at retail food and beverages by means of vending machines. In December 1983, Canteen filed with the Department of Revenue (Department) a claim for a credit of $868,609.49 for alleged overpayments of the Retailers' Occupation Tax between July 1980 and October 1983. Canteen alleged that it had paid the full rate of tax on all its sales during that period when it was entitled under section 2 of the Retailers' Occupation Tax Act (Act) (Ill. Rev. Stat. 1981, ch. 120, par. 441) to a reduced rate of tax for a large percentage of its sales. Section 2 provides in relevant part that food for human consumption which is to be consumed off the premises where it is sold, other than food which has been prepared for immediate consumption, is subject to a reduced rate of tax. After an administrative hearing, the Department denied plaintiff's claim for credit. The hearing officer, relying on prior opinion letters issued by counsel to the Director of Revenue and a Department regulation (86 Ill. Adm. Code 130.310 (1985)), which declared that sales of food from vending machines are sales of food for immediate consumption, held that all of plaintiff's sales were therefore subject to the full rate of tax.
Canteen (hereinafter plaintiff) timely filed a complaint for administrative review in the circuit court of Cook County. The circuit court reversed the Department's decision and ordered it to issue a credit for the amount of plaintiff's claim plus interest. The court was unable to discern a public policy reason justifying the imposition of the full rate of tax on plaintiff while at the same time imposing a reduced rate of tax on other sellers of the same products. The court concluded that the Department regulation providing that sales of food from vending machines were sales of food for immediate consumption (86 Ill. Adm. Code 130.310 (1985)) was inconsistent with section 2 of the Act and that the regulation, as applied to plaintiff, violated the uniformity clause of the Illinois Constitution (Ill. Const. 1970, art. IX, § 2). We allowed a direct appeal to be taken to this court under
Rule 302(b) (107 Ill. 2d R. 302(b)).
The issues presented for review are: (1) whether the regulation promulgated by the Department which provides that sales of food items from vending machines are sales of food prepared for immediate consumption is consistent with the statutory provisions governing exemptions from the Retailers' Occupation Tax; (2) if not, whether plaintiff established that items sold from its vending machines were consumed off the premises where sold; and (3) whether the classification of sales of food items from vending machines as sales of food prepared for immediate consumption violates the uniformity clause of the Illinois Constitution (Ill. Const. 1970, art. IX, § 2).
The relevant facts in this case are undisputed. Plaintiff sells at retail food and beverages by means of vending machines. According to Tom Brylka, tax manager for plaintiff, the food sold consists of prepackaged items such as chips, pretzels, candy, ice cream, milk, soft drinks, sandwiches, apples, and so on. All beverages are sold in closed containers and all of the food, except the sandwiches and fruit, is prepared and prepackaged by the manufacturer rather than plaintiff.
Brylka testified at the administrative hearing that when the food exemption of section 2 of the Act first went into effect, plaintiff paid the reduced rate of tax. Soon after, Brylka said, the Department conducted an audit and assessed a deficiency against plaintiff. Brylka also stated that plaintiff began to pay the full rate of tax on all of its sales from vending machines due in part to informal rulings made by the Director of Revenue in early 1980. Those informal rulings consisted of letters to the National Automatic Merchandising Association and the J & G Lace Company. The letters were written by counsel to the Director and stated that vending machines provide food primarily for immediate consumption.
Brylka also testified that plaintiff had eight vending districts in Illinois. Brylka stated that he directed the eight district managers to review the company books and records and estimate figures of the total sales of food consumed off the premises. Brylka's instructions indicated that "food consumed off the premises" meant food taken out of the room where the vending machines were located. However, according to Brylka, the district managers were to take into account specific site conditions or policies when determining the percentage of food consumed off the premises. In addition, Brylka instructed the district managers to exclude from the figures all sales of hot food items such as coffee or soup.
David Templeton, plaintiff's manager of vending for its Chicago South district, testified that he had been employed in the vending machine industry for 20 years. Based on his experience, he estimated that, in a room with three or four sets of tables and chairs and a bank of food vending machines, not more than 20% of the food sold would be consumed in that room.
Based on the reports compiled by the district managers and on plaintiff's tax returns for the relevant years, plaintiff prepared a claim of credit of $868,609.49 for the period of July 1980 to October 1983, for sales of food it alleged was consumed off the premises and not prepared for immediate consumption. All commissary-type sales, where the food was required to be consumed in the room, were eliminated from the claim for credit. Similarly excluded was a percentage of sales of food at locations where there were tables and chairs, and all sales of hot food.
Both the Department hearing officer and the circuit court Judge found special significance in two exhibits introduced at the administrative hearing which we wish to highlight here -- plaintiff's exhibits 12 and 13. Plaintiff's exhibit 12 consisted of a box containing a can of soda, a bag of potato chips, a bag of cookies, a candy bar, gum, microwave popcorn, a fruit drink and some cupcakes, all purchased from a 7-Eleven convenience store. Taxpayer's exhibit 13 consisted of a box containing the exact same items taken from plaintiff's warehouse to be installed in its vending machines. The items purchased from the 7-Eleven were taxed at the reduced rate of tax. (At the time of the hearing, the reduced rate of tax was 0%.) Templeton testified, and the hearing officer specifically noted, that there was absolutely no difference between the items from the 7-Eleven and plaintiff's warehouse. Templeton also stated that at least one of its manufacturer suppliers does not distinguish between or segregate which packages go to plaintiff and which go to a grocery store.
Section 2 of the Act imposes a tax upon persons engaged in the business of selling tangible personal property at retail at the rate of 4% of the gross receipts from such sales. (Ill. Rev. Stat. 1981, ch. 120, par. 441.) Section 2 also allows ...