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Appellate Court Date: 2018.12.04
13:51:08 -06'00'
Horsehead Corp. v. Department of Revenue, 2018 IL App (1st) 172802
Appellate Court HORSEHEAD CORPORATION, Petitioner, v. THE
Caption DEPARTMENT OF REVENUE and THE ILLINOIS
INDEPENDENT TAX TRIBUNAL, Respondents.
District & No. First District, First Division
Docket No. 1-17-2802
Filed September 24, 2018
Decision Under Petition for review of order of Illinois Independent Tax Tribunal, No.
Review 14-TT-227.
Judgment Tax tribunal decision affirmed.
Counsel on Kirkland & Ellis LLP, of Chicago (JoAnne Mulder Nagjee and Steven
Appeal M. Cantor, of counsel), and Difede Ramsdell Bender PLLC, of
Washington, D.C. (Joseph E. Bender, of counsel), for petitioner.
Lisa Madigan, Attorney General, of Chicago (David L. Franklin,
Solicitor General, and John P. Schmidt, Assistant Attorney General, of
counsel), for respondents.
Panel JUSTICE PIERCE delivered the judgment of the court, with opinion.
Presiding Justice Mikva and Justice Walker concurred in the judgment
and opinion.
OPINION
¶1 Respondent Illinois Department of Revenue (IDOR) issued petitioner Horsehead
Corporation 1 two notices of tax liability for Horsehead’s failure to pay use taxes on its
purchases of metallurgical coke between January 2007 and June 2011. Horsehead filed a
petition for review with the Illinois Independent Tax Tribunal (tax tribunal), which affirmed
the notices of tax liability as well as the imposition of the use tax, interest, late filing penalties,
and late payment penalties totaling approximately $1,521,041. Horsehead timely filed a
petition for review in this court. For the following reasons, we affirm the tax tribunal’s final
decision.
¶2 BACKGROUND
¶3 Illinois imposes a use tax “upon the privilege of using in this State tangible personal
property purchased at retail from a retailer.” 35 ILCS 105/3 (West 2016). Relevant to the issues
in this appeal, section 3-5(18) of the Use Tax Act contains an exemption from the use tax for
the following manufacturing and assembling machinery and equipment:
“Manufacturing and assembling machinery and equipment used primarily in the
process of manufacturing or assembling tangible personal property for wholesale or
retail sale or lease, whether that sale or lease is made directly by the manufacturer or by
some other person, whether the materials used in the process are owned by the
manufacturer or some other person, or whether that sale or lease is made apart from or
as an incident to the seller’s engaging in the service occupation of producing machines,
tools, dies, jigs, patterns, gauges, or other similar items of no commercial value on
special order for a particular purchaser.” Id. § 3-5(18).
¶4 Section 3-50 of the Use Tax Act contains a definition of “equipment” that includes certain
“chemicals and chemicals acting as catalysts”:
Ҥ 3-50. Manufacturing and assembly exemption. The manufacturing and
assembling machinery and equipment exemption includes machinery and equipment
that replaces machinery and equipment in an existing manufacturing facility as well as
machinery and equipment that are for use in an expanded or new manufacturing
facility. *** For the purposes of this exemption, terms have the following meanings:
***
(4) ‘Equipment’ includes an independent device or tool separate from
machinery but essential to an integrated manufacturing or assembly
process ***. *** Equipment includes chemicals or chemicals acting as catalysts
but only if the chemicals or chemicals acting as catalysts effect a direct and
immediate change upon a product being manufactured or assembled for wholesale
or retail sale or lease.” (Emphasis added.) Id. § 3-50(4).
¶5 Horsehead recycles electric arc furnace dust (EAF Dust) generated by steel producers.
EAF Dust contains zinc oxide, iron oxide, and other impurities that may include chlorides,
lead, and cadmium. Horsehead reclaims zinc and metallic oxides from EAF Dust through a
1
Horsehead Corporation is now known as American Zinc Recycling Corporation. We will,
however, refer to petitioner as “Horsehead.”
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recycling process that strips impurities from the zinc oxide to extract pure zinc, which is
collected in powder form and sold directly to third parties. The remaining EAF Dust is heated
to a higher temperature to separate impurities from the iron oxide to produce iron-rich material,
which is sold to third parties for their own manufacturing processes.
