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02/16/89 Commonwealth Edison v. the Department of Revenue

February 16, 1989

COMMONWEALTH EDISON COMPANY ET AL., PLAINTIFFS-APPELLEES

v.

THE DEPARTMENT OF REVENUE ET AL., DEFENDANTS-APPELLANTS



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, FOURTH DIVISION

535 N.E.2d 30, 179 Ill. App. 3d 968, 128 Ill. Dec. 816 1989.IL.191

Appeal from the Circuit Court of Cook County; the Hon. Anthony J. Scotillo, Judge, presiding.

APPELLATE Judges:

JUSTICE LINN delivered the opinion of the court. JIGANTI, P.J., and JOHNSON, J., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE LINN

The Westinghouse Electric Company contracted with the Commonwealth Edison Company to design, manufacture, and install four turbine-generators for use in two of Commonwealth Edison's nuclear power stations. The Illinois Department of Revenue assessed Commonwealth Edison $4,247,308.25 in use tax and interest on two of the generators. Commonwealth Edison paid the assessment under protest.

Plaintiffs, Commonwealth Edison and Westinghouse, subsequently brought an action in the circuit court of Cook County against defendants, the Department of Revenue, the Director of the Department, and the State treasurer. Plaintiffs claimed that the transaction was not subject to use tax, but rather, service use tax, which Commonwealth Edison paid. Plaintiffs sought, inter alia, a refund of the assessed amount. The trial court entered judgment for plaintiffs. Defendants appeal, assigning error to the trial court's findings and judgment.

We affirm the judgment of the trial court.

Background I

A brief review of the applicable tax law is necessary to better understand the facts in the case at bar. The Use Tax Act imposes a tax upon the privilege of using in Illinois tangible personal property purchased at retail out of State. (Ill. Rev. Stat. 1983, ch. 120, par. 439.3.) The use tax was designed to supplement the retailers' occupation tax , which applies to purchases made in the State. The primary purposes of the use tax are to prevent Illinoisans from avoiding the ROT by making out-of-State purchases, and to protect Illinois merchants against such diversion of business to out-of-State retailers. Klein Town Builders, Inc. v. Department of Revenue (1966), 36 Ill. 2d 301, 303, 222 N.E.2d 482, 484.

With some exceptions, the use tax is imposed at the same rate as the ROT. (Compare Ill. Rev. Stat. 1983, ch. 120, par. 439.3 with ch. 120, par. 441.) Further, if tangible personal property, bought in Illinois, would not be taxable under the ROT Act (Ill. Rev. Stat. 1983, ch. 120, par. 440 et seq.), then the use of that property is not taxable also under the Use Tax Act. Ill. Rev. Stat. 1983, ch. 120, par. 439.3.

In contrast to the use tax, the Service Use Tax Act (Ill. Rev. Stat. 1983, ch. 120, par. 439.31 et seq.) imposes a tax upon the privilege of using in Illinois real or tangible personal property acquired as an incident to the purchase of a service from a serviceman. At the time this action arose, the service use tax was less than the use tax. Ill. Rev. Stat. 1983, ch. 120, par. 439.33. II

Commonwealth Edison owns and operates the Byron Nuclear Power Station and the Braidwood Nuclear Power Station. Each station contains two units, and each unit requires a turbine-generator. In June 1972, Westinghouse contracted with Commonwealth Edison to design, manufacture, and install the four generators. They were delivered during 1978 through 1980. Also during this time, Commonwealth Edison paid service use tax on all four generators. Specifically, Commonwealth Edison paid a total of $1,259,291.85 in service use tax on the Byron Unit 2 and the Braidwood Unit 2 generators.

The record shows that defendants accepted the service use tax for the generators in Byron Unit 1 and Braidwood Unit 1. However, defendants concluded that the remaining generators, in Byron Unit 2 and Braidwood Unit 2, constituted a purchase of tangible personal property. Thus, the transaction was subject to use tax. Accordingly, defendants assessed Commonwealth Edison $2,708,068.97 in use tax and another $1,539,239.28 in interest, totaling $4,247,308.25.

On June 7, 1984, Commonwealth Edison paid the assessment under protest, pursuant to sections 2a and 2a.1 of the State Officers and Employees Money Disposition Act (Ill. Rev. Stat. 1983, ch. 127, pars. 172, 172a). On June 26, also pursuant to the statute, plaintiffs filed a complaint in the trial court against defendants. Plaintiffs sought initially a preliminary injunction restraining defendants from: (1) depositing the money into the State treasury, (2) transferring the money from the protest fund to any other fund, and (3) taking any action against plaintiffs to collect any of the money paid under protest. Reaching the merits, plaintiffs sought a refund of the assessment and an ...


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