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Gem Electronics of Monmouth Inc. v. Department of Revenue

October 22, 1998

GEM ELECTRONICS OF MONMOUTH, INC., APPELLANT,
v.
THE DEPARTMENT OF REVENUE, APPELLEE.



The opinion of the court was delivered by: Justice Nickels

Agenda 15-May 1998.

At issue in this case is whether the Telecommunications Excise Tax Act (35 ILCS 630/1 et seq. (West 1992)) applies to the operation of a community repeater. The Illinois Department of Revenue assessed taxes against Gem Electronics of Monmouth, Inc., under the Telecommunications Excise Tax Act, arising out of its operation of a community repeater. Gem Electronics of Monmouth, Inc. (Gem), sought administrative review of the tax assessment. Following a hearing, the Illinois Department of Revenue (Department) issued a decision upholding the assessment. Gem sought administrative review in the circuit court of Sangamon County. The circuit court set aside the Department's decision, and Department appealed to the appellate court. The appellate court reversed the circuit court, finding Gem liable for the excise taxes. We granted Gem's petition for leave to appeal. 166 Ill. 2d R. 315. We affirm the appellate court and find that operation of a community repeater under the facts in this case falls within the purview of the Telecommunications Excise Tax Act.

I. BACKGROUND

This case involves the application of the Telecommunication Excise Tax Act (the Act) in the setting of two-way FM radio communications through a repeater. The record indicates the following facts. Two-way FM radios are typically used in a combination of a base station and several mobile units. A two-way FM radio, whether a base station or a mobile unit, produces a relatively weak signal. A repeater receives such signals transmitted by a radio, amplifies the signals and allows the signals to be received beyond the original range of the radio. Thus, a repeater effectively extends the distances over which two-way FM radios can communicate.

For example, a taxicab company may maintain contact with its individual cabs via two-way FM radio. The taxicab company would have a dispatcher transmitting signals from a base station. The base station can only transmit over a limited distance and the taxicabs may cover a territory that exceeds that distance. In order to stay in contact with taxicabs that have travelled outside the base station's range, the taxicab company would use a repeater. The repeater would sit on a tower at some point within the range of the base station. It would receive the signals transmitted by the base station, amplify those signals and retransmit the signals to areas outside of the base station's original range. Similarly, the repeater would amplify transmissions from the mobile radios, expanding their range.

Although the Federal Communications Commission (FCC) requires a two-way radio operator to hold a license to operate on a particular frequency, it does not require a repeater operator to secure a license. 47 U.S.C. §301 (1994). Since it is expensive to obtain and maintain a repeater, and because repeaters can operate on several frequencies at once, licensees sometimes share resources. A community repeater is simply a repeater that is operated by a third party or one licensee and used by several licensees. Gem operates a community repeater. Pursuant to contract, customers use the community repeater within their individual frequency and in return pay Gem a flat monthly fee.

During the period from August 1, 1985, through June 30, 1989, Gem received fees from its community repeater service in the amount of $67,044.03. According to Gem, the fees they charged covered only the cost of construction, maintenance and upkeep of the repeater. Gem believed that federal law prohibited it from making a profit on the operation of the repeater. Gem did not register with the Department to collect excise tax from its customers and did not collect any excise tax for use of its repeater during the period at issue. In 1989, the Department conducted an audit of Gem covering the period from August 1, 1985, through June 30, 1989. Based upon the audit, the auditor issued a "Determination of Tax Due" on December 1, 1989. On February 23, 1990, the Department issued a "Notice of Tax Liability" in the amount of $6,099.13 inclusive of the tax, penalties and interest. Gem paid a small amount not in dispute. Later the Department reduced the liability period and agreed to waive late penalties and one half of the interest due if payment was received by July 1, 1991. Gem paid the revised amount of $969.20 under protest on June 19, 1991, and later made an interest payment of $182.67 under protest. Gem sought an administrative hearing from the Department. The hearing was held September 8, 1993. The administrative law Judge recommended upholding the assessment.

On June 22, 1994, the Department entered a notice of decision adopting the administrative law Judge's recommendation. Gem sought review of the Department's decision in the circuit court in Sangamon County. The circuit court reversed the Department's decision. The Department appealed to the appellate court and Gem cross-appealed claiming attorney fees. The appellate court reversed the circuit court and denied Gem's cross-appeal for attorney fees. We affirm the appellate court.

II. ANALYSIS

Section 16 of the Act sets forth the process for reviewing departmental decisions. 35 ILCS 630/16 (West 1992). Under section 16, the Administrative Review Law (735 ILCS 5/3-101 et seq. (West 1992)) applies to judicial review of the Department's final decisions. An agency's findings of fact are held prima facie true and correct. 735 ILCS 5/3-110 (West 1992). Determination of whether something is subject to tax is a question of law. See Thomas M. Madden & Co. v. Department of Revenue, 272 Ill. App. 3d 212, 215 (1995). An agency's Conclusions of law are not binding on a reviewing court. Envirite Corp. v. Illinois Environmental Protection Agency, 158 Ill. 2d 210, 214 (1994). However, based on an agency's experience and expertise, a court may give substantial weight and deference to its interpretation of an ambiguous statute it administers and enforces. Bonaguro v. County Officers Electoral Board, 158 Ill. 2d 391, 398 (1994).

This court's role in interpreting statutes is to give effect to the intention of the legislature and the language of the statute is the starting point of the court's analysis. People v. Woodard, 175 Ill. 2d 435, 443 (1997), citing People v. Hare, 119 Ill. 2d 441, 447 (1988). When the language of the statute is clear and unambiguous, it will be given effect without resort to other tools of construction. Woodard, 175 Ill. 2d at 443. A court should not depart from the language of the statute by reading into it exceptions, limitations or conditions that conflict with the intent of the legislature. Bridgestone/Firestone, Inc. v. Aldridge, 179 Ill. 2d 141, 149 (1997). In addition, we observe that statutes imposing a tax are strictly construed against the government and in favor of the taxpayer. Van's Material Co. v. Department of Revenue, 131 Ill. 2d 196, 202 (1989).

The Telecommunications Excise Tax Act

The appellate court found that community repeaters are taxable under section 3 of the Act. Section 3 of the Act provides in pertinent part: "A tax is imposed upon the act or privilege of originating or receiving intrastate telecommunications by a person in this State at the rate of 5% of the gross charge for such telecommunications purchased at retail from a retailer by such person." 35 ILCS 630/3 (West 1992). The taxpayer under the Act is the person originating or receiving telecommunications. 35 ILCS 630/2(k) (West 1992). A retailer is required to collect the tax from its customers and remit the tax to the Department. 35 ILCS 630/5 (West 1992). Gem's contested liability is for failing to collect and remit the tax due as a retailer under the Act. The language of section 3 is clear and unambiguous. Three elements must be present for the tax to apply to the gross charge for telecommunications. First, there must be an act or privilege of originating or receiving telecommunications. Second, the telecommunications must be purchased at retail. Finally, the ...


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