¶6 Horsehead operates a recycling facility in Calumet City, Illinois. It employs a “Waelzing
process,” using a rotary Waelz kiln—a long, rotating, cylindrical oven situated at a slight
angle—to “reduce” and recover the zinc as crude zinc oxide from EAF Dust. Horsehead
purchases metallurgical coke—a solid material consisting almost entirely of carbon—for use
in the Waelzing process. Horsehead combines EAF Dust with metallurgical coke “breeze”
(i.e., metallurgical coke in fine dust form) and water to create pellets. The pellets are then fed
into one end of the kiln, and oxygen from the outside air is drawn into the kiln from the
opposite side. The air inside the kiln is heated by external gas burners to between 600 and 700
degrees centigrade to dry the pellets. At this temperature, a chemical reaction starts to occur.
¶7 When the pellets reach the desired temperature, the metallurgical coke reacts with the
carbon dioxide, creating carbon monoxide.2 As the carbon monoxide seeps into the heated
pellets on the kiln bed, the carbon monoxide acts as a reducing agent to strip away oxygen from
the zinc oxide and iron oxide in the EAF Dust, resulting in metallic zinc vapor and metallic
iron. The process results in additional carbon dioxide, which then reacts with the heated pellets
to produce additional carbon monoxide, which then seeps into the heated pellets on the kiln
bed, stripping away more oxygen from the zinc oxide and iron oxide in the EAF Dust, resulting
in a continuous, self-sustaining cycle of reactions. The metallic zinc vapor rises from the kiln
bed and reacts with oxygen inside the kiln, producing fine particles of crude zinc oxide. The
metallic iron also reacts with the oxygen inside the kiln, producing iron oxide rich material.
These reoxidation processes generate heat within the kiln, making the Waelzing process
self-sustaining.
¶8 After the Waelzing process is completed, Horsehead either sells the crude zinc oxide
directly to third parties (as “Waelz oxide”) or sends it to another Horsehead facility for further
refining, where it is then sold to third parties. The iron oxide rich material is also sold to third
parties. Virtually all of the metallurgical coke is consumed during the Waelzing process.
¶9 On October 3, 2014, IDOR issued Horsehead two “Notices of Tax Liability” for the period
of January 1, 2007, through June 30, 2011.3 IDOR’s notices informed Horsehead that it was
liable for approximately $1,521,041 in use taxes, interest, late payment penalties, and late
filing penalties under the Use Tax Act (35 ILCS 105/1 et seq. (West 2012)) for Horsehead’s
out-of-state purchases of metallurgical coke used in the Waelzing processes, for which it had
not paid any use tax. Horsehead filed a petition for hearing with the tax tribunal, contending
that the purchases of metallurgical coke were exempt from the use tax under section 3-50(4) of
the Use Tax Act because the metallurgical coke, as part of the Waelzing processes, met the
definition of a chemical or a chemical acting as a catalyst to effect a direct and immediate
change upon the zinc and iron in the EAF Dust. IDOR answered the petition, and the parties
2
Expressed as a chemical formula, C+CO2=2CO. In other words, the reaction between carbon and
the carbon dioxide in an oxygen-poor environment such as the kiln produces carbon monoxide.
3
The first notice covered the period of January 1, 2007, through June 30, 2009, and the second
notice covered the period of July 1, 2009, through June 30, 2011.
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engaged in discovery. The tax tribunal conducted a hearing, where it heard testimony from
numerous witnesses, and considered posthearing briefs from the parties.
¶ 10 The tax tribunal considered the plain meaning of the terms “direct” and “immediate,” as
used in section 3-50(4) of the Use Tax Act, and found those terms to be clear and
unambiguous. The tax tribunal also considered IDOR’s administrative regulations in section
130.330(c)(6) of Title 86 of the Illinois Administrative Code (Title 86) (86 Ill. Adm. Code
130.330(c)(6) (2016)), which provides two examples of reactions that are direct and
immediate. The tax tribunal’s written decision concluded that the carbon monoxide acts as the
reducing agent and causes a direct and immediate change on the zinc oxide and iron oxide, the
product being sold by Horsehead. The tax tribunal concluded that in the Waelzing process,
metallurgical coke does not directly and immediately cause a change to the zinc and iron in the
EAF Dust because “[s]imply placing [metallurgical] coke next to zinc oxide or zinc does not
create any chemical reaction whatsoever, a point conceded by Horsehead’s own witnesses.”
