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02/09/89 Union Electric Company, v. the Department of Revenue

February 9, 1989





534 N.E.2d 1028, 180 Ill. App. 3d 1, 128 Ill. Dec. 583

Appeal from the Circuit Court of Sangamon County; the Hon. C. Joseph Cavanagh, Judge, presiding. 1989.IL.157


JUSTICE LUND delivered the opinion of the court. KNECHT, J., concurs. PRESIDING JUSTICE McCULLOUGH, Dissenting.


Plaintiff Union Electric Company purchased Illinois coal solely for the use of its Missouri-located generating plants. Because of the method of transferring the coal to Missouri, the Department of Revenue of the State of Illinois (Department) claimed unpaid use taxes, together with penalties and interest. Plaintiff paid the claim taxes, with penalties and interest, under protest and sued for a refund. The circuit court of Sangamon County ruled in plaintiff's favor, ordering the refund. Department appeals.


Plaintiff contracted to buy coal from two Franklin County, Illinois, coal mining operations, Old Ben Coal Company (Old Ben) and Inland Steel Coal Company (Inland). All coal purchased, now in issue, was to be used at plaintiff's Meramec Power Plant (Meramec) located in the State of Missouri. Meramec coal is delivered solely from barges to the Mississippi River plant site. The coal left both Old Ben and Inland's Franklin County operations on the Missouri-Pacific Railroad, traveling to Cora Dock Corporation (Cora Dock) at Cora, Illinois, where the coal was transferred from train cars to river barges. Cora, Illinois, a small village on the Mississippi River, is located approximately 45 miles southwest of Benton, the county seat of Franklin County.


Plaintiff's contract with Old Ben provided for the coal to be delivered to Federal Barge for shipment to Meramec. Federal Barge made the arrangements for the use of railroad cars for transportation of the coal from Old Ben to Cora Dock. Missouri-Pacific was the only railroad with lines to Cora Dock, and the only railroad with an applicable tariff. The agreement provided, as to the coal going to Meramec, as follows:

"[Shipment] shall be for delivery to Federal Barge Lines, a common carrier, or other designated barge common carrier, F.O.B. designated dock for further shipment to Buyer's destination power plant in Missouri. Buyer shall be responsible for scheduling coal shipments via common carrier acceptable to both parties and for unloading coal at its power plants in Missouri.", Plaintiff agreed to reimburse Old Ben for all freight costs paid by Old Ben, except for certain penalties.

Plaintiff's purchase orders, used to buy coal from Inland, show the coal to be shipped "via the MoPac R.R. to the Cora Dock, Cora, Illinois, for transshipment beyond to Union Electric's Meramec Plant . . . in Federal Barge Lines barges." Inland prepaid the freight "as specified in the basic order."

Plaintiff contracted with Cora Dock to transfer the coal from rail to barge when arriving at Cora Dock. Cora Dock made all arrangements for the barges, including selection of United Barge Company, a common carrier, to ship the coal to Meramec. Neither Cora Dock nor United Barge was owned by plaintiff.

The January 1, 1981, agreement between plaintiff and Cora Dock Corporation includes the following:

"WHEREAS, Union has arranged or will arrange with the coal supplier to load cars for the transport of said coal to the coal transfer facility located in the vicinity of Cora, Illinois (hereinafter called 'Terminal'); and

WHEREAS, Union desires to enter into an agreement with Cora pursuant to which Cora will handle and receive unit train deliveries of the coal at the Terminal, transfer the coal to barges, and transport and deliver said coal by river barges to Union's generating plant known as the Meramec Plant located in St. Louis County, Missouri."

The original term of the January 1, 1981, contract extended from February 1, 1981, through December 31, 1984. A December 18, 1984, amendment, effective January 1, 1985, extended the term of the agreement to April 30, 1985. Other changes made by the amendment are not material to this litigation.

Article III of the contract provided that Cora would provide railcars for delivery of coal to the terminal. Unloading was to be within four hours after arrival of the train. Plaintiff was responsible for paying all charges for loading and transporting the coal destined for the Meramec plant. Cora was responsible for detention charges relative to unloading coal under the applicable tariff. Plaintiff was responsible for reimbursing Cora for any additional expense should the coal arrive at the terminal frozen, should the top coal exceed two inches, or there were excessive fines.

The agreement provided Cora was to exercise reasonable care, and Cora was to obtain cargo insurance for the terminal-to-plant trip.

Cora agreed to let plaintiff or its subcontractor, at plaintiff's "expense and instructions," sample or use the automatic sampler at Cora while the coal was at Cora. The stipulation of facts entered into by the parties stated that while plaintiff had the right to sample or use the automatic sampler at Cora, no sampling was conducted at Cora by plaintiff or anyone else.

The agreement provided Cora was to supply a tow boat and barges. Cora had exclusive control of the methods of unloading, transferring, and loading of barges at the terminal, and of transporting and delivering the coal to the plant.

Article XI of the contract between plaintiff and Cora Dock specified that the agreement would not be construed as a contract by plaintiff for leasing any barge, two boats, or other equipment. None of the subcontractors, agents, servants, or employees of Cora would be regarded as plaintiff's employees. The agreement further stated Cora and its subcontractors "are in all respects independent contractors and . . . Union shall exercise no control over such barge, tow-boats or other equipment or the agents, servants or employees of Cora or its subcontractors except as specifically provided herein." The parties agreed the contract was to be governed by Missouri law. ILLINOIS USE TAX ACT AND REGULATIONS RELATING THERETO

The Illinois Use Tax Act (Use Tax) (Ill. Rev. Stat. 1983, ch. 120, pars. 439.1 through 439.51) complements the Retailers' Occupation Tax Act (Sales Tax) (Ill. Rev. Stat. 1983, ch. 120, pars. 440 through 453). The statutory provisions applicable to the present case are from section 3 of the Use Tax, and provide as follows:

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

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