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02/25/97 GEM ELECTRONICS MONMOUTH v. DEPARTMENT

February 25, 1997

GEM ELECTRONICS OF MONMOUTH, INC., PLAINTIFF-APPELLEE AND CROSS-APPELLANT,
v.
THE DEPARTMENT OF REVENUE, DEFENDANT-APPELLANT AND CROSS-APPELLEE.



Appeal from Circuit Court of Sangamon County. No. 94MR0253. Honorable Donald M. Cadigan, Judge Presiding.

As Corrected March 24, 1997.

Honorable Robert J. Steigmann, P.j., Honorable Rita B. Garman, J. - Concur, Honorable James A. Knecht, J. - Concur. Presiding Justice Steigmann delivered the opinion of the court.

The opinion of the court was delivered by: Steigmann

PRESIDING JUSTICE STEIGMANN delivered the opinion of the court:

In February 1990, defendant, the Illinois Department of Revenue (Department), assessed taxes on plaintiff, Gem Electronics of Monmouth, Inc. (Gem), under the Telecommunications Excise Tax Act (Telecommunications Act) (35 ILCS 630/1 through 21 (West 1992)). Gem contested the taxes, and the Department conducted an administrative hearing in September 1993. In June 1994, the Department issued a decision upholding the assessment.

In August 1994, Gem filed a complaint seeking administrative review of the Department's decision, and in January 1996, the circuit court reversed the Department's decision. The Department appeals, arguing that the court erred because (1) Gem's customers originate and receive "telecommunications," and, therefore, (2) Gem is a "retailer" pursuant to the Telecommunications Act. We agree with the Department and reverse.

I. BACKGROUND

Gem has been engaged in electronic sales and service in Monmouth, Illinois, since 1976. As part of its business, Gem sells, maintains, and repairs mobile radio equipment, including mobile units and base stations, operates paging and mobile telephone services, and operates a "community repeater" business.

A "repeater" is a device used in connection with two-way radio communication. Two-way radios, typically made up of a base station and mobile units, originate and receive messages on the FM band. However, they generate a relatively weak signal with a limited range. The repeater is an unattended mobile relay station which receives a signal generated by a two-way radio, processes it, strengthens it, and then retransmits it, allowing a distant two-way radio to receive the signal.

A "community repeater" is one type of shared mobile radio system. Shared systems "involve either an arrangement where the licensee offers excess capacity to unlicensed eligible users or where each user of the licensed facilities is individually licensed." In re Implementation of Sections 3(n) & 332 of the Communications Act Regulatory Treatment of Mobile Services, 8 FCC Rcd 7988, 7990 n.12 (1993). The latter arrangement is called a "multiple-licensed system." Multiple-licensed systems may be either nonprofit cooperatives or "community repeaters," where one of the system licensees or an unlicensed third party that manages the system for the other licensed users. Implementation, 8 FCC Rcd at 7990 n.12.

The Federal Communications Commission (FCC) does not license the repeater itself, nor does the FCC license repeater operators who are not themselves mobile radio operators. Instead, the FCC requires the individual mobile radio operators to hold licenses to operate on designated frequencies. The community repeater is licensed to those individual operators. In re An Inquiry Concerning the Multiple Licensing of Land Mobile Radio Systems ("Community Repeaters") in the Bands 806-812 and 851-866 MHz, 71 F.C.C.2d 1391, 1392 (1979). In this case, Gem is an unlicensed third party which manages the system for the other licensed users, providing use of the repeater to a limited number of licensed mobile radio operators, based on the finite number of available "slots."

Gem's president, Ross Beedle, testified that it operated the repeater to introduce itself--and its products and services--to mobile radio operators. He also testified that, during the liability period, Gem charged the licensed operators only its costs for the repeater (including cost of construction, maintenance, and upkeep of the repeater facility), based on its belief that federal law prohibited it from making a profit. See 47 C.F.R. § 90.179 (1995). Gem charges its repeater customers a flat monthly fee, which it characterizes as "tower rent."