The tax tribunal found that Horsehead was attempting to condense all of the separate chemical
reactions in the Waelzing process into a continuous and single chemical reaction and that
Horsehead’s position “renders the language ‘direct and immediate’ void.” The tax tribunal
observed that it was the carbon monoxide—not the carbon in the metallurgical coke
alone—that reacts with the zinc oxide and iron oxide. The tax tribunal further observed that
none of Horsehead’s witnesses were asked to define the term “catalyst” or testified that the
metallurgical coke acted as a catalyst. Therefore, the tax tribunal concluded that Horsehead’s
out-of-state purchases of metallurgical coke did not qualify for the exemption set forth in
section 3-50(4) of the Use Tax Act and that Horsehead was liable for the tax.
¶ 11 Before the tax tribunal, Horsehead argued that, if it were liable for the use tax, it should not
have to pay the late filing and late payment penalties. Horsehead did not challenge the amount
of the penalties, but instead argued that the penalties should be abated under section 700.400 of
Title 86 (86 Ill. Adm. Code 700.400(b), (c) (2001)). It contended that section 3-50(4) of the
Use Tax Act lacks a specific definition of the term “direct and immediate change” and that it
had a history of complying with its other state tax obligations. The tax tribunal agreed that
Horsehead had shown compliance with its other tax obligations but observed that Horsehead
failed to present any evidence of good faith with respect to the position it took toward the
chemical exemption. Thus, there was no evidence as to “what or who [Horsehead] relied upon
in choosing to claim its [metallurgical] coke purchases as catalysts when it chose not to pay the
use tax in question, other than [Horsehead’s] claim that the term ‘direct and immediate’ is
undefined, leaving the chemical exemption statute unclear.” The tax tribunal upheld IDOR’s
imposition of late filing penalties and late payment penalties under section 12 of the Use Tax
Act (35 ILCS 105/12 (West 2016)), which incorporates portions of the Uniform Penalty and
Interest Act (35 ILCS 735/3-1 et seq. (West 2016)).
¶ 12 Horsehead timely filed a petition for review in this court from the tax tribunal’s final
decision. 35 ILCS 1010/1-75 (West 2016); 735 ILCS 5/3-113 (West 2016); Ill. S. Ct. R. 335
(eff. July 1, 2017).
¶ 13 ANALYSIS
¶ 14 On appeal, Horsehead raises the same two principal arguments that it advanced before the
tax tribunal. First, it argues that its purchases of metallurgical coke were exempt under section
3-50(4) of the Use Tax Act because the metallurgical coke effects a direct and immediate
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change on the zinc oxide and iron oxide sold by Horsehead and that the tax tribunal’s decision
elevates form over substance. Second, Horsehead argues that, even if it is liable for the use tax,
it had reasonable cause to take the position that these purchases were exempt and the tax
tribunal’s decision to uphold the late payment and late filing penalties was against the manifest
weight of the evidence.
¶ 15 The parties disagree on the appropriate standard of review for Horsehead’s challenge to the
tax tribunal’s order finding that the chemical exemption does not apply. Horsehead contends
that there are no factual challenges at issue and therefore the tax tribunal’s determination of
whether the exemption applies is a question of law reviewed de novo. See Zenith Electronics
Corp. v. Department of Revenue, 293 Ill. App. 3d 651, 654 (1997) (“Where no factual dispute
exists, and the question raised on review is purely legal, such as statutory construction, our
review is de novo.”). IDOR argues that the clearly erroneous standard applies because the
historical facts are not in dispute, and the question is whether those facts meet a statutory
definition. See Goodman v. Ward, 241 Ill. 2d 398, 406 (2011). We agree with IDOR that the
clearly erroneous standard applies, as this case involves a mixed question of law and fact. See
AFM Messenger Service, Inc. v. Department of Employment Security, 198 Ill. 2d 380, 391
(2001) (stating that a mixed question of law and fact is one involving an examination of the
legal effect of a given set of facts). An administrative agency’s decision “will be deemed
‘clearly erroneous’ only where the reviewing court, on the entire record, is ‘left with the
definite and firm conviction that a mistake has been committed.’ ” Id. at 395 (quoting United
States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)).
