Hartney Fuel Oil Company v. Board of Trustees of the Village of Forest View, etc.

2013 IL 115130
IN THE
SUPREME COURT
OF
THE STATE OF ILLINOIS
(Docket Nos. 115130, 115131 cons.)
HARTNEY FUEL OIL COMPANY et al., Appellees, v. BRIAN A.
HAMER, Director of the Illinois Department of Revenue, et al.,
Appellants.
Opinion filed November 21, 2013.
CHIEF JUSTICE GARMAN delivered the judgment of the court,
with opinion.
Justices Freeman, Thomas, Kilbride, Karmeier, Burke, and Theis
concurred in the judgment and opinion.
OPINION
¶1 This case concerns the proper situs for tax liability under retail
occupation taxes arising under three Illinois statutes: the Home Rule
County Retailers’ Occupation Tax Law, the Home Rule Municipal
Retailers’ Occupation Tax Act, and the Regional Transportation
Authority Act. The Illinois Department of Revenue determined
through audit that plaintiff Hartney Fuel Oil Company’s sales at retail
were attributable to the company’s Forest View office, rather than the
Village of Mark location reported by the company. The change in
location made Hartney subject to retail occupation taxes imposed by
the Village of Forest View, Cook County, and the Regional
Transportation Authority. The Department issued a notice of tax
liability, which Hartney paid under protest. Hartney then filed for
relief in the circuit court of Putnam County.
¶2 The circuit court of Putnam County consolidated with this case a
declaratory judgment action by the board of commissioners of
Putnam County and board of trustees of the Village of Mark, in which
those local governments sought to be declared the proper situs of
taxation. The circuit court also allowed the board of trustees of the
Village of Forest View, the County of Cook, and the Regional
Transportation Authority to intervene as defendants. The circuit court,
interpreting the Department of Revenue’s regulations for the three
taxes, found for the plaintiffs. The appellate court affirmed that
decision. 2012 IL App (3d) 110144.
¶3 We granted defendants’ petitions for leave to appeal pursuant to
Supreme Court Rule 315 (eff. Feb. 26, 2010). Pursuant to Supreme
Court Rule 345 (eff. Sept. 20, 2010), we have permitted the
Taxpayers’ Federation of Illinois and the Illinois Retail Merchants
Association to file a brief amicus curiae on behalf of the plaintiffs.
We have also permitted the Village of Schaumburg, the City of
Chicago, the City of Peoria, the Town of Normal, and the County of
Peoria to file a brief amicus curiae on behalf of the defendants.
¶4 BACKGROUND
¶5 Hartney Fuel Oil Company is a retailer of fuel oil, and during all
times relevant to this litigation its home office was in Forest View,
Illinois. From its Forest View office, Hartney would set fuel prices,
cultivate customer relationships, and handle administrative tasks like
billing and accounting. Each night, Hartney staff there would
communicate fuel prices for the following day to prospective
customers. The Forest View home office also contained a jointly
owned but separately incorporated transportation company, Energy
Transport, Inc. Energy Transport served as a common carrier, filling
many of Hartney’s fuel orders.
¶6 In addition to its Forest View office, Hartney had a “sales” office,
located elsewhere in the state for tax planning purposes. The sales
office had no direct employee of Hartney; Hartney would contract
with a local business for a clerk to take fuel orders. Hartney
established its first separate sales office in Elmhurst, later moving it
to Burr Ridge, then to Peru, and then to Mark, due to prevailing local
tax conditions. The local business would provide the services of one
of its own employees to receive Hartney’s orders via phone; Hartney
would pay the local business a flat rate. During the relevant time
period, Hartney paid Putnam County Painting, a commercial painting
business, $1,000 per month for a nonexclusive lease of 200 square
feet and the services of a clerk.
¶7 Hartney had two varieties of fuel contracts, long-term
requirements contracts and daily orders. Customers would call the
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Mark office to place their daily orders. Any customer who called the
Forest View office to place an order was directed to call the Mark
office. The clerk in Mark would check a list of customers with
approval to order on credit. Orders from those who were not credit-
approved would be rejected. For customers who were preapproved,
the clerk would call Energy Transport at the Forest View office, and
Energy Transport would deliver the fuel. No confirmation of the order
by Hartney’s Forest View office was required. Testimony at trial and
the conclusion of the circuit court were that the clerk’s word was
binding on Hartney.
¶8 Long-term requirements contracts were negotiated by Hartney’s
president, who would instruct the customer to sign the contract and
return it by mail to the Mark office. If Hartney’s president had not yet
signed the contract, he would travel to the Mark office to sign it. The
executed contracts were stored at the Mark office, with copies sent to
the customer and Hartney’s Forest View office. These contracts were
generally on a “keep full” basis. Energy Transport or another common
carrier would monitor and keep full the customer’s tanks, notifying
Hartney to invoice the long-term contract customer for any fuel
delivered. The keep-full arrangements did not require any
intervention by the Mark office.
¶9 By structuring its sales in this way, Hartney hoped to avoid
liability for retail occupation taxes of Cook County, the Village of
Forest View, and the Regional Transportation Authority. Such taxes
are imposed pursuant to the Home Rule County Retailers’ Occupation
Tax Law (55 ILCS 5/5-1006 (West 2012)), the Home Rule Municipal
Retailers’ Occupation Tax Act (65 ILCS 5/8-11-1 (West 2012)), and
the Regional Transportation Authority Act (70 ILCS 3615/4.03 (West
2012)). Hartney’s interpretation of the law was that the relevant
regulations set a bright-line test: where the purchase order is accepted
for a sale at retail in Illinois, and the purchaser takes delivery in
Illinois, the sale has its situs where the seller accepts the purchase
order. This view of the situs of sale also meant that Putnam County
and the Village of Mark received the portions of the Illinois Retailers’
Occupation Tax funds designated for county and local government.1
35 ILCS 120/3 (West 2012).
1
Neither Putnam County nor the Village of Mark imposed its own retail
occupation taxes, and each gave Hartney a partial rebate of state retail
occupation tax funds received, giving Hartney an even lower effective tax
rate for sales with situs there.
