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09/27/89 the Department of Revenue v. the Department of Revenue

September 27, 1989

SUPREME COURT OF ILLINOIS VAN'S MATERIAL COMPANY, INC., APPELLEE

v.

THE DEPARTMENT OF REVENUE ET AL., APPELLANTS



545 N.E.2d 695, 131 Ill. 2d 196, 137 Ill. Dec. 42 1989.IL.1510

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.

APPELLATE Judges:

JUSTICE CLARK delivered the opinion of the court.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE CLARK

At issue in this case is whether the purchase of ready-mix concrete trucks is subject to either the Use Tax Act (Ill. Rev. Stat. 1985, ch. 120, par. 439.1 et seq.) or the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1985, ch. 120, par. 440 et seq.) or whether those statutes' exemptions for machinery used primarily for manufacturing tangible personal property (Ill. Rev. Stat. 1985, ch. 120, pars. 439.3, 441) are applicable to such a purchase. In June 1985, Van's Material Company (Van's), an Illinois corporation operating its business in Midlothian, Illinois, purchased two ready-mix concrete trucks from Oshkosh Truck Corporation in Oshkosh, Wisconsin. Van's paid the use tax on the purchase price of both trucks to the Department of Revenue (the Department) under protest. In August 1985, Van's filed a complaint, in the circuit court of Cook County, for declaratory judgment against the Department, seeking to establish that ready-mix concrete trucks are not subject to the Use Tax Act or ROTA pursuant to the respective statutory exemptions. Van's also sought a refund of taxes paid under protest on the trucks. The trial court granted summary judgment in favor of the Department and its officers, relying extensively on the Department's regulations, and denied Van's motion for summary judgment. The appellate court reversed and remanded with instructions to enter summary judgment in favor of Van's. (173 Ill. App. 3d 284, 291.) For the reasons stated below, we affirm.

Van's is engaged in the business of manufacturing, selling and delivering ready-mix concrete. To carry out its business, Van's owns 15 ready-mix concrete trucks, the newest two being the focus of this case. The manufacturing process for ready-mix concrete begins when the four component parts, sand, limestone, water and cement, in specific proportions, are loaded into the turning hollow drum mixer on the ready-mix concrete truck. This initial phase is referred to as the charging process. Once the charging process is completed, the second phase, referred to as the mixing process, begins. When the mixer is rotating at its highest speed, the mixing process can be completed in about 8 to 10 minutes. The mixer must continue to rotate, however, until delivery of the ready-mix cement is completed. During this process, the truck's engine must be kept running at all times, as it is the source of power which keeps the mixer rotating.

Once the ready-mix concrete truck reaches the delivery site, tests are performed on the product to ascertain the quality of the ready-mix concrete. Adjustments are made to the contents, as necessary, by adding water. When the product is the desired consistency and the purchaser of the product is prepared to receive the product, the ready-mix concrete is discharged from the truck into a chute which is directed to the specific location determined by the purchaser. At this point, the consistency of ready-mix cement is described as "mushy." After discharging its load of ready-mix cement, the truck returns to Van's to begin the manufacturing process again.

The ready-mix concrete is formed into the desired shape by the purchaser after delivery. The product, which began in a "mushy" state at delivery, reaches a solid state within 24 hours; the full curing process, however, can take up to 28 days or longer.

The specific Use Tax Act provisions being construed in this case exempt taxation of certain purchases of machinery and equipment:

"A tax is imposed upon the privilege of using in this State tangible personal property . . .. . . .

The tax imposed by this Act does not apply to the use of machinery and equipment primarily in the process of the manufacturing or assembling of tangible personal property for wholesale or retail sale . . .. This exemption includes machinery and equipment which replaces machinery and equipment in an existing manufacturing facility as well as machinery and equipment which is for use in an expanded or new manufacturing facility." (Ill. Rev. Stat. 1985, ch. 120, par. 439.3.)

