The opinion of the court was delivered by: Justice McNULTY
Appeal from the Circuit Court of Cook County Honorable John A. Ward, Judge Presiding
In this case we must decide whether rolling stock used occasionally in interstate commerce qualifies for exemption from the use tax. See 35 ILCS 105/1 et seq. (West 1992). The Department of Revenue (the Department) denied the exemption National School Bus Service sought, and the circuit court affirmed the Department's ruling. National appeals. The Mid-West Truckers' Association, Inc., and Illinois Movers' and Warehousemen's Association submitted a brief as amici curiae, supporting National.
The Interstate Commerce Commission issued a certificate granting National authority to operate as a common carrier. National primarily provides children transportation to and from school, and on school field trips or for extracurricular activities. To supplement the income from school transportation, National also provides charter trips for hire to private groups. Some of the field trips and extracurricular activities require trips to other states, and the private groups occasionally charter trips to other states or to the airport to start trips to other states.
National purchased 25 buses from out-of-state suppliers during July and August 1990. National paid no use tax, claiming that section 3-55 of the Use Tax Act (the Act) (35 ILCS 105/3-55 (West 1992)) exempted it from taxation. That section provides:
"To prevent actual or likely multistate taxation, the tax imposed by this Act does not apply to the use of tangible personal property in this State under the following circumstances:
(b) The use, in this State, of tangible personal property by an interstate carrier for hire as rolling stock moving in interstate commerce *** as long as so used by the interstate carriers for-hire."
In 1994 the Department completed an audit of the use of the 25 buses. National gave the Department invoices for every trip in interstate commerce taken by any of the 25 buses from August 1990 through June 1993. The invoices showed a total of 389 such trips. National presented no data concerning the total number of trips the buses made, and it refused the Department's request for data on the revenue earned from intrastate and interstate trips. However, National supplied total mileage data, from which the Department concluded that the buses traveled 5.01% of their miles in interstate trips, including trips to the airport for which the bus never left the state. National made no claim that its other trips involved interstate commerce in any way.
The Department's auditor found that 12 of the buses, for at least one complete tax year, made no interstate trips. All the buses averaged five trips in interstate commerce per bus per year. The auditor reasoned that the trips in interstate commerce probably averaged more miles per trip than the intrastate trips on which the buses mostly took children to and from school. Therefore, he concluded that far fewer than 5% of all trips involved interstate commerce. The auditor also assumed, from National's refusal to provide the requested data, that far less than 5% of its revenue came from trips involving interstate commerce.
The Department had a long-standing policy of denying the rolling stock exemption unless the taxpayer was "able to show that it transport[ed] persons or property for hire in interstate commerce on a 'regular and frequent' basis." In light of this policy, the auditor wrote, "The taxpayer has not provided the necessary information in the way of records to substantiate the exemption should be allowed. Therefore, the exemption is disallowed." He calculated a tax due of $56,005, plus penalties and interest due of $35,996, for a total of $92,001.
For its protest, National paid the tax due to stop the accumulation of penalties and interest. The Department reaffirmed its interpretation of the rolling stock exemption, and therefore it upheld the auditor's decision. The court affirmed the Department.
National claims that the Department's ruling conflicts with the holding of Burlington Northern, Inc. v. Department of Revenue, 32 Ill. App. 3d 166, 336 N.E.2d 170 (1975). The Department contends that the ruling is mandated by the holding of First National Leasing & Financial Corp. v. Zagel, 80 Ill. App. 3d 358, 399 N.E.2d 994 (1980). The parties agree that the two cases can be harmonized, but they argue for different interpretations of the cases.
In Burlington Northern, the railroad used passenger cars and engines in both intrastate and interstate trips. The Department denied the rolling stock exemption, in part because the taxpayer faced no possibility of multiple taxation. The appellate court rejected this reasoning, holding that the legislature "intended to exempt rolling stock moving in interstate commerce from being subject to the use tax regardless of the potentiality of multiple taxation. *** While it is true that grants of tax exemption are to be given a strict interpretation against the taxpayer and in favor of the taxing power [citations], even a strict interpretation of this statute does not justify making the rolling stock exemption contingent on eligibility for the credit exemption." (Emphasis in original.) Burlington Northern, 32 Ill. App. 3d at 173-74.
The court also held that the taxpayer need not show that the primary purpose of the rolling stock involved interstate commerce. Such a standard "would exclude from the coverage of the exemption *** instrumentalities substantially but not primarily used in interstate commerce ***. No doubt exists that such results would unduly burden ...