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Southwestern Bell Mobile Systems, Inc. v. Department of Revenue of the State of Illinois

June 16, 2000

SOUTHWESTERN BELL MOBILE SYSTEMS, INC., DECATUR CELLULAR TELEPHONE COMPANY, CHAMPAIGN CELLTELCO, SBMS CELLULAR TELECOMMUNICATIONS BLOOMINGTON, INC., SBMS CELLULAR TELECOMMUNICATIONS SPRINGFIELD, INC., AND EASTERN MISSOURI CELLULAR LIMITED PARTNERSHIP, PLAINTIFFS-APPELLEES,
v.
THE DEPARTMENT OF REVENUE OF THE STATE OF ILLINOIS AND GLEN BOWER, DIRECTOR,
DEFENDANT-APPELLANT.



The opinion of the court was delivered by: Justice Campbell

APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. HONORABLE JOANNE L. LANIGAN, JUDGE PRESIDING.

Defendants Illinois Department of Revenue (Department) and Glen Bower, Director of the Department appeal an order of the circuit court of Cook County in administrative review reversing the Department's decision that plaintiffs Southwestern Bell Mobile Systems, Inc., Decatur Cellular Telephone Company, Inc., Champaign Celltelco, SBMS Cellular Telecommunications Bloomington, Inc., SBMS Cellular Telecommunications Springfield, Inc., and Eastern Missouri Cellular Limited Partnership (collectively Taxpayers) were not entitled to a refund of invested capital tax payments for tax years 1991-94.

The record on appeal discloses the following facts. Southwestern Bell Mobile Systems, Inc., is a Delaware corporation providing cellular telephone service in the Chicago metropolitan area under the name Cellular One. The remaining Taxpayers are limited partnerships in which Southwestern Bell Mobile Systems, Inc. holds a controlling interest. The remaining taxpayers provide cellular telephone service in parts of Illinois outside the Chicago metropolitan area.

In 1979, the General Assembly imposed a tax on the invested capital of persons engaged in transmitting messages and acting as retailers of telecommunications. See 35 ILCS 610/2a.1 (West 1994). In 1986, the General Assembly amended section 13-203 of the Universal Telephone Service Protection Law of 1985, part of the larger Public Utilities Act, to provide in part that:

"The [Illinois Commerce] Commission [ICC] may, by rulemaking, exclude *** cellular radio service *** from active regulatory oversight to the extent it finds *** that such exclusion is consistent with the public interest and the purposes and policies of this Article." See 220 ILCS 5/13-203 (West 1996).

On February 18, 1987, the ICC entered an order removing the cellular industry in Chicago from active regulatory oversight. See In re Chicago SMSA Ltd. Partnership, 81 Pub. Util. Rep. 4th 287 (1987); 1987 Ill PUC LEXIS 10; 1987 WL 256497. The ICC later extended this order to the entire cellular industry in Illinois. 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 ***."). The Taxpayers generally commenced cellular operations in Illinois in 1987.

In 1991, the General Assembly amended the taxing statute to provide in relevant part that: "[t]he invested capital tax imposed by this Section shall not be imposed upon persons who are not regulated by the Illinois Commerce Commission ***." See 35 ILCS 610/2a.1 (West 1994). The Taxpayers paid the Department $6,914,647.32 in invested capital taxes for tax years 1991-94.

On December 28, 1994, the Taxpayers filed a claim for a refund for the total invested capital taxes they paid for tax years 1991-93. On October 30, 1995, the Taxpayers filed a claim for a refund for the total invested capital taxes they paid for tax year 1994. The Taxpayers argued that the invested capital tax did not apply to them because: (1) it was a replacement tax and the cellular telecommunications industry did not exist at the time of its enactment; (2) the Taxpayers were not regulated by the Illinois Commerce Commission; (3) the tax applies only to entities who would have been subject to the Messages Tax Act imposed in 1945, which did not extend to interstate commerce; and (4) the tax violates the uniformity provision of the Illinois Constitution of 1970 (Ill. Const. 1970, Art. IX, § 2).

On January 24, 1996, the Department issued tentative determinations that the taxpayers were not entitled to a refund. The Taxpayers filed timely protests of these determinations. The protests were consolidated before an administrative law judge (ALJ) for consideration on a stipulation of facts and on the briefs.

On June 20, 1997, The Governor of the State of Illinois approved Public Act 90-154, including the Telecommunications Municipal Infrastructure Maintenance Fee Act (TMIMFA), which repealed the invested capital tax. P.A. 90-154 (approved June 20, 1997, effective January 1, 1998). The TMIMFA's "legislative intent" section, now codified at 35 ILCS 635/5 (West 1998), provides in part as follows:

"The General Assembly imposed a tax on invested capital of utilities to partially replace the personal property tax that was abolished by the Illinois Constitution of 1970. Since that tax was imposed, telecommunications retailers have evolved from utility status into an increasingly competitive industry serving the public. This act is intended to abolish the invested capital tax on telecommunications retailers ***. *** Cellular [t]elecommunications retailers have already been excluded from application of the invested capital tax by earlier legislative action." (Emphasis added.)

On August 11, 1997, the ALJ recommended that the Taxpayers' refund claim be denied. On August 29, 1997, the Director accepted the recommended decision.

On November 17, 1997, the Taxpayers filed a complaint seeking administrative review of the Director's decision, which alleged that they were served by U.S. mail postmarked October 14, 1997. On May 17, 1999, following the submission of briefs by the parties, the trial court reversed the decision of the Director. The trial court concluded that the Taxpayers were not regulated by the ICC, based on 35 ILCS 610/2a.1 ...


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