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Chicago SMSA Limited Partnership v. Illinois Department of Revenue

July 29, 1999



The opinion of the court was delivered by: Justice Wolfson

The taxpayers in this case are cellular telephone service providers. They pose a 1.4 million dollar question: do the words "exclude from active regulatory oversight" in one statute have the same meaning as "not regulated" in another? If they do, the taxpayers do not have to pay the invested capital tax assessed by the Illinois Department of Revenue.

We conclude the phrases in the two statutes were not intended to mean the same thing. For that and other reasons, we affirm the trial court's orders requiring the taxpayers to pay the Department of Revenue's assessments.


Chicago SMSA Limited Partnership, Cybertel Cellular Telephone Company, Illinois RSA 6 & 7, and Illinois SMSA Limited Partnership (collectively, taxpayers) are federally licensed cellular telephone service providers. Cellular telephones use radio waves to receive and transmit messages across small "switching sites" scattered throughout the service area. The cellular industry began modestly in the 1980s with 100,000 nationwide customers by 1984, but exploded in the 1990s with approximately 16 million nationwide customers by 1994. Unlike traditional land-based telephone service industry, the cellular industry is marked by robust competition among providers.

In 1985, the Illinois General Assembly recognized this competition and responded by prohibiting the Illinois Commerce Commission (ICC) from restricting market entry of federally licensed cellular providers, and empowered the ICC to exclude such providers from "active regulatory oversight." 220 ILCS 5/13-203 (West 1996).

On February 18, 1987, the ICC entered an order on Chicago SMSA Limited Partnership's "Petition for rulemaking with respect to exclusion of cellular radio service from active regulatory oversight." See 81 P.U.R.4th 287, 1987 Ill. PUC LEXIS 10 (February 18, 1987). The ICC concluded the cellular industry in Chicago should be removed from active regulatory oversight. 1987 Ill. PUC LEXIS at 59-60. The ICC later extended this order to the entire cellular industry. See 83 Ill. Admin. Code §760.10 (1997)("For purposes of the exclusion from active regulatory oversight for providers of cellular radio service *** cellular radio service *** is excluded from the applicable tariff provisions ***.")

In 1991, the General Assembly amended the Messages Tax Act to exempt persons "not regulated" by the ICC from the invested capital tax. See 35 ILCS 610/2a.1 (West 1996).

In 1992, taxpayers received notices of invested capital tax liability from the Illinois Department of Revenue (the Department). Taxpayers waived an evidentiary hearing before an administrative law Judge, and, instead, taxpayers and the Department submitted a stipulation of facts. The parties stipulated, inter alia, that

"(4) During the applicable period of assessment, at issue herein and up to the date of this stipulation, taxpayers are excluded from applicable tariff provisions contained in Article XIII of the Public Utilities Act. (See Docket 85-0477: Commission Order issued February 18, 1987).

(5) During the applicable period of assessment, at issue herein and up to the date of this stipulation, taxpayers are removed from active regulatory oversight (the most active regulatory oversight being the filing of tariffs), however, taxpayers remain subject to all other applicable provisions of the Public Utilities Act. (Finding number (7) See Docket 85-0477: Commission Order issued February 18, 1987). * * *(7) Department's position on [t]axpayers' being subject to regulation of the Illinois Commerce Commission is partially based upon [t]axpayers' being subject to payment of Public Utility Tax."

The administrative law Judge made his recommendation on October 13, 1995. The Judge found the ICC rejected taxpayers' 1987 request to deregulate completely cellular telephone service in this area. The Judge said the ICC may have removed tariff oversight, but noted the ICC also ordered, "There are no other provisions [of the Public Utilities Act] from which cellular radio service should be exempted." 1987 Ill. PUC LEXIS at 56. The Judge concluded: "Since the [ICC], which is the interpreter of the provisions of the Public Utilities Act, deems that it retains regulatory authority over cellular radio service pursuant to its enabling legislation, and the legislature has not intervened to remove that regulatory aspect which was laid down in 1987, the legislature would be presumed to understand that decision of the Commission when it amended [the Messages Tax Act in 1991]."

The Department issued its final assessments on November 3, 1995, concluding taxpayers owed $1,385,416.70 in invested capital tax.

Taxpayers filed a complaint for administrative review. On August 31, 1998, the trial court entered its "MEMORANDUM DECISION AND JUDGMENT." On September 16, 1998, the court withdrew this order and entered a second "MEMORANDUM DECISION AND JUDGMENT." The court affirmed the Department's Conclusion.

On September 22, 1998, taxpayers filed a notice of appeal from the trial court's August 31 order "as revised September 10, 1998" attaching the September 16 order. On March 24, 1999, taxpayers filed a second notice of appeal from the trial court's February 25, 1999, judgment order "incorporating the trial court's Memorandum Decision and Order entered on September 10, 1998 ***." These two appeals have been consolidated before us.


Taxpayers offer several reasons why the trial court erred in affirming the Department's assessment of invested capital tax under the Messages Tax Act, 35 ILCS 610/1 et seq. (West 1996). These reasons all involve issues of statutory construction, and our standard of review is de novo. T.M. Madden & Co. v. Department of Revenue, 272 Ill. App. 3d 212, 215, 651 N.E.2d 218 (1995). We turn to taxpayers' contentions.

First, taxpayers contend the Illinois General Assembly never intended the Messages Tax Act's invested capital tax to apply to the cellular industry because the invested capital tax was enacted and first imposed in 1979, before the cellular telephone boom. Taxpayers contend the General Assembly intended to impose the invested capital tax only on monopolistic public utilities. This argument, however, finds no support in the language of the statute, and we decline to add a monopoly limitation on the invested capital tax. See Kraft, Inc. v. Edgar, 138 Ill. 2d 178, 189, 561 N.E.2d 656 (1990). The legislature did not have to anticipate every variety of public utility that might be created. The descriptive phrase is generic and of sufficient breadth to cover cellular providers.

Second, taxpayers contend the invested capital tax did not apply to the cellular industry during the years they were assessed because the ICC removed the cellular industry from active regulatory oversight. This contention is presented as an alternative to the taxpayers' first claim that they never were intended to be covered by the 1979 statute. For this contention, they assume the tax did apply to them until the enactment of the 1991 amendment to the Messages Tax Act.

In 1986, the General Assembly amended section 13-203 of the Universal Telephone Service Protection Law of 1985, part of the larger Public ...

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