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¶ 10 The Department of Revenue audited Hartney’s selling activity
from January 1, 2005, to June 30, 2007, finding the proper situs of
selling activity to be Hartney’s office in Forest View. The Department
calculated retail occupational taxes of Cook County, Forest View, and
the Regional Transportation Authority, and sent Hartney a notice of
tax liability on September 5, 2008. With interest and penalties,
Hartney owed $23,111,939.11.
¶ 11 Hartney paid the assessment and sued for a refund under the State
Officers and Employees Money Disposition Act (Protest Monies Act)
(30 ILCS 230/1 et seq. (West 2008)) in Putnam County circuit court.
Putnam County and the Village of Mark joined Hartney in seeking
declaratory and injunctive relief to find Mark to be the proper situs of
sale, to release the state occupation tax money to Mark and Putnam
County, and to release to Hartney the money it paid under protest.
Forest View, Cook County, and the Regional Transportation
Authority (Local Governments) intervened as defendants.
¶ 12 The circuit court concluded that Hartney had accepted both its
long-term sales and daily order sales in the Village of Mark, and that
the regulations relevant to each section established a bright-line test
for situs of sale: where purchase orders are accepted, tax liability is
incurred. The appellate court affirmed.
¶ 13 ANALYSIS
¶ 14 The issues presented by this appeal are (1) the legislative intent of
the retail occupation tax statutes, and (2) interpretation of the
administrative regulations implementing the retail occupation taxes.
¶ 15 Hartney argues, and the courts below found, that the plain
language of the regulation establishes a bright-line test for the situs
of retail occupation tax liability. The Department argues that such an
interpretation is at odds with this court’s decisions on the business of
selling under the retail occupation tax and with the legislative intent
of the Home Rule County Retailers’ Occupation Tax Law (55 ILCS
5/5-1006 (West 2012)), the Home Rule Municipal Retailers’
Occupation Tax Act (65 ILCS 5/8-11-1 (West 2012)), and the
Regional Transportation Authority Act (70 ILCS 3615/4.03 (West
2012)).
¶ 16 This appeal concerns interpretation of statutes and regulations,
both questions of law which we review de novo. People ex rel.
Madigan v. Illinois Commerce Comm’n, 231 Ill. 2d 370, 380 (2008).
Yet even where review is de novo, an agency’s interpretation of its
regulations and enabling statute are “entitled to substantial weight and
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deference,” given that “agencies make informed judgments on the
issues based upon their experience and expertise and serve as an
informed source for ascertaining the legislature’s intent.” Provena
Covenant Medical Center v. Department of Revenue, 236 Ill. 2d 368,
387 n.9 (2010).
¶ 17 Factual determinations of a trial court are reviewed under the
manifest weight of the evidence standard and will be reversed only
where the “opposite conclusion is clearly evident or the finding is
arbitrary, unreasonable, or not based in evidence.” Samour, Inc. v.
Board of Election Commissioners, 224 Ill. 2d 530, 544 (2007). The
parties disagree about the legal significance of a number of facts in
issue but do not dispute the facts themselves.
¶ 18 This dispute arises under the Protest Monies Act (30 ILCS 230/1
(West 2008)). A taxpayer willing to pay an assessment under protest
may pay assessed taxes and file suit for a refund in circuit court,
thereby avoiding the requirement under the Administrative Review
Law (735 ILCS 5/3-101 et seq. (West 2008)) to exhaust all
administrative remedies before seeking judicial review.2
¶ 19 The Local Retail Occupation Tax Acts
¶ 20 The three statutes at issue (the local ROT Acts) allow home rule
county and municipal governments and the Regional Transportation
Authority (RTA) to impose a retail occupation tax “upon all persons
engaged in the business of selling tangible personal property” at retail
within the county, municipality, or metropolitan region. 55 ILCS 5/5-
1006 (West 2012); 65 ILCS 5/8-11-1 (West 2012); 70 ILCS
3615/4.03(e) (West 2012). The Village of Forest View is within Cook
County and within the metropolitan region of the RTA. Each of the
Local Governments has imposed its own retail occupation tax.
¶ 21 The local ROT Acts give information about the tax rate to be
imposed and types of products subject to the tax, but—with the
exception of coal and other mineral extraction—they do not offer
substantial guidance on the proper situs of taxation. See, e.g., 55
ILCS 5/5-1106 (West 2012). For guidance on the proper situs of retail
2
The appellate court noted that this court has not yet identified the
standards to apply to a specific claim under the Protest Monies Act. 2012
IL App (3d) 110144, ¶ 32. However, the parties are in apparent agreement
that the circuit court's standard was appropriate, and no party has briefed
or argued the issue for this court's review. We do not define a standard at
this time.
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occupation tax under the local ROT Acts, one must turn to the
regulations. The “Jurisdictional Questions” regulations for the county,
municipality, and RTA retail occupation taxes are largely identical,
with only minor differences in layout. See 86 Ill. Adm. Code 220.115
(2000); 86 Ill. Adm. Code 270.115 (2000); 86 Ill. Adm. Code
320.115 (2000). For simplicity, we refer to the Home Rule County
Retailers’ Occupation Tax Law regulations (86 Ill. Adm. Code
220.115 (2000)).
¶ 22 The circuit court and appellate court both found the regulations to
establish a bright-line test: “If the purchase order is accepted at the
seller’s place of business within the county, municipality and/or
metropolitan region; ROT liability is fixed in that respective county,
municipality and/or metropolitan region.” 2012 IL App (3d) 110144,
¶ 53. The Department and Local Governments argue that the
regulations instead present a fact-intensive inquiry, looking to the
totality of the circumstances. They argue that only a totality-of-the-
circumstances view accords with the legislative intent of the local
ROT Acts and this court’s prior interpretation of the “business of
selling” under the local ROT Acts. See, e.g., Ex-Cell-O Corp. v.
McKibbin, 383 Ill. 316 (1943).
¶ 23 We look first to interpretation of the statutes, beginning with plain
language.
¶ 24 Interpretation of the Statutes
¶ 25 When interpreting a statute, the primary objective is to give effect
to the legislature’s intent, which is best indicated by the plain and
ordinary language of the statute itself. Citizens Opposing Pollution v.
ExxonMobil Coal U.S.A., 2012 IL 111286, ¶ 23. Words should be
given their plain and obvious meaning unless the legislative act
changes that meaning. Svithiod Singing Club v. McKibbin, 381 Ill.
