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09/22/88 Russell Stewart Oil v. the State of Illinois

September 22, 1988

RUSSELL STEWART OIL COMPANY, APPELLEE

v.

THE STATE OF ILLINOIS, DEPARTMENT OF REVENUE, ET AL., APPELLANTS

THE GENERAL ASSEMBLY ALSO AMENDED SECTION 3 OF THE USE TAX ACT (ILL. RE

v.

STAT. 1985, CH. 120, PAR. 439.3) TO DEFINE THAT GASOHOL WHICH WAS TO BE ELIGIBLE FOR THE TAX BENEFIT SET OUT IN BOTH ACTS. THE AMENDED DEFINITION READS:



SUPREME COURT OF ILLINOIS

529 N.E.2d 484, 124 Ill. 2d 116, 124 Ill. Dec. 503 1988.IL.1422

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

APPELLATE Judges:

JUSTICE WARD delivered the opinion of the court. JUSTICE STAMOS took no part in the consideration or decision of this case.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WARD

The plaintiff, Russell Stewart Oil Company, brought an action for injunctive and declaratory relief in the circuit court of Cook County challenging the constitutionality of recent amendments to the Use Tax Act (Ill. Rev. Stat. 1985, ch. 120, par. 439.1 et seq.) and the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1985, ch. 120, par. 440 et seq.). Public Acts 84-223 and 84-220, effective September 1, 1985, amend both acts to establish a different tax rate structure for sales of gasohol containing ethanol which is distilled in Illinois or in a State which offers Illinois reciprocal tax benefits. (Ill. Rev. Stat. 1985, ch. 120, pars. 439.3, 441.) Section 3 of the Use Tax Act (Ill. Rev. Stat. 1985, ch. 120, par. 439.3) was also amended to change the definition of "gasohol." The amendment provided that the gasohol entitled to the reduced tax rate was gasohol "obtained from cereal grains or food processed by-products essentially derived from cereal grain." The plaintiff claimed that as amended, the statutes were unconstitutional because they discriminate against interstate commerce in violation of the commerce clause of the Constitution of the United States (U.S. Const., art. I, § 8, cl. 3). The circuit court of Cook County granted the plaintiff's motion for summary judgment, holding that the challenged statutes were unconstitutional under the commerce clause. A direct appeal to this court was taken pursuant to Rule 302(a)(1). 107 Ill. 2d R. 302(a)(1).

The facts were stipulated by the parties. The plaintiff, Russell Stewart Oil Company, is an Illinois corporation which owns and operates retail gas stations in Illinois, Iowa, and Wisconsin. At these stations, it sells "gasohol," which is a blend of nine parts gasoline and one part ethanol. Ethanol, a 199 proof alcohol, is obtained by fermenting raw materials, such as agricultural products, cellulosic materials or petroleum products. The plaintiff purchases ethanol and gasoline from sources, blends them into gasohol and sells the product at its stations.

Effective September 1, 1985, the General Assembly amended section 2 of the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1985, ch. 120, par. 441) and section 3 of the Use Tax Act (Ill. Rev. Stat. 1985, ch. 120, par. 439.3). The amendments set out a new tax rate structure for the sale of the gasohol produced from ethanol distilled in Illinois or in a State offering Illinois reciprocal tax benefits relating to gasohol. Both the Use Tax Act and the Retailers' Occupation Tax Act generally impose upon persons engaged in the business of selling tangible personal property at retail a tax at a rate of 5% on the gross receipts from sales made in the regular course of business. As originally enacted, sales of gasohol were taxed at the same rate without regard to where the ethanol used to produce the gasohol was distilled. As amended, however, both acts now provide:

"ith respect to gasohol as defined in the Use Tax Act in which the ethanol has been distilled in Illinois, such tax shall be imposed at the rate of 0% up to and including December 31, 1983; and at the rate of 1% from January 1, 1984 up to and including the date immediately preceding the effective date of this amendatory Act of 1985; and at the rate of 2% . . . from the effective date of this amendatory Act of 1985 up to and including May 31, 1986; and at the rate of 3% . . . from June 1, 1986 up to and including December 31, 1992; and at the rate of 5% thereafter." Ill. Rev. Stat. 1985, ch. 120, pars. 439.3, 441.

"'asohol' means motor fuel which is no more than 90% gasoline and at least 10% denatured ethanol which contains no more than 1.25% water by weight and is obtained from cereal grains or food processed by-products essentially derived from cereal grain." Ill. Rev. Stat. 1985, ch. 120, par. 439.3.

On September 15, 1985, the plaintiff filed this action seeking injunctive relief and a declaration that the amendments to the Retailers' Occupation Tax Act and the Use Tax Act were unconstitutional under both the United States and Illinois Constitutions. The plaintiff asserted that the amendments violated, inter alia, the commerce clause of the Constitution of the United States.

