No. 2--96--0144
________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
________________________________________________________________
BRUCE NAGEL, d/b/a ) Appeal from the Circuit Court
Nagel Trucking, and ) of Kane County.
NAGEL TRUCKING AND )
MATERIALS, INC., )
)
Plaintiffs-Appellants, )
) No. 95--TX--023
v. )
)
RAYMOND T. WAGNER, JR., )
Director of Revenue, and )
THE DEPARTMENT OF REVENUE, ) Honorable
) Melvin E. Dunn,
Defendants-Appellees. ) Judge, Presiding.
________________________________________________________________
JUSTICE THOMAS delivered the opinion of the court:
Plaintiffs, Bruce Nagel, d/b/a Nagel Trucking, and Nagel
Trucking and Materials, Inc., appeal the trial court's judgment
affirming the decision of defendant the Department of Revenue (the
Department), which determined that both the materials plaintiffs
transported and certain transportation charges plaintiffs levied
were subject to the Retailers' Occupation Tax (the ROT). The issue
on appeal is whether the trial court erred in finding that the
transportation charges were subject to the ROT. We affirm.
Plaintiff Bruce Nagel, d/b/a Nagel Trucking is a sole
proprietorship whose primary business is the transportation of
materials. Plaintiff Nagel Trucking and Materials, Inc., is the
successor in interest to that sole proprietorship. Because the
distinction between plaintiffs is not relevant to this appeal, we
will refer to plaintiffs collectively as "plaintiff."
Some of plaintiff's customers requested that plaintiff locate
and sell them materials in addition to providing transportation
services. On those occasions, plaintiff advanced the charges to
pay the supply source for the materials and then delivered the
materials to plaintiff's customers. Plaintiff then billed the
customers an aggregate charge for the sale and transportation of
the materials.
The Department audited plaintiff's operations and assessed the
ROT on both the sale and transportation of the materials.
Plaintiff requested an administrative hearing. At the hearing,
plaintiff did not contest the portion of the assessment which
applied to the materials. Plaintiff paid the ROT on the materials
portion of the assessment, including penalties and interest.
Plaintiff only contested the portion of the assessment which
applied to the transportation of the materials.
Using plaintiff's records, the Department and plaintiff agreed
on the amount of each transaction represented by transportation
charges. However, the Department held that, because plaintiff
failed to overcome the Department's prima facie case with
documentary evidence showing that the sale of the materials and the
transportation of the materials were separate transactions,
defendant owed the ROT on both the sale of the materials and the
transportation of the materials.
Plaintiff filed a complaint for administrative review. The
trial court affirmed the Department's decision and its rationale.
Plaintiff filed a timely notice of appeal.
On appeal, plaintiff argues that the Department's decision to
impose the ROT on the transportation portion of the transactions is
both contrary to law and against the manifest weight of the
evidence. The Department concedes that, in the present case, the
facts are undisputed and the determination whether the transactions
are subject to the ROT is a question of law. Harrisburg-Raleigh
Airport Authority v. Department of Revenue, 126 Ill. 2d 326, 331
(1989). Although courts of review should give some deference to an
administrative agency's construction of a statute, we are not bound
to give that construction the same deference as an agency's
findings of fact. However, statutes exempting property from
taxation should be strictly construed in favor of taxation, and the
taxpayer bears the burden of proving his entitlement to the
exemption. Harrisburg-Raleigh Airport Authority, 126 Ill. 2d at
331.
Section 130.415 of Title 86 of the Illinois Administrative
Code (Administrative Code) provides in relevant part:
"b) The answer to the question of whether or not a
seller, in computing his Retailers' Occupation Tax liability,
may deduct, from his gross receipts from sales of tangible
personal property at retail, amounts charged by him to his
customers on account of his payment of transportation or
delivery charges in order to secure delivery of the property
to such customers, or on account of his incurrence of expense
in making such delivery himself, depends not upon the separate
billing of such transportation or delivery charges or expense,
but upon whether the transportation or delivery charges are
included in the selling price of the property which is sold or
whether the seller and the buyer contract separately for such
transportation or delivery charges by not including such
charges in such selling price.