194, 197 (1942). In giving meaning to the words and clauses of a
statute, no part should be rendered superfluous. Standard Mutual
Insurance Co. v. Lay, 2013 IL 114617, ¶ 26. Statutory provisions
should be read in concert and harmonized. People v. Rinehart, 2012
IL 111719, ¶ 26. Where a statute is enacted after a judicial opinion is
published, we presume the legislature acted with knowledge of the
case law. In re Marriage of Mathis, 2012 IL 113496, ¶ 25. If further
construction of a statute is necessary, a court may consider similar
and related enactments. In re Shelby R., 2013 IL 114994, ¶ 39. Courts
weighing legislative intent also consider the “object to be attained, or
the evil to be remedied by the act.” Svithiod Singing Club, 381 Ill. at
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198. A retail occupation tax must be given a “practical and common-
sense construction.” Automatic Voting Machine Corp. v. Daley, 409
Ill. 438, 447 (1951).
¶ 26 The principal question in this appeal is determination of the
proper situs for the “business of selling” to be taxed. To interpret a
statute, we first look to the plain language of that statute. Neither
party has briefed or argued the plain language of the local ROT Acts,
aside from pointing to this court’s prior decisions on the meaning of
the “business of selling.”
¶ 27 The Home Rule County Retailers’ Tax Law permits home rule
counties to impose “a tax upon all persons engaged in the business of
selling tangible personal property *** at retail in the county.” 55
ILCS 5/5-1006 (West 2012). The tax is to be imposed in 1/4%
increments, and may only be imposed at the same rate as a service
occupation tax imposed by the county. A number of different types of
products are exempted from home rule county taxation. Sellers are
permitted to recover the cost of such taxes by stating the tax in a
separate charge, along with other sales taxes. The Department of
Revenue is charged with collection and enforcement. Apart from the
words “at retail in the county,” the statute contains little guidance on
how a sale is properly located for tax purposes. The only prescription
for situs of sale in the statute governs sales of coal and other minerals:
“For the purpose of determining the local governmental unit whose
tax is applicable, a retail sale by a producer of coal or other mineral
mined in Illinois is a sale at retail at the place where the coal or other
mineral mined in Illinois is extracted from the earth.” Id. The Home
Rule Municipal Retailers’ Occupation Tax Act is identical in these
provisions. 65 ILCS 5/8-11-1 (West 2012). Neither Act contains an
explicit statement of legislative purpose.
¶ 28 The “Taxes” section of the Regional Transportation Authority Act
allows the Board of Directors to impose a retail occupation tax upon
“all persons engaged in the business of selling tangible personal
property at retail in the metropolitan region.” 70 ILCS 3615/4.03(e)
(West 2012). The “Taxes” section prescribes applicable tax rates for
certain products in Cook County and prescribes a separate tax rate for
Du Page, Kane, Lake, McHenry, and Will Counties. Similarly to the
home rule county and municipal ROT Acts, the “Taxes” section of
the RTA Act requires the Board to enact a parallel service occupation
tax and title tax if it enacts a retail occupation tax. Sellers under the
RTA Act are likewise permitted to recover the cost of such taxes
from buyers by stating the tax separately. The RTA Act similarly
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lacks any definition for situs of sale aside from sales of coal and other
minerals. That provision is virtually identical to the one contained in
the home rule county and municipal ROT Acts. The RTA Act does
contain statements of legislative purpose, describing public
transportation as an “essential public purpose.” 70 ILCS
3615/1.02(a)(i) (West 2012).
“There is an urgent need to reform and continue a unit of local
government to assure the proper management of public
transportation and to receive and distribute State or federal
operating assistance and to raise and distribute revenues for
local operating assistance. System generated revenues are not
adequate for such service and a public need exists to provide
for, aid and assist public transportation in the northeastern
area of the State, consisting of Cook, DuPage, Kane, Lake,
McHenry and Will Counties.” Id.
¶ 29 Thus, the plain meaning of these statutes is to allow home rule
counties, home rule municipalities, and the Regional Transportation
Authority to impose retail occupation taxes on persons engaged in the
business of selling. In the context of the Regional Transportation
Authority Act, such taxes are to be collected in part because the
revenues generated by public transportation are insufficient to support
that “essential public purpose” in Cook, Du Page, Kane, Lake,
McHenry, and Will Counties. However, the plain language of the
statutes is sparse in definition for where the “business of selling”
takes place. This court’s prior interpretations of the “business of
selling” in a closely related tax are instructive.
¶ 30 We have interpreted the plain meaning of a tax on the business of
selling under the Retailers’ Occupation Tax Act (35 ILCS 120/1 et
seq. (West 2012)), to be a tax on the occupation of retail selling, and
not sales themselves. Standard Oil Co. v. Department of Finance, 383
Ill. 136, 142 (1943). Thus, the location of the business of selling
inside or outside the state controls, and not the location of transfer of
title. Id. The business of selling itself is
“the composite of many activities extending from the
preparation for, and the obtaining of, orders for goods to the
final consummation of the sale by the passing of title and
payment of the purchase price. It is obvious that such
activities are as varied as the methods which men select to
carry on retail business and it is therefore not possible to
prescribe by definition which of the many activities must take
place in Illinois to constitute it an occupation conducted in
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this State. Except for a general classification that might be
made of the many retail occupations, it is necessary to
determine each case according to the facts which reveal the
method by which the business is conducted.” Ex-Cell-O
Corp., 383 Ill. at 321-22.
Under this “composite of many activities” view, a sales agent, limited
to soliciting orders and unable to bind the selling company in any
way, did not constitute a person engaged in the business of selling
within the state. Id. at 322-23.
¶ 31 The business of selling is distinct from the business of mere
solicitation, as the Retailers’ Occupation Tax Act did not authorize
a tax on mere solicitation. Allis-Chalmers Manufacturing Co. v.
Wright, 383 Ill. 363, 366 (1943). In parsing the many activities
making up the business of selling, some combinations of activities
within the state are insufficient for the retail occupation tax to apply.
