SUPREME COURT OF ILLINOIS
530 N.E.2d 501, 125 Ill. 2d 1, 125 Ill. Dec. 343 1988.IL.1545
Appeal from the Appellate Court for the First District; heard in that court on appeal from the Circuit Court of Cook County, the Hon. Earl Arkiss, Judge, presiding.
JUSTICE CLARK delivered the opinion of the court. JUSTICE MILLER, specially Concurring.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE CLARK
Federated Distributors initiated this action as a challenge to the Department of Revenue's ruling that Federated, a distributor of a low-alcohol-content beverage, must pay taxes on that beverage based solely on the method of production of the alcohol it contained. The trial court granted the Department of Revenue's (the Department's) motion for summary judgment and thereby upheld the constitutionality of the Department's classification of appellees' low-alcohol beverage (New Products) as "alcohol and spirits" and its tax of New Products at the rate of $2 per gallon under the Liquor Control Act of 1934 (the Act) (Ill. Rev. Stat. 1985, ch. 43, par. 93.9 et seq.). The appellate court reversed and found that New Products had "no real and substantial difference" from products known and marketed as wine coolers and should, therefore, be taxed at the same rate as wine and wine coolers. (163 Ill. App. 3d 27, 35.) Appellants are before this court pursuant to Supreme Court Rule 315(a)(107 Ill. 2d R. 315(a)).
The underlying question presented for our review is whether manufacturers and importing distributors of "New Products" should constitutionally be taxed at the same rate as wine and wine coolers or at a rate which is over eight times higher than that pursuant to the Department's interpretation of the tax classification system in the Liquor Control Act (Ill. Rev. Stat. 1985, ch. 43, par. 158). In order to answer this question, we must determine whether the "real and substantial differences" test is the appropriate measure to assess the constitutionality of the tax imposed on the manufacturers and importing distributors of New Products pursuant to the Liquor Control Act and, if that is the appropriate test, whether there is a real and substantial difference between New Products and wine coolers. Our review will require an analysis of the taxation limitations imposed under the Illinois Constitution of 1970.
"§ 1-2. This Act shall be liberally construed, to the end that the health, safety and welfare of the People of the State of Illinois shall be protected and temperance in the consumption of alcoholic liquors shall be fostered and promoted by the sound and careful control and regulation of the manufacture, sale and distribution of alcoholic liquors." Ill. Rev. Stat. 1985, ch. 43, par. 94.
"§ 1-3.02. 'Spirits' means any beverage which contains alcohol obtained by distillation, mixed with water or other substance in solution, and includes brandy, rum, whiskey, gin, or other spiritous liquors, and such liquors when rectified, blended or otherwise mixed with alcohol or other substances." Ill. Rev. Stat. 1985, ch. 43, par. 95.03.
"§ 1-3.03. 'Wine' means any alcoholic beverage obtained by the fermentation of the natural contents of fruits, or vegetables, containing sugar, including such beverages when fortified by the addition of alcohol or spirits, as above defined." Ill. Rev. Stat. 1985, ch. 43, par. 95.03.
"§ 8-1. A tax is imposed upon the privilege of engaging in business as a manufacturer or as an importing distributor of alcoholic liquor other than beer at the rate of 23 cents per gallon for wine containing 14% or less of alcohol by volume, 60 cent per gallon for wine containing more than 14% of alcohol by volume, and $2.00 per gallon on alcohol and spirits manufactured and sold or used by such manufacturer, or as agent for any other person, or sold or used by such importing distributor, or as agent for any other person. A tax is imposed upon the privilege of engaging in business as a manufacturer of beer or as an importing distributor of beer at the rate of 7 cents per gallon on all beer manufactured and sold or used by such manufacturer, or as agent for any other person, or sold or used by such importing distributor, or as agent for any other person." Ill. Rev. Stat. 1985, ch. 43, par. 158.
The relevant portions of the Illinois Constitution applicable to consideration of this case include the following provision:
"In any law classifying the subjects or objects of non-property taxes or fees, the classes shall be reasonable and the subjects and objects within each class shall be taxed uniformly. Exemptions, deductions, credits, refunds and other allowances shall be reasonable." Ill. Const. 1970, art. IX, § 2.
Appellees are manufacturers or importing distributors of low-alcohol-content beverages which have been characterized by the lower court as "New Products." A description and definition of the New Products beverages has been stipulated to by all parties:
"New Products are not produced by either distillation or fermentation, but contain not less than one-half of one percent (1/2 of 1%) and not more than fourteen percent (14%) alcohol by volume. They are produced from any combination of water, flavoring, fruit juices, vegetable juices, sugar, sugar syrup, preservatives and artificial carbonation, and are fortified by the addition of spirits."
The record also indicates that New Products compete for sales with other products which are virtually identical in all material respects, including percentage alcohol content and ingredients, except that these other products, known commercially as wine coolers, are fortified by the addition of wine rather than spirits. In essence, the difference ...