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Exelon Corp. v. Illinois Dep't of Revenue

September 24, 2007

EXELON CORPORATION, PLAINTIFF-APPELLANT,
v.
ILLINOIS DEPARTMENT OF REVENUE, AND BRIAN A. HAMER, AS DIRECTOR OF REVENUE, DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County. Honorable Sheldon Gardner, Judge Presiding.

The opinion of the court was delivered by: Justice Wolfson

Published opinion

At issue in this case is whether Commonwealth Edison (ComEd), a wholly-owned subsidiary of Exelon Corporation, as successor to Unicom Corporation, is entitled to a tax credit for investments in "qualified property" on its 1995 and 1996 tax returns pursuant to section 201(e) of the Illinois Income Tax Act (Act) (35 ILCS 5/201(e) (West 1994)). We also are asked to consider whether section 201(e), as applied to gas and electric utility providers, violates the uniformity clause of the Illinois Constitution. The Department of Revenue rejected Exelon's claims and we agree.

FACTS

In 1995 and 1996, ComEd invested nearly $3 billion in property used for generating, transmitting, and distributing electricity to customers in Illinois. The property was depreciable under section 167 of the Internal Revenue Code, and had not been previously used in Illinois. Neither ComEd nor its parent company claimed a section 201(e) credit on its original combined 1995 or 1996 Illinois tax return. On May 28, 1998, ComEd's parent company, Unicom Corporation, filed amended Illinois combined income tax returns, seeking a $10,419,507 section 201(e) credit for 1995 and a $4,398,115 credit for 1996. Section 201(e) provides a tax credit against the Personal Property Tax Replacement Income Tax for investments in "qualified property."

The Department of Revenue (Department) denied the requests. Unicom submitted an administrative protest and requested a hearing. The parties filed cross-motions for summary judgment.

In support of its motion for summary judgment, Unicom attached an affidavit and report from its expert witness, Dr. Joel Fajans, a professor of physics at University of California, Berkeley. Dr. Fajans opined that, as a matter of irrefutable scientific fact, electricity itself is both a physical and material commodity. Dr. Fajans noted that electricity can be sensed, measured, stored, and weighed.

Unicom also asked the Department to admit whether it had ever approved an investment credit for either a natural gas utility or another regulated electric utility. After raising a relevancy objection, the Department admitted it allowed investment credits to natural gas utilities generally. The Department denied granting the credit to a regulated electric utility. The Department admitted, however, that between the tax years 1992 and 1998, a combined gas and electric utility filed an amended return claiming the section 201(e) credit for property used in its electricity business. The Department did not audit the amended return and the taxpayer received the credit.

The Administrative Law Judge (ALJ) recommended granting the Department's summary judgment motion. The ALJ found the Illinois General Assembly did not intend to include electricity within the meaning of "tangible" when enacting section 201(e), relying in large part on our supreme court's decision in Farrand Coal Co. v. Halpin, 10 Ill. 2d 507, 140 N.E.2d 698 (1957). The ALJ also found that "[t]reating electric utilities differently than natural gas utilities *** does not violate the uniformity clause of the Illinois Constitution." The Director of the Department accepted the ALJ's recommendation. Unicom petitioned for circuit court review of the administrative decision. After Unicom was purchased by Exelon Corporation, the circuit court ordered the case caption changed to "Exelon Corporation, as successor to Unicom Corporation." The court affirmed the Director's decision. Exelon appeals.

DECISION

We review the administrative agency's decision, not the circuit court's decision. Wigginton v. White, 364 Ill. App. 3d 900, 905, 847 N.E.2d 646 (2006). An administrative agency's factual determinations are reviewed under a manifest weight of the evidence standard. Lindsey v. Board of Education of the City of Chicago, 354 Ill. App. 3d 971, 978, 847 N.E.2d 1161 (2004). An administrative agency's legal conclusions, however, are reviewed de novo. Wigginton, 364 Ill. App. 3d at 905; Lindsey, 354 Ill. App. 3d at 979. We review the issues here de novo.

I. Classification of Electricity as Intangible

Section 201(e) of the Act provides a tax credit for investments in "qualified property." 35 ILCS 5/201(e) (West 1994). The statute defines "qualified property" as property "used in Illinois by a taxpayer who is primarily engaged in manufacturing, or in mining coal or fluorite, or in retailing." 35 ILCS 5/201(e)(2)(D) (West 1994). "Retailing" is defined as "the sale of tangible personal property or the sale of services rendered in conjunction with the sale of tangible consumer goods or commodities." 35 ILCS 5/201(e)(3) (West 1994). At issue in this case is whether electricity is "tangible personal property." The legislature did not define "tangible personal property" within the Act.

Exelon contends the Department erred in determining ComEd does not, as a matter of law, engage in "retailing" as defined by section 201(e). Specifically, Exelon contends the Department erred in determining the Illinois legislature did not intend for electricity to be considered "tangible" when enacting the section 201(e) tax credit.

When the facts are undisputed, the 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 (1996); Schwak, Inc. v. Zehnder, 326 Ill. App. 3d 752, 755, 761 N.E.2d 192 (2001). "Statutes exempting property from taxation are to be ...


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