Automatic Voting Machine Corp., 409 Ill. at 447 (describing
imposition of the ROT as a question in which “each case, of
necessity, rests completely and entirely on the foundation of its own
facts”). For example, “promotional work, delivery of bids, transfer of
title, delivery of machines and servicing” within the state have been
held insufficient where bid preparation, contract execution,
manufacturing, and accounting took place outside the state. Id. at
451-52. In determining whether the business of selling has taken
place in the state, courts may look through the form of a putatively
interstate transaction to its substance, in determining whether enough
of the business of selling took place within the state to subject it to
the retail occupation tax. Marshall & Huschart Machinery Co. v.
Department of Revenue, 18 Ill. 2d 496, 501 (1960).
¶ 32 In sum, there is a wealth of precedent that, under the Retailers’
Occupation Tax Act, whether the taxable “business of selling” is
being carried on requires a fact-intensive inquiry, to determine “each
case according to the facts.” See Ex-Cell-O, 383 Ill. at 321-22. We
next examine whether the legislature intended the “business of
selling” under the Home Rule County Retailers’ Occupation Tax
Law, the Home Rule Municipal Retailer’s Occupation Tax Law, and
the Regional Transportation Authority Act to be judged under the
same fact-sensitive approach.
¶ 33 The local ROT Acts do not, by their terms, contain any explicit
link to or distinction from the Retailers’ Occupation Tax Act.
Nonetheless, similar and related enactments provide guidance to the
meaning of a potentially unclear term. In re Shelby R., 2013 IL
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114994, ¶ 39. The Retailers’ Occupation Tax Act and the local ROT
Acts at issue use near-identical language to describe the target of
taxation: “persons engaged in the business of selling at retail tangible
personal property” (35 ILCS 120/2 (West 2012) (Retailers’
Occupation Tax Act)); and “all persons engaged in the business of
selling tangible personal property *** at retail” (55 ILCS 5/5-1006
(West 2012) (Home Rule County Retailers’ Occupation Tax Law)).
We conclude the General Assembly did not create this parallelism
casually or accidentally. The 1943 Ex-Cell-O decision predates the
local ROT Acts and made clear this court’s interpretation of “the
business of selling at retail.” The legislature’s decision to use this
equivalent language—and retain it through many subsequent statutory
amendments—signals its embrace of the Ex-Cell-O “composite of
many activities” exposition. We conclude it applies to the business of
selling in the local ROT Acts.
¶ 34 Having concluded the plain language of the “business of selling”
requires a fact-intensive inquiry under the local ROT Acts, we find
the plain language of the statute does not fully reveal legislative intent
as to the situs of taxation. Accordingly, we turn to other tools of
construction. This court has previously considered the legislative
intent of the Retailers’ Occupation Tax Act (35 ILCS 120/1 et seq.
(West 2012)), finding the General Assembly “sought to tax the
business of selling at retail, to arrive at some method of relieving
property from direct taxation and to place the burden upon that class
of business which not only enjoyed the greater part of governmental
protection but which benefited by being conducted under that
protection.” Svithiod Singing Club, 381 Ill. at 199. We again stated
the statutory intent to link retailer consumption of government
services to retail occupation taxation under the Retailers’ Occupation
Tax Act in Valier Coal Co. v. Department of Revenue, 11 Ill. 2d 402,
406-07 (1957).
¶ 35 Moving from the state to local level, this court applied the same
rationale to predecessors of the municipal and county retail
occupation taxes in Gilligan v. Korzen, 56 Ill. 2d 387, 391-92 (1974)
(stating the General Assembly enacted prior versions of the municipal
and county ROT Acts to account for government services provided).
Accordingly, we again find the legislative intent of the Home Rule
County Retailers’ Occupation Tax Law, the Home Rule Municipal
Retailer’s Occupation Tax Act, and the retail occupation tax
provisions of the Regional Transportation Authority Act is to allow
local governments to impose a tax on “persons engaged in the
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business of selling tangible personal property” at retail within their
jurisdictions, in order to relieve some tax burden that might otherwise
be placed on property, in favor of placing it on retailers enjoying
governmental services. 55 ILCS 5/5-1006 (West 2012); 65 ILCS 5/8-
11-1 (West 2012); 70 ILCS 3615/4.03(e) (West 2012).
¶ 36 Taking these two conclusions about the plain meaning of the
business of selling and legislative intent together, then, the local ROT
Acts were enacted to allow local jurisdictions to tax the composite of
selling activities taking place within their jurisdictions, collecting
taxes in relation to services enjoyed by the retailer. Having concluded
the “business of selling” under the local ROT Acts is a fact-intensive
“composite of many activities” consonant with our holding in Ex-
Cell-O, we now consider whether the Department’s regulations are
consistent with the statute.
¶ 37 Interpretation of the Regulations
¶ 38 Administrative regulations have the force and effect of law and
are interpreted with the same canons as statutes. People ex rel.
Madigan v. Illinois Commerce Comm’n, 231 Ill. 2d 370, 380 (2008).
Additionally, administrative agencies enjoy wide latitude in adopting
regulations reasonably necessary to perform the agency’s statutory
duty. Julie Q. v. Department of Children & Family Services, 2013 IL
113783, ¶ 28. Such regulations carry a presumption of validity.
People v. Molnar, 222 Ill. 2d 495, 508 (2006). However, regulations
may not broaden or narrow a statute’s intended scope of taxation. Ex-
Cell-O, 383 Ill. at 320. Regulations that are inconsistent with the
statute under which they are adopted will be held invalid. Kean v.
Wal-Mart Stores, Inc., 235 Ill. 2d 351, 366 (2009).
¶ 39 The regulations governing situs of taxation for the local ROT
Acts each appear under the heading “Jurisdictional Questions” and
are virtually identical. See 86 Ill. Adm. Code 220.115 (home rule
counties); 86 Ill. Adm. Code 270.115 (home rule municipalities); 86
Ill. Adm. Code 320.115 (RTA). For simplicity, we focus on the Home
Rule County Retailers’ Occupation Tax Law regulations (86 Ill. Adm.
Code 220.115).
¶ 40 The Department argues the local ROT Act regulation defining the
situs of tax must be read in light of the statutory intent. Read in this
light, it argues, the regulation sets up a totality-of-the-circumstances
inquiry. Hartney argues that the regulation is instead written to
address numerous possible fact scenarios in an uncertain
field—speaking with certainty in scenarios where the outcome is
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known and providing guidance as to a likely outcome in other
scenarios. The interpretive dispute begins in 86 Ill. Adm. Code
220.115(b):
“b) Mere Solicitation of Orders Not Doing Business
1) For a seller to incur Home Rule County Retailers’
Occupation Tax liability in a given county, the sale must
be made in the course of the seller’s engaging in the retail
business within that county. In other words, enough of the
selling activity must occur within the home rule county to
justify concluding that the seller is engaged in business
within the home rule county with respect to that sale.