c) If such transportation or delivery charges are
included in the selling price of the tangible personal
property which is sold, the transportation or delivery expense
is an element of cost to the seller within the meaning of
Section 1 of the Retailers' Occupation Tax Act, and may not be
deducted by the seller in computing his Retailers' Occupation
Tax liability.
d) On the other hand, where the seller and the buyer
agree upon the transportation or delivery charges separately
from the selling price of the tangible personal property which
is sold, then the cost of the transportation or delivery
service is not a part of the "selling price" of the tangible
personal property which is sold, but instead is a service
charge, separately contracted for, and need not be included in
the figure upon which the seller computes his Retailers'
Occupation Tax liability. *** The best evidence that
transportation or delivery charges were agreed to separately
and apart from the selling price, is a separate and distinct
contract for transportation or delivery. However,
documentation which demonstrates that the purchaser had the
option of taking delivery of the property, at the seller's
location, for the agree[d] purchase price, or having delivery
made by the seller for the agree[d] purchase price, plus an
ascertained or ascertainable delivery charge, will suffice."
86 Ill. Adm. Code §130.415 (1996).
In determining that the transportation part of the
transactions is subject to the ROT, the Department relied on
Sprague v. Johnson, 195 Ill. App. 3d 798 (1990). In Sprague,
plaintiff owned a trucking service that transported primarily
gravel. Sprague, 195 Ill. App. 3d at 799. Plaintiff never
advertised that he had rock for sale. However, some of plaintiff's
customers requested that he acquire and haul the gravel for them.
The transportation charges plaintiff levied were the tariffs he
filed with the Commerce Commission. After the hauling was
completed, plaintiff billed the customers one charge for both the
materials and the transportation. Sprague, 195 Ill. App. 3d at
800.
The court concluded that plaintiff presented no evidence at
trial to indicate that the sale of the gravel and the
transportation of the gravel were two separate transactions.
Sprague, 195 Ill. App. 3d at 804. The court held that, because
plaintiff failed to present such evidence, he failed to overcome
the Department's prima facie case established by the corrected tax
returns. Sprague, 195 Ill. App. 3d at 804.
In the present case, plaintiff contends that the tariffs he
filed are sufficient to demonstrate that the sale of the gravel and
the transportation of the gravel were two separate transactions.
We disagree.
The tariffs plaintiff filed allowed the Department to
determine the amount attributable to the sale of the materials and
the amount attributable to the transportation of the materials.
However, it is not whether the Department is able to determine the
amount attributable to each part of the transaction that determines
whether the transportation charges may be subtracted from
plaintiff's gross receipts in computing his ROT liability. Rather,
section 130.415(b) of the Administrative Code provides that whether
plaintiff may deduct the transportation charges depends upon
whether the transportation charges were included in the selling
price of the property which is sold or whether plaintiff and his
customers contracted separately for the transportation charges by
not including them in the selling price. 86 Ill. Adm. Code
§130.415(b) (1996).
In the present case, plaintiff did not present any evidence to
demonstrate that he and his customers contracted separately for the
transportation charges. The tariffs plaintiff filed are merely a
public document that he is required to file with the Commerce
Commission. That document establishes the rates plaintiff must
charge in a contract for transportation only. It does not
demonstrate the existence of a separate and distinct agreement as
to the rates for transportation and materials where, as here,
plaintiff's own testimony demonstrates that plaintiff billed an
aggregate charge for transportation and materials. We note that
the court in Sprague also held that, although plaintiff had filed
tariffs which represented the portion of the charges attributable
to transportation, plaintiff had not demonstrated that the sale and
transportation of the gravel were two separate transactions.
Sprague, 195 Ill. App. 3d at 803-04.
Plaintiff argues that our recent decision in Arenson v.
