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December 26, 1997


Appeal from the Circuit Court of Cook County. No. 93 L 51214. The Honorable JoAnne L. Lanigan, Judge Presiding.

The Honorable Justice Zwick delivered the opinion of the court. Greiman, J. and Quinn, J., concurring.

The opinion of the court was delivered by: Zwick

The Honorable Justice ZWICK delivered the opinion of the court:

The Department of Revenue (the Department) issued a Notice of Liability to plaintiff, Container Corporation of America, for use tax liability incurred between July 1990 and December 1992 under the Illinois Use Tax Act (35 ILCS 105/1 - 105/22 (West 1994)), assessed on plaintiff's purchases of chemical solvents. After paying its assessed liability into escrow, plaintiff challenged the Department's action under the State Officers and Employees Money Disposition Act. 30 ILCS 230/2a (1994). Following the submission of stipulated facts, the circuit court affirmed the Department's ruling on cross-motions for summary judgment. We now affirm.

The facts are undisputed. Plaintiff fabricates boxes used to package consumer products such as detergents and cereals. Plaintiff then sells these boxes to its customers who subsequently fill them with their own products for resale. The boxes are made, in part, of paperboard, ink and lacquers. The base ingredient for the inks and lacquers are purchased in one of two ways, either in a pre-mixed, ready-to-use, liquid, or in an unmixed, concentrated, form. When using the inks and lacquers that are made from concentrate, plaintiff dilutes the concentrate with various solvents before applying them to the paperboard. The solvents allow plaintiff to disperse the concentrated inks and lacquers so as to satisfy the specific design and labelling requirements of its customers. Plaintiff pays no tax to its suppliers when it purchases any of the aforementioned liquids.

Following an audit, the Department assessed past-due use tax on the solvents purchased in bulk, but not on the pre-mixed inks and lacquers containing solvents. The Department did so on the basis that plaintiff was an ultimate consumer of the solvents in that the solvents evaporated during the manufacturing process and were not passed on to a consumer of the boxes. Plaintiff was therefore the "user" of the solvent for purposes of assessing use tax. The Department took the same position with regard to the solvent which existed as a component of the premixed ink and lacquers, but declined to assess tax on these ingredients, asserting that it was too difficult to calculate what percentage of the pre-mix was composed of evaporates and what percentage was composed of other ingredients. STANDARD OF REVIEW

A grant or denial of summary judgment is reviewed on appeal de novo. Quinton v. Kuffer, 221 Ill. App. 3d 466, 471, 582 N.E.2d 296, 164 Ill. Dec. 88 (1991). A motion for summary judgment may be granted when "the pleadings, depositions and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." 735 ILCS 5/2-1005 (West 1994); Purtill v. Hess, 111 Ill. 2d 229, 240, 489 N.E.2d 867, 95 Ill. Dec. 305 (1986); Maywood Proviso State Bank v. York State Bank & Trust Co., 252 Ill. App. 3d 164, 167-68, 625 N.E.2d 83, 192 Ill. Dec. 123 (1993). When all parties file crossmotions for summary judgment, the court is invited to decide the issues presented as a question of law. Spencer v. Riordan, 240 Ill. App. 3d 938, 944, 608 N.E.2d 432, 181 Ill. Dec. 359 (1992).


The Retailers' Occupation Tax Act (ROTA) (35 ILCS 120/1 - 120/14 (West 1994) was enacted by the General Assembly in 1933 to create a tax on the occupation of retail selling. See generally, B. Wolfberg, Sales and Use Tax, in Illinois Sales and Local Taxation, Ch. 3 (Ill. Inst. for Cont. Legal Educ. 1997); Willard Ice, The Retailers' Occupation Tax Act and Related Tax Laws, 1961 U. Ill. L. F. 614. Retailers, essentially defined by ROTA as those who sell personal property for consumption (see 35 ILCS 120/1 (West 1994)), are required to remit to the State a percentage of the gross receipts of every retail sale. Following its adoption, Illinois retailers discovered that they were at a competitive disadvantage with out-of-State retailers who were beyond the State's taxing jurisdiction and who were not, therefore, required to remit tax. There was also a concern that some Illinois retailers were leaving the State simply to service their Illinois clients without incurring ROTA liability. In 1955, in response to these concerns, the General Assembly adopted the Illinois Use Tax Act (UTA or "use tax"). The use tax was designed as a "complementary tax," the purpose of which was to protect Illinois vendors from unfair out-of-State competition and to preserve the ROTA tax base. See Turner v. Wright, 11 Ill. 2d 161, 166, 142 N.E.2d 84 (1957).

