APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. HONORABLE ALEXANDER P. WHITE, JUDGE PRESIDING.
Presiding Justice Hoffman delivered the opinion of the court. Theis and Hourihane, JJ., concur.
The opinion of the court was delivered by: Hoffman
PRESIDING JUSTICE HOFFMAN delivered the opinion of the court:
We are called upon in this appeal to determine whether the Chicago Gas Use Tax Ordinance (Ordinance), which imposes a tax on the use or consumption of natural gas purchased at retail, is an invalid occupational tax under the provisions of Art. VII, section 6(e) of the Illinois Constitution (Ill. Const. 1970, art. VII, sec. 6(e)) and, if it is not, whether the tax, nonetheless, violates the uniformity clause of the Illinois Constitution (Ill. Const. 1970, art. IX, sec. 2). For the reasons which follow, we determine that the subject tax is a valid tax upon the use and consumption of a tangible commodity, and affirm the judgment of the circuit court.
Because this matter was disposed of at the trial level upon the defendants' motions to dismiss pursuant to section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 1994)), the only question before this court is whether the dismissed counts state causes of action upon which relief can be granted. Burdinie v. Village of Glendale Heights, 139 Ill. 2d 501, 565 N.E.2d 654, 152 Ill. Dec. 121 (1990); Janes v. First Federal Savings & Loan Association, 57 Ill. 2d 398, 312 N.E.2d 605 (1974). The issue is one of law and our review is de novo. Metrick v. Chatz, 266 Ill. App. 3d 649, 651-52, 639 N.E.2d 198, 203 Ill. Dec. 159 (1994).
Prior to 1980, natural gas used in the City of Chicago (City) had to be purchased from a local public utility. The gross receipts of these utilities are subject to the City's Municipal Occupation Tax (Occupation Tax) "imposed upon all persons engaged in the business of distributing, supplying, furnishing or selling gas for use or consumption within the corporate limits of the city *** ." Chicago Municipal Code, sec. 3-40-040 (1994). Since the Illinois Public Utilities Act allows local public utilities to "pass through" such taxes to their customers (see 220 ILCS 5/9-221 (West 1994)), all purchasers of natural gas in the City paid the tax on their purchases during this time period.
After federal deregulation of the natural gas industry through the Natural Gas Policy Act of 1978 (15 U.S.C. sec. 3301 et seq. (1994)), large consumers of natural gas in Illinois began to purchase gas directly from sellers located in the gas producing states, rather than from local public utilities. Under the provisions of the Commerce Clause of the United States Constitution (U.S. Const. Art. I, Sec. 8), out-of-state sellers are not subject to the Occupation Tax ( Caterpillar Tractor Co. v. Department of Revenue, 47 Ill. 2d 278, 282, 265 N.E.2d 675 (1970)) and, accordingly, the City consumers purchasing gas from out-of-state utilities avoided paying the tax. However, the City consumers who purchase their natural gas from local public utility companies continue to pay the Occupation Tax.
On November 17, 1993, the Chicago City Council introduced an ordinance, which taxes "the privilege of using or consuming in the city gas that is purchased in a sale at retail." Chicago Municipal Code, sec. 3-41-030(A) (1994). The Ordinance is not based on gross receipts or the price of natural gas but, rather, on the quantity of gas consumed by purchasers. The tax rate is 1.5 cents per therm. Chicago Municipal Code, sec. 3-41-030(A) (1994).
To prevent multiple taxation, the retail purchaser of natural gas is exempt from taxation under the Ordinance if the seller of the gas is subject to the Occupation Tax on the sale of gas and that tax is passed through to the purchaser. Chicago Municipal Code, sec. 3-41-030(E)(1) (1994). In other words, purchasers required to pay the Occupation Tax pursuant to the pass through provisions of section 9-221 of the Illinois Public Utilities Act (220 ILCS 5/9-221 (West 1994)) are exempt from taxation under the Ordinance. In fact, the Ordinance specifically provides for a "complementary relation" with the Occupation Tax. Chicago Municipal Code, sec. 3-41-040 (1994).
The Ordinance provides that "the ultimate incidence of and liability for payment on the tax is upon the retail purchaser," and "nothing in this chapter shall be construed to impose a tax on the occupation of distributing, supplying, furnishing, selling or transporting gas." Chicago Municipal Code, sec. 3-41-030(B) (1994). The Ordinance does not impose any tax collection duties on sellers or transporters of gas; rather, it authorizes the City to enter into a contractual arrangement with a local public utility as an independent contractor to collect the tax upon delivery to the retail purchaser. Chicago Municipal Code, sec. 3-41-030(A)(1) (1994). If the City enters into such an agreement, the retail purchaser pays the tax to the utility and the utility remits the tax to the City. Chicago Municipal Code, secs. 3-41-030(C)(1), 3-41-050(A)(2) (1994).
It is undisputed that the City's Director of Revenue entered into a contract with People's Gas Light and Coke Company (People's Gas) to collect taxes imposed under the Ordinance and remit the funds to the City. The plaintiffs in this action are large consumers of natural gas who purchase gas at retail outside of Illinois for use in their businesses in the City. The gas is then delivered by interstate pipeline to People's Gas.
According to the plaintiffs, once their natural gas is in the pipeline, it is fungible and indistinguishable from gas being transported to People's Gas customers who purchase their gas in the City. The plaintiffs further allege that People's Gas includes the tax imposed by the Ordinance in its current billings for delivery of the plaintiffs' gas. Based on the foregoing allegations, the plaintiffs contend in count I of the complaint that the Ordinance is an unconstitutional occupation tax under Article VII, section 6(e) of the Illinois Constitution since it has not been authorized by the General Assembly.
The plaintiffs further allege in count II of the amendment to the complaint that, as purchasers of gas from out-of-state sellers, they pay both the tax imposed under the Ordinance and the Occupation Tax on gas transportation services provided by People's Gas. They contend that the Ordinance violates the uniformity clause of the Illinois Constitution (Ill. Const. 1970, art. IX, sec. 2) because the tax creates a classification that is not based on a real and substantial difference between those parties taxed and those not taxed, and because the tax bears no reasonable relationship to the object of the legislation or public policy.
The plaintiffs presented additional arguments in counts III and IV of the amendment to the complaint under the Commerce Clause of the U.S. Constitution (U.S. Const., art. I, sec. 8) and sections 1983 and 1988 of the Civil Rights Act of 1871 (42 U.S.C. sec. 1983, 1988), respectively. However, since the plaintiffs presented no arguments relevant to ...