¶ 16 Horsehead insists, however, that the tax tribunal’s decision should be afforded no
deference at all because it “is not charged with either enforcing the Use Tax Act or
promulgating the regulations thereunder, but rather is an independent State agency charged
with resolving disputes between taxpayers and [IDOR].” Horsehead relies on Salt Creek Rural
Park District v. Department of Revenue, 334 Ill. App. 3d 67, 70-71 (2002), for the proposition
that the de novo standard applies where an administrative agency’s decision does not implicate
that agency’s unique expertise. We disagree with Horsehead’s conclusion. In enacting the
Illinois Independent Tax Tribunal Act of 2012, the legislature declared the purpose of the tax
tribunal:
“To increase public confidence in the fairness of the State tax system, the State shall
provide an independent administrative tribunal with tax expertise to resolve tax
disputes between the Department of Revenue and taxpayers prior to requiring the
taxpayer to pay the amounts in issue. By establishing an independent tax tribunal, this
Act provides taxpayers with a means of resolving controversies that ensures both the
appearance and the reality of due process and fundamental fairness.” (Emphasis
added.) 35 ILCS 1010/1-5(a) (West 2016).
The statutory language reflects an express legislative mandate that the tax tribunal possess and
employ tax expertise in resolving tax disputes. Horsehead offers no argument that the tax
tribunal in this case did not possess the requisite tax expertise to interpret the Use Tax Act or
that it failed to meaningfully employ that expertise when determining whether Horsehead’s
out-of-state metallurgical coke purchases qualify for an exemption under Use Tax Act. That
stated, our supreme court “has frequently acknowledged the wisdom of judicial deference to an
agency’s experience and expertise.” AFM Messenger, 198 Ill. 2d at 394-95 (collecting cases).
We therefore reject Horsehead’s contention that the tax tribunal lacks expertise in interpreting
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the Use Tax Act such that we must apply a de novo standard of review. This does not mean,
however, that we must blindly defer to the tax tribunal’s decision. Id. at 395.
¶ 17 We now turn to Horsehead’s arguments and the tax tribunal’s decision. Horsehead’s first
argument on appeal is that its purchases of metallurgical coke were exempt under section
3-50(4) of the Use Tax Act because, in its recycling process, metallurgical coke effects a direct
and immediate change on the zinc oxide and iron oxide. Horsehead attempts to frame the issue
on appeal as “whether the [metallurgical] coke is somehow ineligible for the chemical
exemption because in order to effect [a] direct and immediate change[ ], the [metallurgical]
coke must first be heated to its reactive temperature.” We observe, however, that the tax
tribunal did not find the process of heating metallurgical coke to be a determinative factor in
assessing whether the chemical exemption applied but, instead, considered whether it was the
metallurgical coke or the carbon monoxide that effected a direct and immediate change on the
zinc oxide and iron oxide.
¶ 18 Horsehead contends that the phrase “direct and immediate” as used in section 3-50(4) of
the Use Tax Act must be afforded its “plain, everyday meaning” but that the tax tribunal gave
the term an “overly literal interpretation [that] precludes both activating forces (such as heat)
and the concurrent involvement of other chemicals or agents (such as oxygen).” In other
words, Horsehead argues that the plain and ordinary meaning of express statutory terms should
be given “common-sense” meanings rather than overly literal meanings to avoid excluding too
many chemicals from the exemption. Horsehead does not, however, advance any argument on
appeal as to what, in the context of the Use Tax Act, the phrase “direct and immediate” means.
¶ 19 It is a fundamental rule of statutory interpretation to determine and give effect to the intent
of the legislature, and the best indicator of that intent is the statutory language, which is to be
given its plain and ordinary meaning. Shared Imaging, LLC v. Hamer, 2017 IL App (1st)
152817, ¶ 25. Horsehead did not argue before the tax tribunal, and does not argue on appeal,
that the term “direct and immediate” is ambiguous, nor does it quarrel with the tax tribunal’s
decision to consult a dictionary for the definitions of “direct” and “immediate.” The tax
tribunal stated that the plain and ordinary meaning of “direct” includes “[e]xtending or moving
from one place to another without changing direction or stopping” and “[w]ithout intervening
factors or intermediaries.” English Oxford Living Dictionaries, https://en.oxforddictionaries.
