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Stark Materials Co., Inc. v. Illinois Dep't of Revenue

May 12, 2004

STARK MATERIALS COMPANY, INC., AN ILLINOIS CORPORATION, PLAINTIFF-APPELLANT,
v.
THE ILLINOIS DEPARTMENT OF REVENUE; GLEN L. BOWER, DIRECTOR OF THE ILLINOIS DEPARTMENT OF REVENUE; AND JUDY B. TOPINKA, TREASURER OF THE STATE OF ILLINOIS, DEFENDANTS-APPELLEES.



Appeal from Circuit Court of McLean County. No. 99TX3. Honorable G. Michael Prall, Judge Presiding.

The opinion of the court was delivered by: Justice McCULLOUGH

UNPUBLISHED

On March 18, 1999, plaintiff, Stark Materials Company, Inc., brought an action against, inter alios, the Illinois Department of Revenue (Department) for declaratory judgment, pursuant to sections 2a and 2a.1 of the State Officers and Employees Money Disposition Act (Protest Monies Act) (30 ILCS 230/2a, 2a.1 (West 1998)), seeking recovery of tax monies paid, under protest, pursuant to the Retailers' Occupation Tax Act (ROTA) (35 ILCS 120/1 through 14 (West 1998)). The parties stipulated to the material facts and each party filed a motion for summary judgment based on those facts. On December 13, 2002, the trial court denied plaintiff's motion for summary judgment and granted the Department's cross-motion for summary judgment, concluding the Department had properly calculated plaintiff's liability under ROTA. On appeal, plaintiff argues that (1) its delivery charges are not taxable as "gross receipts" under ROTA, and (2) the increased gross sales reported by plaintiff for federal income-tax purposes are not taxable "gross receipts" under ROTA. We affirm.

The Department audited plaintiff's sales-tax account for the period of July 1, 1995, through December 31, 1997. On December 31, 1998, the Department issued plaintiff a notice of sales-tax liability indicating that plaintiff owed the following amounts:

"Tax Due/Excess Tax Collected $86,825 Penalty $0 Interest $15,733 Payments/Credits $0 PAY THIS AMOUNT $102,558"

The total amount due was the result of the Department's conclusion, based on the audit, that plaintiff underpaid its taxes for the periods at issue in the amount of $86,825 and also owed $15,733 in statutory interest thereon.

On February 24, 1999, plaintiff responded to the notice by remitting the sum of $102,558 but paid the amount under protest pursuant to sections 2a and 2a.1 of the Protest Monies Act. On March 18, 1999, it filed a complaint for declaratory and injunctive relief. On March 22, 1999, the trial court entered a preliminary injunction preventing the State from disposing of the funds. On the same date, plaintiff submitted a second payment of $933.62 under protest for additional accrued interest on the deficiency. On March 4, 2002, the court dissolved the injunction to the extent of allowing a refund of $13,153, representing tax plus interest to plaintiff and a release from the protest fund of $19,809 into appropriate funds of the state treasury.

As stated, each party filed a motion for summary judgment. In so doing, the parties stipulated that the two issues presented for resolution were questions of law, namely (1) whether plaintiff's delivery charges were subject to the retailers' occupation tax (ROT) and (2) whether the increased gross sales reported by plaintiff for federal income-tax purposes for the tax year ending December 31, 1996, were subject to the ROT. The parties entered into a stipulation of fact as to all material facts necessary to a resolution of the case, from the period between July 1, 1995, through December 31, 1997, and attached numerous exhibits.

Plaintiff is an Illinois corporation that mines, excavates, processes, and sells certain minerals extracted from quarries. After excavation, it processes the minerals into either ready-mix concrete (ready-mix) or an aggregate compound of processed gravel and sand. Plaintiff sells the ready-mix or aggregate compound to purchasers for use primarily in construction activities.

During the periods at issues, one of plaintiff's multiple customers was Stark Excavating. Plaintiff delivered ready-mix to Stark Excavating in trucks owned by Stark Excavating. Stark Excavating leased the trucks to plaintiff and imposed an hourly rental charge for the trucks. The trucks had rotating drums that were used to agitate the ready-mix. To the extent that a certain truck was not being used by plaintiff for a particular job, the truck was available to Stark Excavating for its own purposes, including picking up ready-mix from plaintiff or another supplier. In those instances where Stark Excavating picked up ready-mix from plaintiff, plaintiff was not charged for use of the truck. If plaintiff delivered the ready-mix to Stark Excavating, then plaintiff was charged for use of the truck based on an hourly rate pursuant to the parties' lease agreement.

On invoices from plaintiff to Stark Excavating, one charge is labeled a "delivery charge." The "delivery charge" was based on a formula that took into account certain weighted variables, including operator costs, payroll costs, truck rental, fuel charges, plant maintenance costs, and union dues. The cost of concrete was not included in the delivery-charge calculation. The delivery charge in issue varied from delivery to delivery based on the aforementioned variables. The formula employed by plaintiff to determine the delivery charge was the same regardless of whether the purchaser was Stark Excavating or another purchaser.

Stark Excavating periodically purchased ready-mix from suppliers other than plaintiff when (1) the prices plaintiff charged were not favorable or (2) when Stark Excavating's project was not close to plaintiff's place of business. In those instances where Stark Excavating purchased concrete from other suppliers, it used its own trucks to pick up the concrete.

During the periods at issue, plaintiff did not include the delivery charges it collected from Stark Excavating in its gross receipts reported to the Department on its Illinois sales-and use-tax returns. Plaintiff included the delivery charge on all invoices to Stark Excavating regardless of whether plaintiff delivered the ready-mix or whether Stark Excavating picked it up.

William Vinyard, the Department's auditor, did not consider whether Stark Excavating had the necessary equipment (such as a truck with a rotating drum) to give it the option of picking up ready-mix directly from plaintiff. He concluded that the delivery charges in question were taxable because plaintiff is a ready-mix retailer. Based on prior audits, he was not aware of any other ready-mix retailer that sold ready-mix to customers ...


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