Appeal from the Circuit Court of the 10th Judicial Circuit Peoria County, Illinois No. 00-MR-419 Honorable Donald C. Courson Judge, Presiding
The opinion of the court was delivered by: Justice Lytton
Plaintiffs, Central Illinois Light Company and Freeman United Coal Mining Co. (together, CILCO), applied to the defendant, Illinois Department of Revenue, for a pollution control facility exemption for their purchases of coal. CILCO claimed that because its coal produced electricity that powered a pollution control system, the coal should be exempt from the Illinois Use Tax Act (Act). The Department denied the exemption, finding that the primary purpose of the coal was not pollution control. CILCO appealed the decision to the circuit court. The circuit court reversed the administrative decision. We reverse the judgment of the circuit court and confirm the ruling of the Department.
At the administrative proceeding, the parties waived an evidentiary hearing, and, instead, stipulated to certain relevant facts. The parties agreed that CILCO, a utility company, operates two coal-fired power plants in Illinois known as the E.D. Edwards and Duck Creek plants. When the coal at these plants is burned, it produces emissions known as "flue gas," a discharge that has been classified as a pollutant by both the Illinois and federal Environmental Protection Agencies. CILCO employs two types of pollution control devices at these plants: an electrostatic precipitator at the Edwards facility and a precipitator in conjunction with a sulfur dioxide scrubber at the Duck Creek plant. Both devices constitute "pollution control facilities" as defined by the Act. 35 ILCS 105/2a (West 2000). The pollution control facilities operate continuously through electricity provided by CILCO. CILCO can compute how much additional electricity it must produce to power the devices.
Based on these stipulated facts, CILCO claimed an exemption from the Illinois use tax only on the coal needed to produce electricity to power the pollution control devices. CILCO asserted that the coal qualified as part of a pollution control facility, which is specifically exempted under the Act. The Department cited the "primary purpose" test from the Act and argued that for the coal to be exempt from use tax, its primary purpose must be pollution control. The matter was argued before an administrative law judge.
The administrative law judge agreed with the Department and determined that CILCO failed to establish that the coal had as its "'primary purpose' the abatement of pollution" and recommended that the exemption be denied. The Department accepted the ALJ's findings of fact and application of the law and denied the exemption. CILCO sought review in the circuit court. The circuit court determined that the Department's decision to deny the exemption was clearly erroneous and entered judgment in favor of CILCO and against the Department of Revenue.
In reviewing a final decision under administrative review law, we review the agency's finding, not the circuit court's determination. Metropolitan Airport Auth. v. Prop. Tax Appeal Bd., 307 Ill. App. 3d 52, 55 (1999). An agency's determination of fact will be disturbed only if it is against the manifest weight of the evidence. Abrahamson v. Illinois Department of Professional Regulation, 153 Ill. 2d 76, 88 (1992). Questions of law, however, are not entitled to deference and are reviewed de novo. Envirite Corp. v. Illinois Environmental Protection Agency, 158 Ill. 2d 210, 214 (1994). Our supreme court held that a case that involves the examination of the legal effect of a set of given facts is a question of mixed law and fact, and therefore should not be overturned unless clearly erroneous. City of Belvidere v. Illinois State Labor Relations Board, 181 Ill. 2d 191, 205 (1998).
The Department argues that we must review this case under a clearly erroneous standard, since a question of mixed law and fact exists. To decide this case, we must only determine whether the Act exempts coal burned to power pollution control facilities. Since the issue is one of statutory interpretation, it must be reviewed under a de novo standard. See City of Belvidere, 181 Ill. 2d at 205. However, in arriving at our determination in this case, the agency's determination will remain "relevant" to our analysis. See Branson v. Department of Revenue, 168 Ill. 2d 247, 254 (1995).
The Department argues that the primary purpose of the coal is to produce energy, not control pollution. Statutes imposing tax liability are generally construed against the state and in favor of the taxpayer (People Who Care v. Tax Objectors, 193 Ill. 2d 490, 496 (2000)). However, statutory exemptions to taxation are strictly construed in favor of taxation. Chicago Bar Ass'n v. Department of Revenue, 163 Ill. 2d 290, 301 (1994). The party seeking the exemption bears the burden of clearly and conclusively proving it is entitled to the exemption. Chicago Bar Ass'n, 163 Ill. 2d at 300. All debatable questions must be analyzed in favor of taxation. Wyndemere Retirement Community v. Department of Revenue, 274 Ill. App. 3d 455, 459 (1995).
A tax is imposed "upon the privilege of using in this State tangible personal property purchased at retail from a retailer." 35 ILCS 105/3 (West 2000). However, section 2a of the Act exempts pollution control facilities by removing those facilities from the definition of tangible personal property under the statute. 35 ILCS 105/2a (West 2000). "Pollution control facilities" are defined as "any system, method, construction, device or appliance appurtenant thereto sold or used or intended for the primary purpose of eliminating, preventing, or reducing air and water pollution ... or for the primary purpose of treating, pretreating, modifying or disposing of any potential solid, liquid or gaseous pollutant..." 35 ILCS 105/2a (West 2000).
The pollution control facility tax exemption is governed by the "primary purpose" test. Du-Mont Ventilating Co. v. Department of Revenue, 73 Ill. 2d 243, 248 (1978). The primary purpose of the property for which the exemption is sought must be pollution control or abatement. Central Illinois Public Service Co. v. Department of Revenue, 158 Ill. App. 3d 763, 768 (1987). The test is not satisfied merely upon proof that the use of certain tangible personal property results in pollution control. Shell Oil Co. v. Department of Revenue, 117 Ill. App. 3d 1049, 1053 (1983). ...