The opinion of the court was delivered by: Presiding Justice Hoffman
Appeal from the Circuit Court of Cook County.
Honorable Joanne L. Lanigan Judge Presiding.
The plaintiff, First Access Material Handling, appeals the circuit court's order which affirmed the City of Chicago Department of Revenue's (Department) assessment of taxes and penalties against the plaintiff.
The plaintiff is a corporation engaged in the business of leasing material handling equipment, primarily forklifts. While all of its offices are located outside the city of Chicago, the plaintiff leases forklifts to lessees in Chicago. Following an audit, the Department assessed the plaintiff personal property lease transaction taxes, use taxes for nontitled personal property, interest on the overdue taxes, and late payment and negligence penalties. As of July 31, 1995, the taxes, penalties and interest due totaled $80,702.02.
On April 29, 1994, the plaintiff filed a protest and a petition for a hearing. The plaintiff claimed that the Department had improperly assessed lease transaction taxes on hourly overtime charges which, it alleged, were not rental charges but charges for maintenance. The plaintiff also claimed that the Department had improperly used the full value of each piece of equipment in calculating the amount of use tax due rather than apportioning the tax to take into account the period of time in which the equipment was actually used in Chicago. The plaintiff maintained that, even if the taxes were properly assessed, there was no basis to impose any penalties because it reasonably believed it did not owe the taxes.
An administrative hearing before one of the Department's hearing officers was conducted on April 11, 1995. Section 3-4-340(H) of the Uniform Revenue Procedures Ordinance (Revenue Ordinance) provides that, at such an evidentiary hearing:
"the tax determination and assessment and the assessment of any nontax debt shall be prima facie correct and the protesting party shall have the burden of proving with books, records and other documentary evidence that it is incorrect."
Chicago Municipal Code, §3-4-340(H) (1997).
Mark Bunetta, the Department revenue auditor who audited the plaintiff, testified that he reviewed the plaintiff's general ledgers, rental and sales invoices, and lease agreements. Bunetta assessed the plaintiff $7,060.56 in use tax for nontitled personal property (use tax) for the period of January 1992 through June 1993. He determined the plaintiff's use tax liability by computing 1% of the purchase price of all equipment used in Chicago during the audit period and on which, according to the invoices, no sales tax had previously been paid. Bunetta did not take into consideration the fact that the equipment was used both inside and outside Chicago. Bunetta also assessed the plaintiff interest, late payment penalties, and negligence penalties on the unpaid use tax.
In addition to the use tax, Bunetta assessed the plaintiff $33,486.94 in personal property lease transaction tax (transaction tax) for the period January 1989 through November 1993, plus interest, late payment penalties, and negligence penalties. Bunetta assessed the transaction tax because the plaintiff had failed to self-assess and remit the transaction tax due on overtime hourly rental charges it collected from its customers. These overtime rental charges were recorded under the rental revenue account in the plaintiff's general ledger and were listed as long-term rental overtime charges on the plaintiff's invoices. In the plaintiff's lease agreements with its customers, the overtime charges were characterized as hourly rental overtime charges for equipment used in excess of a specified number of hours.
Bunetta's audit file, which was admitted into evidence, contained a copy of an executed lease agreement between the plaintiff, under its former name of ClarkLift of Chicago South, Inc., and one of its customers. That lease, executed February 25, 1988, contained the following provision regarding hourly overtime charges:"13.
The hourly overtime charge provided in Section 12 shall apply to each hour of use of any unit of equipment in excess of 500/250 hours in any calendar quarter as determined by the Hobbs Hour Meter or other mechanical device used to record hours of use supplied with each unit (herein called "hour meter"). *** LESSEE agrees to pay said ...