2) For example, the Supreme Court has held the mere
solicitation and receipt of orders within a taxing
jurisdiction (the State), where the orders were subject to
acceptance outside the taxing jurisdiction and title passed
outside the jurisdiction, with the goods being shipped
from outside the jurisdiction to the purchaser in the
jurisdiction, did not constitute engaging in the business of
selling within the jurisdiction. This conclusion was
reached independently of any question of interstate
commerce and so would apply to a home rule county as
the taxing jurisdiction as much as to the State as the
taxing jurisdiction.” 86 Ill. Adm. Code 220.115(b).
¶ 41 The Department argues that subsection (b) incorporates our
holdings on the meaning of the “business of selling” through its
reference to “the seller’s engaging in the retail business within that
county.” The Department further argues that subsection (b)(1)’s
requirement that “enough of the selling activity must occur” within
the taxing jurisdiction invokes this court’s view of sales under retail
occupation taxes as the composite of many activities. The appellate
court found, and Hartney argues, that subsections (b)(1) and (b)(2)
instead set up a threshold inquiry, analyzing whether enough of the
sales activity takes place in the taxing jurisdiction that it might be
made subject to the retail occupation tax there. In Hartney’s view, this
first inquiry would narrow the field from various jurisdictions having
some contact with the sale to those with “enough” sales activity;
subsequent sections either define or provide guidance as to which of
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them will enjoy tax revenues from the retailer.3 Specifically, Hartney
argues that subsection (c)(1) conclusively establishes its tax situs at
the location of purchase order acceptance. Subsection (c)(1) states:
“c) Seller’s Acceptance of Order
1) Without attempting to anticipate every kind of fact
situation that may arise in this connection, it is the
Department's opinion, in general, that the seller’s
acceptance of the purchase order or other contracting
action in the making of the sales contract is the most
important single factor in the occupation of selling. If the
purchase order is accepted at the seller's place of business
within the county or by someone who is working out of
that place of business and who does not conduct the
business of selling elsewhere within the meaning of
subsections (g) and (h) of this Section, or if a purchase
order that is an acceptance of the seller’s complete and
unconditional offer to sell is received by the seller’s place
of business within the home rule county or by someone
working out of that place of business, the seller incurs
Home Rule County Retailers’ Occupation Tax liability in
that home rule county if the sale is at retail and the
purchaser receives the physical possession of the property
in Illinois. The Department will assume that the seller has
accepted the purchase order at the place of business at
which the seller receives the purchase order from the
purchaser in the absence of clear proof to the contrary.”
86 Ill. Adm. Code 220.115(c)(1).
The Department argues that Hartney’s interpretation renders
subsection (b)(1) meaningless, as there would be no reason for a
threshold finding of which jurisdictions may be able to tax the seller
if another subsection conclusively establishes which jurisdiction will
tax the seller. For the reasons stated below, we agree with the
appellate court’s and Hartney’s view.
¶ 42 The Department is correct in looking to Ex-Cell-O to interpret
subsection (b), as it references the inquiry contemplated in that case.
In Ex-Cell-O, we said:
3
No party has argued, and we do not consider, any claim that the
Department might impose the same tax in more than one location for one
sale.
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“An occupation, the business of which is to sell tangible
personal property at retail, is the composite of many activities
extending from the preparation for, and the obtaining of,
orders for goods to the final consummation of the sale by the
passing of title and payment of the purchase price. It is
obvious that such activities are as varied as the methods
which men select to carry on retail business and it is therefore
not possible to prescribe by definition which of the many
activities must take place in Illinois to constitute it an
occupation conducted in this State. Except for a general
classification that might be made of the many retail
occupations, it is necessary to determine each case according
to the facts which reveal the method by which the business is
conducted.” Ex-Cell-O, 383 Ill. at 321-22.
We are persuaded that subsection (b)(1) makes reference to “the
composite of many activities” in Ex-Cell-O, and subsection (b)(2)
references that case and its progeny directly. But one key Ex-Cell-O
concept is notably absent from the regulation: any explicit
requirement to “determine each case according to the facts which
reveal the method by which the business is conducted.” Id. at 322.
¶ 43 This absence is significant because we now confront a question
not present in Ex-Cell-O. There, the question before the court was
whether a retailer’s activity carried on within the state was sufficient
to constitute the business of selling under the Retailers’ Occupation
Tax Act. Id. At no point did the Ex-Cell-O court weigh which state
had the majority of the business of selling incident to the sales.
Unlike the case at bar, there were no competing claims between
taxing jurisdictions for the enjoyment of tax funds. In short, the local
ROT Acts present a question of allocation not present in Ex-Cell-O.
It is true that, under subsection (b) as well as in Ex-Cell-O, enough of
the selling activity must take place within the taxing jurisdiction to
constitute the business of selling there. After that threshold inquiry,
however, the Department must further determine which of the
jurisdictions satisfying this test will be deemed the situs of taxation
and will enjoy the tax revenues.
¶ 44 The Department argues that this threshold inquiry is meaningless
if a subsequent section affirmatively defines tax situs.4 This is not so,
4
The Department also argues that the appellate court erroneously
considered subsections (b)(1) and (b)(2) to make up a jurisdictional
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for reasons we outline in discussing subsection (c). Subsection (b),
standing alone, does not establish a fact-intensive test for the question
of tax situs. For the regulation to mandate a fact-intensive test, such
test must originate in a subsequent subsection or be clear from
subsections read together.