com/definition/direct (last visited Sept. 19, 2018) [https://perma.cc/8CEN-V8AG]; see also
Black’s Law Dictionary 471 (7th ed. 1999) (defining “direct” as “straight; undeviating,” and
“[f]ree from extraneous influence; immediate”). The tax tribunal defined “immediate” as
“[o]ccurring or done at once; instant.” English Oxford Living Dictionaries, https://en.
oxforddictionaries.com/definition/immediate (last visited Sept. 19, 2018) [https://perma.cc/
338T-GSYF]; see also Black’s Law Dictionary 751 (7th ed. 1999) (defining “immediate” as
“[o]ccurring without delay; instant” and “[h]aving a direct impact; without an intervening
agency”). Taken together, a direct and immediate change on a product being manufactured for
sale is one that occurs at once without any intervening factors or intermediate steps. As noted
above, the chemical exemption provides, “Equipment includes chemicals or chemicals acting
as catalysts but only if the chemicals or chemicals acting as catalysts effect a direct and
immediate change upon a product being manufactured or assembled for wholesale or retail sale
or lease.” 35 ILCS 105/3-50(4) (West 2016). The plain language of the exemption, therefore,
means exactly what it says: to be eligible under the chemical exemption, the metallurgical coke
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must effect a change on the zinc and iron in the EAF Dust that occurs at once without an
intermediate step.
¶ 20 Here, the tax tribunal concluded that the metallurgical coke did not effect a direct and
immediate change on the zinc and iron in the EAF Dust. During the Waelzing processes, the
metallurgical coke combines with the carbon dioxide in the kiln to create carbon monoxide.
The created carbon monoxide then strips oxygen from the zinc oxide and iron oxide in the EAF
Dust, resulting in metallic zinc vapor and metallic iron, which in turn reacts with oxygen,
resulting in crude zinc oxide and iron oxide rich material. While the metallurgical coke is an
integral part of achieving the desired chemical reactions, the metallurgical coke itself does not
effect a direct and immediate change on the products being manufactured: zinc and iron.
Before the tax tribunal, one of Horsehead’s witnesses acknowledged that “the [metallurgical]
coke or carbon [does] not react directly with either the zinc oxide or the iron oxide to reduce
them to zinc and iron.” As the tax tribunal observed in its final order, “the lack of a direct and
immediate reaction dooms [Horsehead’s] argument to the contrary.”
¶ 21 Furthermore, IDOR’s administrative rules provide two examples of chemicals effecting a
direct and immediate change.
“A) Example 1. A chemical acid is used to etch copper off the surface of a printed
circuit board during the manufacturing process. The acid causes a direct and immediate
change upon the product. The acid qualifies for the exemption.
B) Example 2. An aluminum oxide catalyst is used in a catalytic cracking process to
refine heavy gas oil into gasoline. In this process, large molecules of gas oil or feed are
broken up into smaller molecules. After the catalyst is injected into the feed and used in
the cracking process, it is drawn off and reused in subsequent manufacturing processes.
The catalyst qualifies for the exemption.” 86 Ill. Adm. Code 130.330(c)(6)(A), (B)
(2016).
¶ 22 In the first example, the acid, without first going through any intermediate chemical
changes, directly and immediately etches copper from the circuit board. In the second
example, the aluminum oxide is introduced to heavy gas oil and, without going through any
intermediate chemical changes, cracks the large molecules of gas oil and feeds into smaller
molecules. Here, the carbon from the metallurgical coke combines with carbon dioxide to
create carbon monoxide, which then strips away oxygen from the zinc oxide and iron oxide in
the EAF Dust. Horsehead’s use of metallurgical coke, therefore, is part of a series of
intermediate steps in the Waelzing process to create the carbon monoxide gas that causes a
direct and immediate change to the zinc and iron in the EAF Dust, and it bears little
resemblance to the acid and aluminum oxide described in IDOR’s two examples. With respect
to IDOR’s second example, Horsehead argues that cracking heavy gas oil through the use of
aluminum oxide requires the introduction of heat, just like Horsehead’s metallurgical coke
being heated. But even accepting that aluminum oxide is heated during the cracking process,
IDOR’s second example contemplates that the heated aluminum oxide causes the cracking of
heavy gas oil, as opposed to the heated aluminum oxide causing an intermediate chemical
change that in turn causes the cracking. It is clear from IDOR’s second example that the mere
introduction of heat to a chemical would not cause that chemical to become ineligible for the
exemption in section 3-50(4) of the Use Tax Act.