As we have noted, the ROTA tax is assessed upon Illinois retailers of personal property as a percentage of the gross receipts of each transaction. The Illinois Use Tax is assessed in the same way and on the same transactions, but use tax is assessed against the purchaser-user of the property sold. The benefit to the State of this taxing scheme, unlike the one imposed by ROTA which cannot reach out-of-State sellers, is that the use tax is assessed regardless of where the purchase is made, so long as the property sold can be construed as being for "use" in Illinois. People v. Buffalo Confectionery Co., 78 Ill. 2d 447, 460, 401 N.E.2d 546, 36 Ill. Dec. 705 (1980); 86 Ill. Adm. Code § 150.125 (1994).

The use tax is complementary to the retailers' tax because of the way in which use tax is assessed and collected. The UTA expressly provides that its provisions do not apply to out-of-State transactions that would be exempt under the ROTA if the sale had occurred in Illinois. 35 ILCS 105/3-65(West 1994). Nor is use tax assessed for the use of property purchased outside of Illinois on which a sale or use tax has been paid to another State. 35 ILCS 105/3-55(d)(West 1994); Turner, 11 Ill. 2d at 163. Moreover, although UTA tax is a tax on the user-purchaser, it is generally collected by the retailer-seller, who is then permitted a credit to the extent that he has remitted retailers' tax for the same transaction. 35 ILCS 105/9(West 1994). This arrangement (1) assures that each transaction involving the sale for use of personal property to an Illinois entity is taxed, regardless of where the purchase occurs, (2) simplifies tax accounting, particularly since the ROTA and UTA taxes are assessed at the same base rate (Compare 35 ILCS 120/2-10(West 1994) with 105 ILCS 3-10 (West 1994), and (3) gives the Department the advantage of pursuing unpaid sales tax by enforcement action against either the seller of personal property (ROTA) or its purchaser-user (UTA)(see Mobil Oil Corp. v. Johnson, 93 Ill. 2d 126, 135, 442 N.E.2d 846, 66 Ill. Dec. 285 (1982); Buffalo Confectionery Co., 78 Ill. 2d at 460; Klein Town Builders, Inc. v. Department of Revenue, 36 Ill. 2d 301, 303-04, 222 N.E.2d 482 (1966); 86 Ill. Adm. Code § 150.301 (1994)).


In order to avoid multiple taxation of the same personal property as it moves through the chain of production, only those transactions that involve a consumer of the personal property are subject to tax. See Dinner Theatre Associates, Ltd. v. Department of Revenue, 139 Ill. App. 3d 911, 912, 488 N.E.2d 288, 94 Ill. Dec. 462 (1985). Thus, both ROTA and UTA make statutory exceptions for property that is resold or incorporated into the other property for resale. With regard to UTA, section 2 specifically excludes from taxation any personal property "resold as an ingredient of an intentionally produced product or byproduct of manufacturing." 35 ILCS 105/2(West 1994). Pursuant to this statutory language, plaintiff argues that it should not be assessed use tax on its purchase of the solvents used to make its inks and lacquers because the solvents are incorporated into the base inks and lacquers and resold as part of the finished boxes. Thus, plaintiff argues, it is not an ultimate consumer of the solvent. For support, plaintiff analogizes its circumstance to that of the taxpayer in the case of American Distilling Co. v. Department of Revenue, 53 Ill. App. 3d 42, 368 N.E.2d 541, 10 Ill. Dec. 946 (1977).

In American Distilling, the court held that the manufacturer of distilled spirits should not be assessed use tax on its purchase of white-oak barrels used to age bourbon whiskey. The court noted that a key ingredient in the bourbon was derived from the minute quantities of tannins contained in wood of the barrels which leached into the bourbon as it aged. It is these tannins which give bourbon a distinctive flavor and color. The barrels themselves ...

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