Department of Revenue, 279 Ill. App. 3d 355 (1996), prohibits the
Department from imposing the ROT on the transportation charges in
the present case. In Arenson, the Department assessed taxes
against charges on both taxable communications charges and on
nontaxable equipment rental charges. The Department based its
assessment on plaintiff's failure to disaggregate the charges on
the customer invoices. On appeal, we held that the applicable
statute did not specify where the disaggregation should occur and
that plaintiff had sufficiently rebutted the Department's case by
showing that it had disaggregated the rental charges in its own
records. Arenson, 279 Ill. App. 3d at 360.
In the present case, unlike Arenson, plaintiff has not shown
that he disaggregated the transportation charges in his own
records. The tariffs plaintiff filed with the Commerce Commission
do not separate sales from transportation charges in individual
transactions. The tariffs are a generic price list for
transportation charges. Moreover, the regulations in the present
case do not require disaggregation in plaintiff's records; they
require that the price of the materials and the charge for the
transportation of the materials be negotiated separately. 86 Ill.
Adm. Code §130.415(b) (1996).
Plaintiff argues that the decisions in Liquid Air Corp. v.
Johnson, 240 Ill. App. 3d 722 (1992), and Airco Industrial Gas
Division, The BOC Group, Inc. v. Department of Revenue, 223 Ill.
App. 3d 386 (1991), prohibit the Department from imposing the ROT
on the transportation charges in the present case. We disagree.
In Liquid Air Corp. and Airco, plaintiffs sold industrial
gases in liquid form to their customers. Liquid Air Corp., 240
Ill. App. 3d at 724; Airco, 223 Ill. App. 3d at 387. The liquid
gases could only be stored in large cryogenic tanks that were able
to sustain the low temperature and high pressure of the gases.
Plaintiffs' customers could lease the appropriate cryogenic tanks
from plaintiffs or obtain the tanks from other sources. The sale
of the gases and the lease of the tanks were negotiated and billed
separately. Liquid Air Corp., 240 Ill. App. 3d at 724; Airco, 223
Ill. App. 3d at 388. The Department imposed the ROT on the rental
fees plaintiffs charged their customers for the use of the storage
equipment. Liquid Air Corp., 240 Ill. App. 3d at 725; Airco, 223
Ill. App. 3d at 388.
The courts in Liquid Air Corp. and Airco held that the
Department could not impose the ROT on the rental fees for the
storage facilities. Liquid Air Corp., 240 Ill. App. 3d at 730;
Airco, 223 Ill. App. 3d at 392-93. In finding that plaintiffs did
not owe the ROT on the rental fees, the court in Liquid Air Corp.
noted that the Department's regulations specifically excluded
rental fees and lease payments from the ROT. 240 Ill. App. 3d at
726. The courts in Liquid Air Corp. and Airco noted that the
appropriate inquiry is whether the product can be sold to the
customer without rendering the service. Liquid Air Corp., 240 Ill.
App. 3d at 730; Airco, 223 Ill. App. 3d at 392-93. If it can, then
the service charge should not be subject to the ROT.
In the present case, the materials plaintiff sold could be
sold to the customers without rendering the transportation service.
However, unlike the situations in Liquid Air Corp. and Airco,
plaintiff in the present case presented no evidence that the sales
portions and the service portions of the transactions were
negotiated or billed separately.
Moreover, in Liquid Air Corp. and Airco, a regulation
specifically excluded the rental fees. See 86 Ill. Adm. Code
§130.2010 (1996). In the present case, the regulations provide
that the transportation fees may be subtracted from the gross
receipts in computing the ROT only if plaintiff and the customers
contract separately for the transportation charges. 86 Ill. Adm.
Code §130.415(b) (1996). Plaintiff failed to present such
evidence. Accordingly, we conclude that Liquid Air Corp. and Airco
do not prohibit the imposition of the ROT on the transportation
charges in the present case.
We hold, as did the court in Sprague, that, because plaintiff
failed to demonstrate that the sale of the materials and the
transportation of the materials were separate transactions,
plaintiff failed to overcome the Department's prima facie case
established by the corrected tax returns.
Therefore, we affirm the judgment of the circuit court of Kane
County.
Affirmed.
McLAREN, P.J., and BOWMAN, J., concur.