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03/22/96 HESS v. DEPARTMENT REVENUE AND TREASURER

March 22, 1996

HESS, INC., PLAINTIFF-APPELLEE,
v.
THE DEPARTMENT OF REVENUE AND THE TREASURER OF THE STATE OF ILLINOIS, DEFENDANTS-APPELLANTS.



Appeal from the Circuit Court of St. Clair County. Nos. 91-CH-104, 93-CH-319. Honorable Ellen A. Dauber, Judge, presiding.

The Honorable Justice Kuehn delivered the opinion of the court: Goldenhersh, J., and Rarick, J., concur.

The opinion of the court was delivered by: Kuehn

JUSTICE KUEHN delivered the opinion of the court:

Defendants, the Department of Revenue of the State of Illinois and the Treasurer of the State of Illinois, appeal an order granting Hess, Inc.'s (Hess) summary judgment motion and denying the defendants' summary judgment motion.

At issue in this case is whether, under the Retailers' Occupation Tax Act (35 ILCS 120/1 et seq. (West 1994) (formerly Ill. Rev. Stat. 1991, ch. 120, par. 440 et seq.)), a retailer can rely upon a tax exemption certificate presented by a purchaser.

Hess sells construction materials to contractors. In January 1991, the Department of Revenue audited Hess's sales tax records covering the period from July 1, 1987, through June 30, 1990, and assessed a $50,466 deficiency with interest, for the sale of nonexempt merchandise to construction contractors. Hess paid that amount but paid $19,875 of the amount under protest pursuant to the State Officers and Employees Money Disposition Act (Ill. Rev. Stat. 1991, ch. 127, par. 172 (now 30 ILCS 230/2a (West 1994))). Within 30 days of payment, Hess sued the defendants to recover the protested amount. Thereafter, on October 25, 1993, the Department of Revenue audited Hess again. The audit covered the period from July 1990 through December 1992. The Department of Revenue assessed a deficiency in the amount of $4,918, with interest. The 1993 assessment was based upon the same violation. Hess paid the assessed amount but paid $3,806 of the amount under protest. Within 30 days, Hess again filed suit against the defendants. Ultimately, the two suits were consolidated.

Hess filed a summary judgment motion claiming that the taxes paid under protest were exempt pursuant to section 130.2075 of title 86 of the Illinois Administrative Code (86 Ill. Adm. Code § 130.2075 (1991)) because the contractor presented valid exemption certificates. Under Illinois law, materials purchased for conversion into real estate are exempt from sales tax if the materials purchased are related to a church, charity, school, or governmental body project. Ill. Rev. Stat. 1991, ch. 120, par. 441-5 (now 35 ILCS 120/2-5(11) (West 1994)).

The defendants also filed a summary judgment motion claiming that Hess was responsible for the assessed sales taxes because not all of the materials sold to the contractors were incorporated into the real estate as required under section 130.2075.

The defendants presented no evidence that the materials purchased by the contractors were not incorporated into the exempted real estate projects. Because of the passage of time, the defendants were unable to determine whether the materials sold were end-use items. For purposes of this litigation, the parties agree that the materials sold were end-use items.

The trial court entered summary judgment in Hess's favor, finding that because Hess received the requisite exemption certificates, Hess was not liable for sales and use taxes on those items sold to the construction contractors. The court further found that, under the regulation, Hess was not obliged to determine whether or not each item purchased was actually going to be incorporated into a church, charity, school, or governmental body real estate project. We agree and affirm the trial court.

Defendants contend that as its regulation does not provide that possession of a certificate is prima facie proof of exemption, Hess and other retailers may not rely upon the certificate but must determine at the point of purchase whether the items could ultimately become a part of realty. The specific language of the regulation is as follows:

"A supplier claiming exemption hereunder shall have among his records a certification from the purchasing contractor stating that his purchases are for conversion into real estate under a contract with a church, charity, school or governmental body, identifying the church, charity, school or governmental body that is involved by name and address and stating on what date his contract was entered into. The supplier shall also have among his records the active exemption number issued by the Department to the organization for which the purchasing contractor is acting." 86 Ill. Adm. Code § 130.2075(d)(4) (1991).

Defendants are correct that the applicable regulation lacks "prima facie" language. However, the regulation also contains no language placing a burden upon the retailer to inquire beyond the exemption certificate.

The other sales tax exemption regulations also contain no language placing a burden upon the retailer to inquire beyond the exemption certificate. These other regulations contain "prima facie" language or otherwise specifically place the tax burden upon the purchaser. 86 Ill. Adm. Code § 130.340(e) (1991) (if a rolling stock exemption certificate provided to a retailer is incorrect, the Department of Revenue will pursue payment of taxes from the purchaser); 86 Ill. Adm. Code § 130.1405(b) (1991) (an exemption certificate related to resale is prima facie proof that the sales were in fact made for resale); 86 Ill. Adm. Code § 130.350(e) (1991) (if a coal exploration sales tax exemption certificate provided to a retailer is incorrect, the purchaser is liable to the Department of Revenue for the tax); 86 Ill. Adm. Code § 130.305(m) (1991) (if a farm machinery sales tax exemption certificate provided to a retailer is incorrect, the purchaser is liable to the Department of Revenue for the tax); 86 Ill. Adm. Code § 130.355(a) (1991) (if a contractor certifies incorrectly that the materials purchased will be utilized in the construction of a pollution control facility, the ...


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