Appeal from the Circuit Court of Cook County. No. 91-L-50819 Honorable Alexander P. White, Judge Presiding
The opinion of the court was delivered by: Justice Theis
Plaintiff Weber-Stephen Products, Inc. (Weber-Stephen), brought this action against the Illinois Department of Revenue, Douglas L. Whitley, Director of the Illinois Department of Revenue, and Patrick Quinn, Treasurer of the State of Illinois (collectively, the Department), to recover use tax it paid to the Department after its acquisition of an airplane. The circuit court denied its motion for summary judgment and granted judgment in favor of the Department. On appeal, Weber-Stephen argues that the transfer of a used airplane from the original owner, not a retailer of used airplanes, through two intermediate airplane retailers in exchange for its own smaller aircraft and other consideration in order to qualify for a federal income tax deferral under section 1031 of the Internal Revenue Code (the Code) (I.R.C. §1031 (1989)), constitutes an isolated or occasional sale as an exception to the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1989, ch. 120, par. 440 et seq. (recodified as 35 ILCS 120/1 et seq. (West 1998)) and Use Tax Act (Ill. Rev. Stat. 1989, ch. 120, par. 439.1 et seq. (recodified as 35 ILCS 105/1 et seq. (West 1998)).
When granting summary judgment in favor of the Department, the trial court found:
"That based on the literal definition of 'sale at retail' found in the first sentence of the Retailers' Occupation Tax Act, *** Plaintiff is subject to Use Tax on its purchase and use of the property at issue because Plaintiff acquired title to that property from someone not qualifying as an occasional seller."
A "sale at retail" under both the Retailers' Occupation Tax Act (ROTA) and the Use Tax Act (UTA or use tax) is defined as "any transfer of the ownership of or title to tangible personal property to a purchaser, for the purpose of use *** for a valuable consideration." Ill. Rev. Stat. 1989, ch. 120, pars. 440, 439.2. While Weber-Stephen concedes that title of the Hawker aircraft was transferred from JB&A Aviation, Inc. (JB&A), to Weber-Stephen, it argues that, despite the transfer of title, the exchange was not a sale. For the reasons that follow, we reject Weber-Stephen's arguments and agree with the trial court that the transfer of the Hawker from JB&A to Weber-Stephen was a sale at retail as defined in the ROTA and UTA and, thus, Weber-Stephen is liable for use tax on this purchase.
Weber-Stephen is an Illinois corporation that manufactures cooking equipment. In 1989, it owned an airplane known as the Westwind, which it used to transport employees and passengers in the course of business. In May 1989, Weber-Stephen contacted JB&A, located in Texas, to assist it in finding and acquiring a larger aircraft. JB&A is an aircraft broker that acts as an intermediary to facilitate the purchase and sale of used aircraft, but it is also a retailer of used airplanes. JB&A located a larger airplane, known as the Hawker, which was owned by The Chase Manhattan Bank, N.A. (Chase). Chase is a national banking association with its principal place of business in New York and is not in the business of selling airplanes at retail. Chase listed the Hawker for sale with Smith/Ellis, a Texas airplane brokerage company. JB&A informed Weber-Stephen of the Hawker's availability in late May 1989.
On June 1, 1989, Chase and Smith/Ellis entered into a purchase agreement whereby Smith/Ellis would purchase the Hawker from Chase for $4.275 million. Chase was designated as "seller" and Smith/Ellis as "purchaser." In this agreement, Chase stated its intent to effectuate a like-kind exchange pursuant to section 1031 of the Code by exchanging the Hawker for a larger aircraft, the yet-to-be-acquired Canadair Challenger. I.R.C. §1031 (1989). Chase's obligations under the purchase agreement were conditional upon and subject to its acquisition of the Challenger. Smith/Ellis and Chase also entered into an escrow agreement with Aero Records & Title Company (Aero Records). Both agreements specified that the purchase price funds be transferred directly into an escrow account and applied solely as a trade-in allowance to the later purchase of the Challenger, which was the subject of a separate agreement.
On June 5, 1989, Weber-Stephen and JB&A officers met to discuss the sale. Weber-Stephen signed an offer to purchase the Hawker from JB&A for $2.7 million, plus the trade-in of the Westwind, and delivered the offer to JB&A. Weber-Stephen also delivered a check, made out to JB&A, for a $100,000 deposit on the Hawker to be held in trust pending completion of the transaction. JB&A endorsed the check and mailed it to Aero Records to be held in escrow. The next day, JB&A submitted an offer to purchase the Hawker for $4.275 million to Smith/Ellis, which Smith/Ellis accepted as Chase's agent.
On June 9, 1989, Chase delivered the Hawker to K.C. Aviation in Appleton, Wisconsin, for an inspection pursuant to both JB&A's and Weber-Stephen's offers to purchase. The preliminary inspection report identified the registered owner as Chase and the buyer as Weber-Stephen. On June 13, 1989, Smith/Ellis, as agent for and on behalf of Chase, contacted Weber-Stephen regarding the availability of spare parts for the Hawker. On June 16, 1989, the company that operated the Hawker for Chase authorized certain repairs from the buyer's inspection report prepared for Weber-Stephen.
The transaction closed on June 22, 1989, at the Appleton, Wisconsin, airport where title of the Hawker transferred from Chase to Smith/Ellis to JB&A. JB&A then held title of the Hawker, albeit momentarily, before transferring title to Weber-Stephen. Both airplanes were present and several documents were executed during the closing. Chase and Smith/Ellis executed an aircraft bill of sale for the Hawker listing Chase as seller and Smith/Ellis as purchaser and an acceptance certificate where Smith/Ellis acknowledged delivery of the Hawker.
Smith/Ellis and JB&A entered into an aircraft purchase agreement for the Hawker which specifically referred to the purchase agreement between Chase and Smith/Ellis. The Smith/Ellis-JB&A agreement stated that Smith/Ellis shall sell and deliver the Hawker to JB&A immediately after Chase sold and delivered the Hawker to Smith/Ellis. The agreement also provided that Smith/Ellis and JB&A had the same rights as the seller and buyer, respectively, in the Chase-Smith/Ellis purchase agreement. However, Smith/Ellis did not undertake any warranties with regard to the Hawker. Smith/Ellis and JB&A also executed an aircraft bill of sale from Smith/Ellis, seller, to JB&A, purchaser.
Weber-Stephen and JB&A then entered into an aircraft exchange agreement for the Hawker, where Weber-Stephen would sell its Westwind to JB&A and pay JB&A $2.8 million. Upon the payment of the purchase price, JB&A would transfer all title documents for the Hawker to Weber-Stephen and Weber-Stephen would transfer all necessary title documents for the Westwind to JB&A. While this agreement did not specify Weber-Stephen's intent to effectuate a section 1031 exchange, an affidavit signed by Weber-Stephen's vice-president as part of this litigation detailed this intent. These funds were to be deposited into an escrow account, pursuant to a separate escrow agreement with Aero Records. The escrow agreement listed Weber-Stephen as buyer, and JB&A as seller, and mentioned both the Westwind and the Hawker.
JB&A executed a warranty bill of sale for the Hawker, where it warranted that it was the legal owner of the Hawker and had clear title. Weber-Stephen signed a certificate of acceptance for the Hawker and JB&A signed a similar certificate for the Westwind pursuant to their exchange agreement. Weber-Stephen also executed a warranty bill of sale for the Westwind, and both JB&A and Weber-Stephen executed an aircraft bill of sale for the Hawker. On June 22, 1989, Aero Records disbursed the proceeds of the escrow account as follows: $4.275 ...