¶ 23 Horsehead argues that construing section 3-50(4) in a manner that does not exempt
Horsehead’s metallurgical coke purchases defeats the purpose of the exemption, which is “to
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attract new manufacturing facilities to our State and to discourage existing ones from
relocating outside Illinois.” Chicago Tribune Co. v. Johnson, 106 Ill. 2d 63, 72 (1985). It
contends that giving the term “direct and immediate effect” an overly literal interpretation
“would virtually gut the chemical exemption by excluding any chemicals that must first
undergo any process before reacting with the products being manufactured.” That is simply not
true; as long as the chemical itself, whether heated or diluted, effects the direct and immediate
change on the product being manufactured or assembled for sale, it qualifies for the chemical
use tax exemption. Furthermore, we are not in a position to extend the chemical exemption in a
manner that would be inconsistent with the plain and ordinary meaning of the terms employed
by our legislature in crafting this exemption. It is clear from the plain language of section
3-50(4) of the Use Tax Act that the legislature intended to provide a use tax exemption limited
to chemicals or chemicals acting as catalysts that effect a direct and immediate change on the
products being manufactured or assembled for sale or lease, and not for all chemicals or
chemical catalysts used during the manufacturing process. The legislature is, of course, free to
amend or revise the chemical exemption to include chemicals that are used to create other
chemicals that effect direct and immediate changes on the products being manufactured. Until
it does so, however, we must give the legislature’s words their plain and ordinary meaning.
¶ 24 In sum, we cannot say that the tax tribunal committed clear error in determining that
Horsehead’s purchases of metallurgical coke for use during the Waelzing process did not
qualify for an exemption under section 3-50(4) of the Use Tax Act. Therefore, we affirm the
tax tribunal’s order affirming IDOR’s determination of use tax liability for Horsehead’s
out-of-state purchases of metallurgical coke.
¶ 25 Next, Horsehead argues that, should we affirm the tax tribunal’s decision on Horsehead’s
use tax liability, the late payment penalties and late filing penalties should be abated because it
satisfies the “reasonable cause” exception in section 3-8 of the Uniform Penalty and Interest
Act (35 ILCS 735/3-8 (West 2016)) and section 700.400 of Title 86 (86 Ill. Adm. Code
700.400(b), (c) (2016)). It argues that the tax tribunal, in upholding the penalties, failed to
account for the lack of controlling authority regarding the “unclear” chemical exemption, and
instead relied on “its own novel interpretation of the statutory language.”
¶ 26 The parties agree that our review of the tax tribunal’s determination that Horsehead was
not entitled to abatement of penalties is governed by the manifest weight of the evidence
standard. It is well settled that an agency’s determination of whether reasonable cause exists
“will be reversed only if the agency’s decision was against the manifest weight of the evidence
and only if the opposite conclusion was clearly evident.” Hollinger International, Inc. v.
Bower, 363 Ill. App. 3d 313, 315 (2005). “The existence of reasonable cause justifying
abatement of a tax penalty is a factual determination that is to be decided only on a
case-by-case basis.” Id. at 315-16. Horsehead argues, however, that must review de novo the
tax tribunal’s finding that the chemical exemption is clear because the tax tribunal’s
determination as to the clarity of the chemical exemption is entitled to no deference where the
tax tribunal does not enforce the Use Tax Act or promulgate any regulations under that act. We
have already rejected this argument. See supra ¶ 16.
¶ 27 Under the Uniform Penalty and Interest Act, a taxpayer is not subject to penalties if the
“failure to file a return or pay tax at the required time was due to reasonable cause.” 35 ILCS
735/3-8 (West 2016). Section 700.400 of Title 86 provides:
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“(b) The determination of whether a taxpayer acted with reasonable cause shall be
made on a case by case basis taking into account all pertinent facts and circumstances.
The most important factor to be considered in making a determination to abate a
penalty will be the extent to which the taxpayer made a good faith effort to determine
his proper tax liability and to file and pay his proper liability in a timely fashion.