The circuit court granted the plaintiff's motion for summary judgment on the ground that the amended statutes discriminate against interstate commerce in their "purpose and effect," and therefore were unconstitutional under the commerce clause.

The Constitution of the United States provides that "[t]he Congress shall have Power . . . [t]o regulate Commerce with foreign Nations and among the several States." (U.S. Const., art. I, § 8, cl. 3.) While the clause speaks in terms of powers given the Congress, it has long been recognized that it also restricts the power of the States to regulate or tax entities engaged in interstate commerce. (Lewis v. BT Investment Managers, Inc. (1980), 447 U.S. 27, 35, 64 L. Ed. 2d 702, 711, 100 S. Ct. 2009, 2015; Southern Pacific Co. v. Arizona (1945), 325 U.S. 761, 769, 89 L. Ed. 1915, 1924, 65 S. Ct. 1515, 1520; Cooley v. Board of Wardens (1851), 53 U.S. (12 How.) 299, 13 L. Ed. 996.) There is no specific language imposing this restraint, but it has emerged from decisions of the Supreme Court giving effect to the basic purpose of the clause, that is, "to create an area of free trade among the several states." (Boston Stock Exchange v. State Tax Comm'n (1977), 429 U.S. 318, 328, 50 L. Ed. 2d 514, 523, 97 S. Ct. 599, 606, quoting McLeod v. J. E. Dilworth Co. (1944), 322 U.S. 327, 330, 88 L. Ed. 1304, 1306, 64 S. Ct. 1023, 1025.) The limitation upon State power under the commerce clause is not, however, absolute. The Supreme Court has held that the States, under our constitutional scheme, retain the authority, in the absence of conflicting Federal legislation, to regulate matters of "legitimate local concern," even though interstate commerce may be affected. Lewis v. BT Investment Managers, Inc. (1980), 447 U.S. 27, 35, 64 L. Ed. 2d 702, 711, 100 S. Ct. 2009, 2015; Great Atlantic & Pacific Tea Co. v. Cottrell (1976), 424 U.S. 366, 371, 47 L. Ed. 2d 55, 60, 96 S. Ct. 923, 928.

It is clear, however, that "[n]o State may, consistent with the Commerce Clause, 'impose a tax which discriminates against interstate commerce . . . by providing a direct commercial advantage to local business.'" (Boston Stock Exchange v. State Tax Comm'n (1977), 429 U.S. 318, 329, 50 L. Ed. 2d 514, 524, 97 S. Ct. 599, 607, quoting Northwestern States Portland Cement Co. v. Minnesota (1959), 358 U.S. 450, 458, 3 L. Ed. 2d 421, 427, 79 S. Ct. 357, 362.) Where the purpose of State legislation affecting interstate commerce amounts to "simple economic protectionism," a virtual per se rule of invalidity has been applied by the Court. (Bacchus Imports, Ltd. v. Dias (1984), 468 U.S. 263, 270, 82 L. Ed. 2d 200, 208, 104 S. Ct. 3049, 3054; Minnesota v. Clover Leaf Creamery Co. (1981), 449 U.S. 456, 471, 66 L. Ed. 2d 659, 673, 101 S. Ct. 715, 727; Lewis v. BT Investment Managers, Inc. (1980), 447 U.S. 27, 36, 64 L. Ed. 2d 702, 712, 100 S. Ct. 2009, 2015; Philadelphia v. New Jersey (1978), 437 U.S. 617, 624, 57 L. Ed. 2d 475, 481, 98 S. Ct. 2531, 2535.) Permitting individual States to enact laws favoring local businesses at the expense of out-of-State businesses would, in the language of the Court, "invite a multiplication of preferential trade areas destructive of the very purpose of the Commerce Clause." Dean Milk Co. v. Madison (1951), 340 U.S. 349, 356, 95 L. Ed. 329, 334, 71 S. Ct. 295, 299. See also Maryland v. Louisiana (1981), 451 U.S. 725, 754, 68 L. Ed. 2d 576, 600, 101 S. Ct. 2114, 2133; Boston Stock Exchange v. State Tax Comm'n (1977), 429 U.S. 318, 329, 50 L. Ed. 2d 514, 524, 97 S. Ct. 599, 607.

The Court, however, has stated that a statute which on its face is discriminatory against interstate commerce is not necessarily violative to the commerce clause if it "advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives." New Energy Co. v. Limbach (1988), 486 U.S. , , 100 L. Ed. 2d 302, 311, 108 S. Ct. 1803, 1810; Maine v. Taylor (1986), 477 U.S. 131, 138, 91 L. Ed. 2d 110, 120, 106 S. Ct. 2440, ...


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