The Act also defines "manufacturing process" in the same section:

"'anufacturing process' shall mean the production of any article of tangible personal property, whether such article is a finished product or an article for use in the process of manufacturing or assembling a different article of tangible personal property, by procedures commonly regarded as manufacturing, processing, fabricating, or refining which changes some existing material or materials into a material with a different form, use or name." Ill. Rev. Stat. 1985, ch. 120, par. 439.3.

The provisions of the Retailers' Occupation Tax Act which address the manufacturing exemption are substantially identical. (See Ill. Rev. Stat. 1985, ch. 120, par. 441.) This court has noted the similarity between the two acts in the past: "Functionally, the Use Tax Act serves to tax property purchased out of State by Illinois residents that is not taxable under the Retailers' Occupation Tax Act or the tax act of another State. The Use Tax Act thus prevents the avoidance of the Retailers' Occupation Tax Act . . .." (Chicago Tribune Co. v. Johnson (1985), 106 Ill. 2d 63, 68.) Although the initial action of Van's sought a declaratory judgment as to both the use tax and the tax under the ROTA, the purchase here under consideration was specifically subject to the provisions of the Use Tax Act (Ill. Rev. Stat. 1985, ch. 120, par. 439.1 et seq.). While we address the question before us in terms of the use tax, our decision is applicable to both acts.

The Department contends that the appellate court misstated the standard of construction for tax exemption provisions; that a ready-mix concrete truck is not machinery used primarily in the manufacturing process; that the exemption is limited to machinery used in a manufacturing facility with a fixed location; that granting the exemption to ready-mix concrete trucks does not serve the legislative purpose; and that even if the mixer is tax-exempt, the truck chassis is subject to the use tax. Van's argues that the language of the statute and the legislative history of the exemption support its contention that the ready-mix concrete truck in its entirety is machinery used in the manufacturing process and that the Department's regulation requiring that the manufacturing process take place in a fixed location is unduly restrictive. In essence, we are being asked to determine whether or not the purchase of a ready-mix concrete truck is exempt from the use tax.

To answer the question we must engage in a two-tier analysis. The first tier requires construction of the statute; the second tier requires that we determine whether the statutory exemption applies. The mere fact that an exemption is involved in the statute does not negate the necessity to first strictly construe the statute prior to determining the boundaries of the exemption. Only after the statute has itself been analyzed can we determine if the exemption fits the particular case. (See Canteen Corp. v. Department of Revenue (1988), 123 Ill. 2d 95, 105-07.) The State's attempt to jump to the second tier without having crossed the first misapplies the law.

In construing a taxing statute, as correctly noted by the appellate court, this court has long held that "[t]axing statutes are to be strictly construed. Their language is not to be extended or enlarged by implication, beyond its clear import. In cases of doubt they are construed most strongly against the government and in favor of the taxpayer." Mahon v. Nudelman (1941), 377 Ill. 331, 335; see also Canteen Corp. v. Department of Revenue (1988), 123 Ill. 2d 95, 105; Chet's Vending Service, Inc. v. Department of Revenue (1978), 71 Ill. 2d 38, 42.

In strictly construing the similar provisions of the Use Tax Act and the ROTA, the primary rule is to ascertain and give effect to the intention of the legislature, and that inquiry must begin with the language of the statute. (Canteen Corp. v. Department of Revenue (1988), 123 Ill. 2d 95, 104; Metropolitan Life Insurance Co. v. Washburn (1986), 112 Ill. 2d 486, 492.) In addition to considering the language of the statute, a court may properly consider the purposes to be attained by the law, the necessity for the law and the evils sought to be remedied. (Canteen Corp., 123 Ill. 2d at 104; Stewart v. Industrial Comm'n (1987), 115 Ill. 2d 337, 341.) The legislative history or background of a statute (e.g., legislative committee reports as well as House and Senate floor debates) may be an instructive resource in ascertaining the legislative intent. (Chicago Tribune Co. v. Johnson (1985), 106 Ill. 2d 63, 69.) We also note that, generally, administrative interpretations of a statute promulgated by the agency charged with the administration and enforcement of the statute receive some respect and deference from the courts, but they are clearly not ...


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