(c) A taxpayer will be considered to have made a good faith effort to determine and
file and pay his proper tax liability if he exercised ordinary business care and prudence
in doing so. A determination of whether a taxpayer exercised ordinary business care
and prudence is dependent upon the clarity of the law or its interpretation and the
taxpayer’s experience, knowledge, and education. Accordingly, reliance on the advice
of a professional does not necessarily establish that a taxpayer exercised ordinary
business care and prudence, nor does reliance on incorrect facts such as an erroneous
information return.” 86 Ill. Adm. Code 700.400(b), (c) (2001).
¶ 28 We conclude that the tax tribunal’s decision to uphold the penalties is not against the
manifest weight of the evidence. To determine whether Horsehead acted with reasonable
cause, the tax tribunal considered whether Horsehead exercised ordinary business care and
prudence, which is in part guided by the clarity of the law or interpretations of that law. The tax
tribunal acknowledged that the term “direct and immediate change” in the chemical exemption
had no statutory or regulatory definition and that there was no controlling case law as to how
the chemical exemption should be interpreted. But the tax tribunal correctly found that “the
terms ‘direct’ and ‘immediate’ have their simple every day meaning as used in the statute, and
those meanings provide clarity to the statute, as opposed to a lack of clarity as argued by
[Horsehead].” It is well settled that the best indicator of legislative intent is the language of the
statute when given its plain and ordinary meaning. Shared Imaging, 2017 IL App (1st) 152817,
¶ 25. While it is true that there was no controlling case law on how those terms should be
interpreted within the context of the chemical exemption, the plain language of the exemption
is clear and unambiguous that only those chemicals that have a direct and immediate effect on
the product being manufactured are exempt from the use tax. See id. ¶ 78 (upholding the
imposition of late filing and late payment penalties where the taxpayer’s obligations “should
have been clear *** from the language of the [Use Tax Act] and [IDOR’s] regulations”). As
we explained above, Horsehead does not argue that the statutory language was ambiguous and
does not challenge the tax tribunal’s definitions of the terms “direct” and “immediate.” The
language of the chemical exemption was clear, and Horsehead cannot rely on its own
erroneous interpretation of the statute to argue that it exercised ordinary business care and
prudence in failing to file and pay the use tax.
¶ 29 Also relevant to the inquiry as to whether Horsehead made a good-faith effort to determine
its tax liability is its experience and knowledge. Horsehead does not make any express
argument on this point but does insist that its prior history of tax compliance is evidence of a
good-faith effort. The tax tribunal considered this argument and gave it “some, but not a great
deal of, weight.” The tax tribunal noted that Horsehead presented no evidence “to support its
claim of good faith in taking the position it did on the chemical exemption issue, although it
had the opportunity to do so.” Horsehead presented no evidence at the hearing as to any
previous audits by IDOR where its out-of-state purchases of metallurgical coke were identified
or discussed or that the chemical exemption had ever been raised in a prior audit. Nor was there
any evidence that Horsehead sought any professional guidance on its potential use tax liability,
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which, while not determinative, may have persuaded the tax tribunal of Horsehead’s
good-faith efforts to comply with the Use Tax Act. In sum, Horsehead’s argument that it made
a good-faith effort to comply with its use tax obligations because the law surrounding the
chemical exemption was unclear, that there was no controlling authority available, and that it
had paid all of its other taxes is unavailing. Had Horsehead reasonably believed it was exempt
from paying a use tax on its out-of-state purchases of metallurgical coke, it would have
presented testimony evidencing a business decision that acknowledged a good-faith effort to
determine its appropriate tax liability and the reasons why it failed to pay. The absence of any
testimony at the hearing in this vein, coupled with its own witness conceding that “the
[metallurgical] coke or carbon [does] not react directly with either the zinc oxide or the iron
oxide to reduce them to zinc and iron,” supports the tax tribunal’s finding that “reasonable
cause” to abate statutory penalties did not exist. Horsehead’s unilateral interpretation of the
chemical exemption did not comport with the plain language of the exemption, and it presented
no evidence of any other reliance to support its decision to not pay the use tax. Based on the
record before the tax tribunal and this court, we cannot say that the tax tribunal’s decision to
uphold the imposition of the late payment penalties and late filing penalties was against the
manifest weight of the evidence.
¶ 30 CONCLUSION
¶ 31 For the foregoing reasons, the final order of the tax tribunal is affirmed.
¶ 32 Tax tribunal decision affirmed.
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