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April 18, 1995


Appeal from the Circuit Court of Du Page County. No. 93-MR-0348. Honorable John S. Teschner, Judge, Presiding.

Rehearing Denied and Released for Publication June 14, 1995.

The Honorable Justice Doyle delivered the opinion of the court: McLAREN, P.j. and Hutchinson, J., concur.

The opinion of the court was delivered by: Doyle

JUSTICE DOYLE delivered the opinion of the court:

Defendant, the Department of Revenue (Department), appeals from the order of the trial court upon administrative review reversing the Department's decision that plaintiff, Thomas M. Madden & Company, is liable to the Department for use tax on a Town and Country slip form paver purchased by plaintiff in August 1988 in Wisconsin. The court found that the Department's decision that plaintiff failed to prove the paver was exempt from taxation was against the manifest weight of the evidence. The Department appeals, contending that the trial court erred in reversing the Department's decision, as the slip form paver did not qualify for the manufacturing exemption of the Use Tax Act (the Act) (35 ILCS 105/3-5(18) (West 1992)).

On or about August 8, 1988, plaintiff, a road contractor specializing in concrete paving, purchased a slip form paver (the paver) from Rexworks, Inc., of Milwaukee, Wisconsin, and took delivery of the paver in Illinois. Plaintiff did not pay any Wisconsin sales tax or Illinois use tax on the piece of machinery. On March 20, 1990, following an audit of plaintiff for the years 1981 through 1991, the Department determined that plaintiff was liable for $13,500 in use tax for the purchase of the paver. The Department issued a notice of tax liability and also imposed a penalty in the amount of $4,050. Plaintiff filed a timely protest based on its claim that the paver was not subject to use tax because the paver qualified for the manufacturing exemption set forth in section 3-5(18) of the Act (35 ILCS 105/3-5(18) (West 1992)).

An administrative hearing was held on plaintiff's claim on March 4, 1993. The Department's evidence consisted of the written results of its audit and the notice of tax liability. Plaintiff presented documentary evidence, consisting of the purchase invoice for the paver, a multipage brochure describing the operation of the paver, and 13 photographs depicting the paver in operation. Additionally, plaintiff presented testimonial evidence from two witnesses, John Jacobs, an aggregate equipment specialist who had sold the paver in question to plaintiff, and Robert Madden, Jr., president of Thomas M. Madden & Company.

Both Jacobs and Madden testified as to their familiarity with functions of the paver. With the aid of photographs, the witnesses explained how the paver transforms raw concrete, i.e., a mixture of water, sand, gravel, and aggregate, into a finished product, the roadway. The testimony showed that after raw concrete is delivered to a jobsite and discharged onto the roadbed, the paver is run over the concrete. A screw-like device, an augur, keeps the concrete from segregating by moving across it from side to side and spreading it to the required dimensions of the roadway. Once the augur spreads the concrete, a "strike-off assembly" flattens and smooths out the concrete. Next, vibrators move the coarser stone down off the top of the surface and bring the finer sand and cement to the top, eliminating any air pockets in the concrete. Last, a "tamper bar" pushes the concrete down creating a smooth surface. Left behind the machine after it passes over the concrete is the "finished product of roadway."

Jacobs acknowledged that the paver does not make concrete. It forms the concrete into a product that can be used by the end user, i.e., anyone who has contracted to have a road put in, for example, the Department of Transportation. Both Jacobs and Madden stated that Illinois requires that a paver be used to produce a functional road.

On April 26, 1993, the Department issued its notice of decision, accepting the administrative judge's recommendation that plaintiff be denied an exemption from the Act because the paver was used in the construction of roadways, which, according to the administrative judge, constituted real property. Subsequently, plaintiff filed a complaint for administrative review. Following a hearing on plaintiff's complaint, the trial court reversed the Department's decision, finding it was against the manifest weight of the evidence. This appeal followed.

An administrative agency's decision may be reversed only if it is factually against the manifest weight of the evidence or if it is legally erroneous. ( Chicago & North Western Transportation Co. v. Illinois Commerce Comm'n (1992), 230 Ill. App. 3d 812, 815, 172 Ill. Dec. 763, 596 N.E.2d 42.) In the present case no factual dispute exists. It is uncontested that plaintiff, a road contractor specializing in concrete paving, purchased a slip form paver in Wisconsin in August 1988 on which he paid no use tax. Thus, this court is faced only with a question of law, i.e., whether the paver was subject to taxation under the Use Tax Act. (35 ILCS 105-3 (West 1992).) When the question raised on review is purely legal, such as statutory construction, an agency's interpretation should receive deference because it flows from its experience and expertise, but our review is de novo. Board of Education of Du Page High School District No. 88 v. Illinois Educational Labor Relations Board (1992), 246 Ill. App. 3d 967, 973-74.

Under the Use Tax Act, a tax is imposed "upon the privilege of using in this State tangible personal property purchased at retail from a retailer." (35 ILCS 105/3 (West 1992).) Plaintiff's position, here, as throughout the proceedings leading up to this appeal, is that the slip form paver is exempt from taxation because it falls within the manufacturing exemption to the Act. (35 ILCS 105/3-5(18) (West 1992).) That exemption applies to "manufacturing and assembling machinery and equipment used primarily in the process of manufacturing or assembling tangible personal property for wholesale or retail sale or lease." (35 ILCS 105/3-5(18) (West 1992).) The Department contends, however, that this exemption does not pertain to the paver because it does not manufacture or assemble tangible personal property.

To determine whether the paver is exempt from use tax involves engaging in a two-tier analysis, as our supreme court did in Van's Material Co. v. Department of Revenue (1989), 131 Ill. 2d 196, wherein the court decided that a ready-mix concrete truck was exempt from the tax under the manufacturing exemption of the Act. The court's analysis entailed analyzing the exemption itself to determine the boundaries of the statute and then deciding if the statutory exemption was applicable to that particular case. (131 Ill. 2d at 201-02.) We apply this same analysis to the present case.

Our objective in construing the manufacturing exemption statute is to determine and give effect to the intent of the legislature ( Highland Park Women's Club v. Department of Revenue (1990), 206 Ill. App. 3d 447, 456), and that intent is best evidenced by the language used by the legislature ( Kraft, Inc. v. Edgar (1990), 138 Ill. 2d 178, 189, 149 Ill. Dec. 286, 561 N.E.2d 656). Statutes granting tax exemptions are to be construed strictly in favor of the taxing body and against exemption, and the party claiming an exemption bears the burden of clearly ...

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