The opinion of the court was delivered by: Justice Gordon
Appeal from the Circuit Court of Cook County. Honorable Thomas P. Quinn, Judge Presiding.
Defendants Kenneth Zehnder, Director of the Illinois Department of Revenue and Judy Topinka, Treasurer of the State of Illinois (collectively "the Department") appeal from an order of the circuit court of Cook County finding that plaintiff Schawk, Inc. ("Schawk") is engaged in manufacturing and thus is entitled to a tax credit for certain equipment it uses in its business. On appeal, the Department contends that the circuit court misinterpreted the word "manufacturing" as it is defined in the applicable statute. We reverse and remand for further proceedings.
The following facts regarding the nature of Schawk's business are not in dispute and were stipulated to by the parties. Schawk, a Delaware corporation doing business in Illinois, provides digital imaging prepress services for the consumer products industry. Schawk produces and sells color separated film (referred to as "exposed film," "color separations" or "product") used by its customers to print packaging materials for consumer products such as cereal boxes, promotional materials and in-store displays. Schawk does not generally print the materials itself, but merely supplies the film for printing to its customers.
When Schawk receives a new work order its customer supplies either electronic files or hard copy transparencies which depict the package, sales display or promotional material the customer wants printed. If Schawk receives an electronic file, it checks to verify that the files contain all of the necessary elements. If hard copy is supplied by the customer, Schawk's color scanning department scans the transparencies to create an electronic file. A computer operator then corrects or retouches the electronic file to produce a file whose colors match the transparency supplied by the customer.
Subsequently, using a computer, an assembly operator places all of the images in the proper order in the electronic file. This step is important because printing of multiple colors requires that the printing presses apply the colors in the proper order (a separate film is used for each color). Once the electronic file is assembled, it is sent to the digital proofing department. Both mechanical and digital proofs are used. The digital proof is inspected for digital file integrity. The mechanical proof is used to inspect the dimensions of each graphic element and to verify that each element meets printer specifications. After the mechanical quality control department approves the mechanical proof, the electronic file is sent to the film output department where a final film is produced. Various output devices are used to produce exposed film, which is then developed.
Once the final film is produced, it is inspected by Schawk's film quality control department. A color proof is used to inspect how well the images on the film match the transparency or artwork which was originally supplied by the customer. The film then goes through a final mechanical inspection before it is shipped to the customer's printer.
On its Illinois income tax returns for the tax years ending December 31, 1992, through December 31, 1997, Schawk took investment tax credits pursuant to section 201(e) of the Illinois Income Tax Act (35 ILCS 201(e)(West 1998)) against its personal property tax replacement income tax liability for various items of machinery and equipment purchased during those years. This equipment is used by Schawk in the course of its business, as described above. Under the Act, the credits would only have been available to Schawk if it was primarily engaged in manufacturing. The Department subsequently audited Schawk's tax returns, and determined that Schawk was not entitled to the investment tax credit under section 201(e). Schawk subsequently paid additional amounts in income tax under protest.
On January 24, 1997, Schawk filed a complaint for injunctive relief alleging that it was engaged in manufacturing and that it was thus entitled to claim the income tax credits at issue. The trial court subsequently entered summary judgment in favor of Schawk and against the Department, finding that Schawk was engaged in manufacturing under section 201(e). This appeal followed.
The Department contends that Schawk is not primarily engaged in manufacturing and is thus not entitled to a tax credit for qualified property pursuant to section 201(e)(1) of the Illinois Income Tax Act (35 ILCS 201(e)(1)(West 1998)). We agree.
"Where facts are undisputed *** a determination of whether property is exempt from taxation is a question of law." Chicago Patrolmen's Association v. Department of Revenue, 171 Ill. 2d 263, 271, 664 N.E.2d 52, 56 (1996). "Statutes exempting property from taxation are to be strictly construed in favor of taxation." Chicago Patrolmen's Association, 171 Ill. 2d at 271, 664 N.E.2d at 56 (1996)." Statutory construction is a question of law, and is thus reviewed de novo. Advincula v. United Blood Services, 176 Ill. 2d 1, 12, 678 N.E.2d 1009, 1015 (1996).
"The cardinal rule of statutory construction is to ascertain and give effect to the true intent of the legislature." Paris v. Feder, 179 Ill. 2d 173, 177, 688 N.E.2d 137, 139 (1997). "The best evidence of legislative intent is the language used in the statute itself, which must be given its plain and ordinary meaning." Paris, 179 Ill. 2d at 177, 688 N.E.2d at 139. "The statute should be evaluated as a whole, with each provision construed in connection with every other section." Paris, 179 Ill. 2d at 177, 688 N.E.2d at 139. "If legislative intent can be ascertained from ...