From August 1985 to June 1989, Gem did not register with the Department to collect, and did not collect, telecommunications excise taxes from its customers on revenues it received from its paging, mobile telephone, or repeater businesses.

In the summer and fall of 1989, the Department audited Gem for the period August 1, 1985, through June 30, 1990, and concluded that Gem should have collected taxes based on those businesses. In February 1990, the Department issued a determination of tax due and a notice of tax liability for the period August 1985 through June 1989, reflecting a total tax liability of $5,729.88, including penalties and interest. The Director of the Department subsequently revised the assessment liability period, thus reducing Gem's tax liability on the repeater business to $969.20. Gem paid this amount under protest and sought administrative review.

The Department held an administrative hearing in September 1993, at which Gem conceded that it owed the tax on the pager and mobile telephone services but contested its liability for taxes on its community repeater receipts. Following the hearing, the administrative law judge (ALJ) found that (1) Gem's repeater functioned "to receive, process[,] and enhance radio signals and then retransmit them to customers who receive the strengthened signal"; and (2) Gem's customers had paid for the repeater services, but Gem had not registered, filed returns, or paid the taxes. Based on these findings, the ALJ concluded that (1) the definition of "telecommunications" in section 2(c) of the Telecommunications Act (35 ILCS 630/2(c) (West 1992)) was "sufficiently comprehensive in its scope to encompass the radio repeater operations that are the subject of this hearing"; (2) Gem was a "retailer" responsible for collecting the tax based in part on title 86, section 495.110 of the Illinois Administrative Code (Code), which defines retailers as those who "provide radio repeater services" (86 Ill. Adm. Code § 495.110 (1996)); and (3) Gem's charges to its customers were "gross charges," as defined in section 2(a) of the Telecommunications Act (35 ILCS 630/2(a) (West 1992)). The ALJ recommended that the Department uphold the assessment against Gem.

In June 1994, the Department issued a decision adopting the ALJ's recommendation, and Gem subsequently filed a complaint for administrative review of the Department's decision. In January 1996, the circuit court reversed the Department's decision, stating as follows:

"Statute does not identify community repeater services as being within the definition of the term 'telecommunications.' Since the community repeater operations of Gem Electronics plainly do not fall within the definition of the term 'telecommunications,' they do not fall within the term 'sale at retail' and GEM Electronics is not a retailer. Therefore GEM Electronics is not required by section 5 of the [Telecommunications Act] to collect tax and remit it to the Department. Gem Electronics owes no tax liability to the Department because Gem Electronics is not making 'sales at retail' by supplying or furnishing telecommunications or services and equipment in connections therewith. Therefore, the decision of the Department of Revenue is against the manifest weight of the evidence and is accordingly reversed."

II. ANALYSIS

The Telecommunications Act provides that the Department's final administrative decisions are subject to judicial review in accordance with the Administrative Review Law (Law) (735 ILCS 5/3-101 et seq. (West 1992)). 35 ILCS 630/16 (West 1992). An administrative agency's decision may be reversed only if it is legally erroneous or factually against the manifest weight of the evidence. Thomas M. Madden & Co. v. Department of Revenue, 272 Ill. App. 3d 212, 215, 651 N.E.2d 218, 219, 209 Ill. Dec. 290 (1995).

In the present case, no factual dispute exists. The parties agree that Gem operated the community repeater, charged its customers (hereinafter licensees) for using the community repeater, and failed to collect taxes on those charges. Thus, the only question before this court is whether receipts for use of a community repeater are subject to taxation under the Telecommunications Act. A determination of whether something is subject to taxation pursuant to statute is solely a question of law. Thomas M. Madden, 272 Ill. App. 3d at 215, 651 N.E.2d at 220.

Findings of an administrative agency on questions of law are not binding on this court. DiFoggio v. Retirement Board of the County Employees Annuity & Benefit Fund, 156 Ill. 2d 377, 381, 620 N.E.2d 1070, 1072, 189 Ill. Dec. 753 (1993). When the question raised on review is purely legal, an agency's interpretation should receive deference, ...


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