¶ 45 Subsection (c), however, does much to undermine the
Department’s view that the regulation embodies a totality-of-the-
circumstances inquiry. It begins:
“c) Seller’s Acceptance of Order
1) Without attempting to anticipate every kind of fact
situation that may arise in this connection, it is the
Department’s opinion, in general, that the seller’s
acceptance of the purchase order or other contracting
action in the making of the sales contract is the most
important single factor in the occupation of selling. If the
purchase order is accepted at the seller’s place of business
within the county or by someone who is working out of
that place of business and who does not conduct the
business of selling elsewhere within the meaning of
subsections (g) and (h) of this Section, or if a purchase
order that is an acceptance of the seller’s complete and
unconditional offer to sell is received by the seller’s place
of business within the home rule county or by someone
working out of that place of business, the seller incurs
Home Rule County Retailers’ Occupation Tax liability in
that home rule county if the sale is at retail and the
purchaser receives the physical possession of the property
in Illinois. The Department will assume that the seller has
accepted the purchase order at the place of business at
which the seller receives the purchase order from the
purchaser in the absence of clear proof to the contrary.”
86 Ill. Adm. Code 220.115(c)(1).
Subsection (c)(1) has three sentences, and the meaning of each of
these sentences must be considered in light of the others. The first
sentence states the Department’s opinion that the seller’s acceptance
of purchase order is the “most important single factor in the
provision. In fact, the appellate court said this inquiry was “analogous” to
minimum contacts in personal jurisdiction. 2012 IL App (3d) 110144,
¶¶ 43-44.
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occupation of selling.” For the purpose of discussion, we refer to this
as the “opinion” sentence. The next sentence outlines four
occurrences of purchase order acceptance and two conditions, under
which the seller incurs tax liability. For the purpose of discussion, we
refer to this as the “seller incurs” sentence. Subsection (c)(1)
concludes with a presumption about the location of purchase order
acceptance.
¶ 46 The “opinion” sentence, standing alone, could be viewed to
contemplate a totality-of-the-circumstances test. “Without attempting
to anticipate every kind of fact situation that may arise in this
connection, it is the Department’s opinion, in general, that the seller’s
acceptance of the purchase order or other contracting action in the
making of the sales contract is the most important single factor in the
occupation of selling.” Id. The phrase “[w]ithout attempting to
anticipate every kind of fact situation that may arise” suggests a
nuanced inquiry. “[I]t is the Department’s opinion, in general,”
additionally suggests that other facts may control. These two phrases
significantly temper the impact of “the seller’s acceptance of the
purchase order or other contracting action in the making of the sales
contract is the most important single factor in the occupation of
selling.” That purchase order acceptance is the “most important single
factor” (emphasis added) likewise implies that other factors might be
considered. Once more, however, the regulation has used language
that might suggest a totality-of-the-circumstances test, but stops short
of establishing one.
¶ 47 On its own, the “opinion” sentence communicates less than it
initially appears. First, it communicates that the Department does not
try to anticipate every fact scenario that might arise in determining
situs of retail occupation taxes, suggesting there may be difficulty in
writing a rule that fits every situation. Next, the seller’s acceptance of
the purchase order is, in general, the most important single factor to
locating the business of selling. This sentence might help to establish
a totality-of-the-circumstances test, depending on what follows.
¶ 48 But, as counsel for Hartney argues, what follows is not a list of
factors that are considered important, or even guidance as to when the
acceptance of purchase order might be overcome by other facts.
Instead, subsection (c)(1) continues with the certain and definitive
“seller incurs” sentence:
“If the purchase order is accepted at the seller’s place of
business within the county or by someone who is working out
of that place of business and who does not conduct the
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business of selling elsewhere within the meaning of
subsections (g) and (h) of this Section, or if a purchase order
that is an acceptance of the seller’s complete and
unconditional offer to sell is received by the seller’s place of
business within the home rule county or by someone working
out of that place of business, the seller incurs Home Rule
County Retailers’ Occupation Tax liability in that home rule
county if the sale is at retail and the purchaser receives the
physical possession of the property in Illinois.” (Emphasis
added.) Id.
¶ 49 This sentence begins by stating four mutually exclusive scenarios
for the receipt of a purchase order within the jurisdiction: (1)
acceptance of a purchase order at the seller’s place of business in the
county; or (2) acceptance of same by someone working out of that
place of business who is not placed elsewhere by the rules for coal or
selling from a truck; or (3) receipt at the seller’s in-county place of
business of a purchase order that is itself acceptance of the seller’s
complete, unconditional offer to sell; or (4) receipt of same by
someone working out of that place of business. The “seller incurs”
sentence concludes with two conditions: (1) sale is at retail, and
(2) the purchaser receives physical possession within the state. When
one of the purchase order scenarios occurs and the two conditions are
met, “the seller incurs Home Rule County Retailers’ Occupation Tax
liability in that home rule county.” Id. The “seller incurs” sentence
contains none of the nuance or hedging present in the “opinion”
sentence. It states that when one of these scenarios occurs, and two
conditions are satisfied, “seller incurs *** liability in that home rule
county.” Id.
¶ 50 Regulatory provisions, like statutory provisions, must be read in
concert and harmonized. See People v. Rinehart, 2012 IL 111719,
¶ 26. The “opinion” sentence does not diminish the certainty of the
“seller incurs” sentence. Rather, taking the two together renders a
meaning that, although it is difficult to craft a rule that properly
defines the situs of every sales arrangement, the place of purchase
order acceptance is so important that it will conclusively govern when
these conditions are met.
¶ 51 The final sentence, establishing a presumption as to where “the
seller has accepted the purchase order,” does not provide support for
the Department’s view that this regulation, in its entirety, creates a
totality-of-the-circumstances approach. First, the final sentence does
not establish a presumption on tax situs; it establishes a presumption
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to determine where the purchase order was accepted. Second, because
it creates a presumption as to the location of purchase order
acceptance, it only bolsters the interpretation that subsection (c)(1) is
establishing purchase order as the controlling test where the two
conditions are met. Third, it makes clear that the “seller incurs”
sentence is not simply a presumption under any totality-of-the-
circumstances test contemplated by the “opinion” sentence. In
drafting the regulation, the Department knew how to write a
presumption, and this presumption as to the location of purchase
order acceptance is the only one present in subsection (c)(1).
¶ 52 The following subsection, (c)(2), accords with the view that
subsection (c)(1) conclusively establishes purchase order acceptance
as the sole factor under certain circumstances, as it conclusively sets
tax situs for certain situations when the purchase order is accepted
outside the state. Subsection (c) thus contains not one but two
definitive situs-setting provisions.
“(2) If a purchase order is accepted outside this State, but
the tangible personal property that is sold is in an inventory of
the retailer located within a county at the time of its sale (or
is subsequently produced in the county), then delivered in
Illinois to the purchaser, the place where the property is
located at the time of the sale (or subsequent production in the
county) will determine where the seller is engaged in business
for Home Rule County Retailers’ Occupation Tax purposes
with respect to that sale.” 86 Ill. Adm. Code 220.115(c)(2).
Like the “seller incurs” sentence in subsection (c)(1), this sentence
starts with a scenario: the purchase order being accepted outside the
state. It continues by listing two conditions for imposition of the retail
occupation tax: (1) that the personal property be in the inventory of
the retailer within the county; and (2) that the personal property be
delivered in Illinois to the purchaser. Where this scenario occurs
under these two conditions, “where the property is located at the time
of the sale *** will determine where the seller is engaged in business”
for purposes of the retail occupation tax. Id.
¶ 53 This subsection also makes clear why subsection (b)(1) must
frame a threshold inquiry as to whether enough sales activity is taking
place within the jurisdiction to constitute the business of selling under
the local ROT Acts. The Department argues that interpreting
subsection (b)(1) as a threshold inquiry effectively strips that
subsection of meaning, as there would be no reason to determine
which jurisdictions may potentially subject the taxpayer to liability,
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“when the place where the purchase order is accepted will
conclusively determine where the taxpayer must pay.” Subsection
(c)(2), by imposing liability even where a purchase order is accepted
outside the state, makes clear that the purchase order does not
“conclusively determine where the taxpayer must pay” under every
provision of the regulation.5 The regulation contemplates that certain
sales activities will take place outside the state, and others will take
place within the state, but there might still be enough activity within
the county to constitute the “business of selling” there. Subsection
(c)(2) describes one arrangement that will bring about tax liability
within the county by carrying on the business of selling there. If
subsection (b)(1) instead framed an overall totality-of-the-
circumstances test, subsection (c)(2) would not be written as an
affirmative situs-setting rule, but rather as a simple example of one
cross-border situation that would still qualify for retail occupation tax
liability within the county. Instead, the regulation reads much as the
appellate court interpreted it: subsection (b)(1) establishes a threshold
inquiry into whether enough sales activity takes place in the local
jurisdiction; subsections like (c)(1) and (c)(2) then settle the question
of allocation among jurisdictions within the state.
¶ 54 Returning to our conclusion that subsections (c)(1) and (c)(2)
contain two statements affirmatively setting a location for tax situs,
reading the remainder of the regulation supports this view. Three
additional provisions define “the seller’s place of business” or “where
the seller is engaged in business” (86 Ill. Adm. Code 220.115(c)(1)-
(2)) and one defines “the local governmental unit whose tax is
applicable” (86 Ill. Adm. Code 220.115(h); 86 Ill. Adm. Code
220.115(e) (long-term and blanket contracts); 86 Ill. Adm. Code
220.115(f) (sales through vending machines); 86 Ill. Adm. Code
220.115(g) (sales from a truck as portable place of business); 86 Ill.
Adm. Code 220.115(h) (sales of coal and other minerals)). Each
speaks definitively to the object of the inquiry: where is the business
of selling being carried on, such that tax is imposed? None is stated
as a presumption. None is stated as an example of a likely allocation
under a totality-of-the-circumstances test. The regulation thus
contains six provisions that affirmatively set the situs of taxation
5
Additionally, subsections (f), (g), and (h) govern situations in which
a purchase order may not be involved at all. Subsection (c)(1)’s limited
statement that the place of purchase order controls under these limited
circumstances does not obviate the need for the (b)(1) threshold inquiry.
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under different scenarios, so long as conditions are met. In sum, the
overall structure of the regulation militates against the Department’s
claim of an overall totality-of-the-circumstances test.
¶ 55 In interpreting the regulation, we turn finally to the Department’s
argument that because subsection (d) lists other factors like the
location of delivery and location where title passes, those “may play
a role in determining where a retailer is located.” The Department
argues that the presence of these factors supports its argument that the
regulation crafts a totality-of-the-circumstances test, or there would
be no occasion to consider these factors at all. We note, first, that
these factors are described in the regulation as being “not necessary”
and “not a decisive consideration.” 86 Ill. Adm. Code 220.115(d)(1)-
(2). Indeed, none of the factors listed in subsection (d) are deemed
important in the regulation; the subsection is titled “Some
Considerations That Are Not Controlling.” Id. It is plausible this
subsection means to rule out certain types of challenges to liability by
taxpayers. It is plausible this subsection means to present factors to
deciding situations that fit none of the fact scenarios definitively
addressed in subsections (c)(1)-(2), (e), (f), (g), and (h), but which do
meet the threshold requirements of subsection (b) so that tax liability
may still be incurred. Having concluded that this subsection does not
support the Department’s view, we need not and do not decide that
question.
¶ 56 Even granting the Department considerable deference in
interpreting its regulations, we cannot find that its reading of the
regulation is correct. We conclude that the regulation, in subsection
(c)(1), does define situs for retail occupation tax where purchase
order acceptance occurs at the seller’s place of business within the
county, with sale at retail and the purchaser taking delivery within the
state. We now turn to whether the regulation constitutes a valid
implementation of the statutes.
¶ 57 Reconciling the Regulation with the Statute
¶ 58 As noted previously, the legislative intent of the local ROT Acts
is to permit home rule municipalities and counties, along with the
RTA, to enact retail occupation taxes in order to place some of the
burden of paying for local government services on the retailers who
enjoy them. See Svithiod Singing Club, 381 Ill. at 199. The retail
occupation tax is laid upon the business of selling and not upon sales
themselves. Standard Oil Co., 383 Ill. at 142. Under our precedent,
the business of selling is a composite of many activities. Ex-Cell-O
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Corp., 383 Ill. at 321-22. Determining that enough of the business of
selling is taking place in a given jurisdiction requires a fact-intensive
inquiry. Id.
¶ 59 Administrative agencies have deference in enacting regulations,
and regulations are presumed valid. Julie Q. v. Department of
Children & Family Services, 2013 IL 113783, ¶ 28; People v. Molnar,
222 Ill. 2d 495, 508 (2006). Administrative agencies likewise are
entitled to deference in interpreting the statutes they enforce. Provena
Covenant Medical Center v. Department of Revenue, 236 Ill. 2d 368,
387 n.9 (2010). Agencies’ broad latitude in enacting regulations to
enforce their statutes may include presumptions or other shortcuts in
administrative decision making. We do not strike regulations down
simply because they are unwise or bad policy. Oak Liquors, Inc. v.
Zagel, 90 Ill. App. 3d 379 (1980). Thus, our review is not whether the
regulation is the best possible implementation, but rather whether it
is a permissible interpretation of the statute.
¶ 60 As noted above, the question of determining tax situs for a tax on
the business of selling presents a complicated inquiry. One line of
reasoning would persuade us to find the regulation constitutes a
reasonable compromise between the administrative difficulty of
determining appropriate tax situs in every situation and the need for
accurate tax assessment. A regulation might call for a “shortcut” in
decisionmaking without effecting a prohibited expansion or
contraction of the taxing statute it implements.
¶ 61 On the other hand, a regulation cannot narrow or broaden the
scope of intended taxation under a taxing statute. Kean v. Wal-Mart
Stores, Inc., 235 Ill. 2d 351, 372 (2009). A regulation that does so
must be held invalid. Id. We are persuaded that this regulation
impermissibly narrows the local ROT Acts, contrary to the
legislature’s intention to allow local governments to collect taxes
from retailers in their jurisdictions. First, it does not amply prescribe
the fact-intensive inquiry contemplated by this court in Ex-Cell-O.
Second, by allowing for only one, potentially minor step in the
business of selling to conclusively govern tax situs, this regulation
impermissibly constricts the scope of intended taxation.
¶ 62 In the case at hand, Hartney conducted the bulk of its selling
activity in Forest View. It carried out all of its marketing efforts,
maintained inventory, set prices, and cultivated sales relationships
there. Hartney began routing its purchase orders through a separate
sales office exclusively for the purpose of tax planning. While the
clerk in Mark could bind Hartney, the clerk participated in no other
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aspect of the business of selling. This shift from Forest View to Mark
removed Hartney from the retail occupation tax rolls of Forest View,
Cook County, and the RTA. This effected more than a shift in tax
allocation; it effected a full removal from tax liability. It did not,
however, remove Hartney from the enjoyment of services offered by
the Local Governments.
¶ 63 Amici Taxpayer’s Federation of Illinois and Illinois Retail
Merchants Association argue that certainty is a high priority for
retailers, pointing to numerous states employing bright-line tests in
determining tax situs. These are arguments well suited for the General
Assembly. Should the legislature decide that tax certainty warrants a
single-factor determination of retail occupation tax situs, it can draft
such a test. However, by consistently employing the “business of
selling” language that we have interpreted to require a fact-intensive
inquiry to find the proper situs of a composite of many activities, the
legislature has effectively invoked this court’s precedent on the
Retailers’ Occupation Tax Law. It is not incumbent upon this court
to decide the best tax policy; the court is to decide the tax policy the
legislature has chosen and communicated through the statute.
¶ 64 The “Jurisdictional Questions” regulations embodied in 86 Ill.
Adm. Code 220.115, 270.115, and 320.115 are too inconsistent with
the statutes and case law to stand, and they are held invalid.
¶ 65 Abatement
¶ 66 Regulations carry the force and effect of law. People ex rel.
Madigan v. Illinois Commerce Comm’n, 231 Ill. 2d 370, 380 (2008).
However, an agency’s powers are limited to those granted by statute,
and acts of an agency beyond its statutory powers are void. Julie Q.
v. Department of Children & Family Services, 2013 IL 113783, ¶ 24.
Likewise, “where the public revenues are involved, public policy
ordinarily forbids the application of estoppel to the State.” Austin
Liquor Mart, Inc. v. Department of Revenue, 51 Ill. 2d 1, 4 (1972).
Were these the only governing principles, the Department might still
collect the tax despite its invalid regulation. In the absence of the void
regulation, Hartney would be taxed under the general principles of the
statute, left only with its argument for estoppel by erroneous
information letters and other publications of the Department.
¶ 67 Yet the legislature has provided for a taxing agency to become
bound to its own flawed interpretation of the law in effect at that
time. See, e.g., McLean v. Department of Revenue, 184 Ill. 2d 341,
363 (1998) (holding that an erroneous interpretive release precluded
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the Department from levying tax during that time period). The
Taxpayers’ Bill of Rights Act imposes upon the Department a duty to
“abate taxes and penalties assessed based upon erroneous written
information or advice given by the Department.” 20 ILCS 2520/4(c)
(West 2008). The Department’s own written regulations provide
guidance to taxpayers as to their liability. While we do not find
Hartney’s approach to retail occupation tax liability consistent with
the statute or this court’s precedent, the company did act consistently
with the Department’s regulation published at the time.6 It has been
six years since the most recent of these sales were completed.
Hartney’s ability to recover such amounts from its customers, or to
plan for such tax liabilities in advance, has long since passed.
¶ 68 We do not disturb the findings by the trial and appellate courts
that, under the regulations, Hartney accepted its purchase orders and
long-term contracts in Mark. Because of the Department’s erroneous
regulations, the Department has a duty under the Taxpayers’ Bill of
Rights Act to abate Hartney’s penalties and retail occupation tax
liability of Forest View, Cook County, and the Regional
Transportation Authority for the audit period.
¶ 69 For the reasons stated, the judgment of the appellate court is
affirmed in part and reversed in part.
¶ 70 Appellate court judgment affirmed in part and reversed in part.
6
The Local Governments have additionally argued that Hartney’s
arrangement should be disregarded as a sham transaction. Analyzing a
sham transaction requires assessment of the multiple steps of a transaction,
with each being considered relevant, to determine whether economic reality
accords with the formal arrangement. Commissioner v. Court Holding Co.,
324 U.S. 331, 334 (1945). Because we conclude the regulation erroneously
sited tax based solely on purchase order acceptance in the case at bar, the
sham transaction doctrine is unavailing. Hartney structured its affairs in
accordance with the regulation, by relocating its order-receiving function
to a lower tax jurisdiction. Hartney’s arrangement was not without
economic substance or economic effect. “The legal right of a taxpayer to
decrease the amount of what otherwise would be his taxes, or altogether
avoid them, by means which the law permits, cannot be doubted.” Gregory
v. Helvering, 293 U.S. 465, 469 (1935).
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