Chet's Vending Service, Inc. v. Department of Revenue

MR. JUSTICE GOLDENHERSH

delivered the opinion of the court:

Following a field audit of the books and records of plaintiff, Chet’s Vending Service, Inc., defendant, the Department of Revenue, issued a notice of tax liability under both the Illinois Retailers’ Occupation Tax Act (Ill. Rev. Stat. 1971, ch. 120, par. 440 et seq.) and the Illinois Use Tax Act (Ill. Rev. Stat. 1971, ch. 120, par. 439.1 et seq.) for the period July 1, 1971, through October 31, 1974. Plaintiff filed a timely protest to the notice, and the matter was set for hearing before one of defendant’s hearing referees. Plaintiff tendered payment of the use tax deficiency, and following the completion of the hearing defendant issued a “final assessment” of liability for retailers’ occupation tax. Plaintiff sought administrative review in the circuit court of Cook County (see Ill. Rev. Stat. 1971, ch. 110, par. 264 et seq.), and the circuit court affirmed defendant’s determination of liability and entered judgment in favor of defendant and against plaintiff in the amount of $5,827.11 and costs. Plaintiff appealed, and we allowed its motion for direct appeal to this court. 58 Ill. 2d R. 302(b).

The facts are not in dispute. Plaintiff is engaged in the business of catering food and beverages to employees at industrial locations. It installs and maintains automatic vending machines for the sale of food and beverages, and also sells manually, “over cafeteria counters,” beverages and food which it either prepares on the premises or brings to the site from a central food-preparation location.

The evidence shows that plaintiff has three types of contracts with the industries which it serves. Under the first type, plaintiff, without charge to the company-employer, supplies food and beverage service to its employees. As to these locations plaintiff pays the retailers’ occupation tax on all moneys received from the sales to employees, and it retains any profits or bears any losses. There is no issue here concerning this type of operation. Under the second type of contract plaintiff pays the retailers’ occupation tax on all moneys received from the sales to employees and retains any profit or bears any loss from its operation; but, in addition to the receipts from sales, it receives a “fixed fee” or monthly subsidy payment from the employer. Under the third type of contract, plaintiff, each month, renders the employer a statement of its sales and costs at the employer’s plant, and if the receipts from sales to employees do not cover plaintiff’s costs, the employer “makes up the difference.” In computing its retailers’ occupation tax plaintiff has not included in its gross receipts either the “fixed fee” or “guarantee” payments received from the employers. The question presented is whether the “fixed fee” monthly subsidy or the “guarantee” paid plaintiff by the employer is subject to the retailers’ occupation tax.

Section 2 of the Retailers’ Occupation Tax Act imposes a tax upon persons engaged in the business of selling tangible personal property at retail, measured by “the gross receipts from such sales of tangible personal property.” (Ill. Rev. Stat. 1971, ch. 120, par. 441.) In section 1 of the Act “gross receipts” are defined as “the total selling price or the amount of such sales” (Ill. Rev. Stat. 1971, ch. 120, par. 440), which in turn is defined as “the consideration for a sale valued in money whether received in money or otherwise” (Ill. Rev. Stat. 1971, ch. 120, par. 440). “Purchaser” is defined as one who through a sale at retail acquires the ownership of or title to tangible personal property for a valuable consideration. Ill. Rev. Stat. 1971, ch. 120, par. 440.

Plaintiff contends that the employees of the industrial locations where it provides its services are the “purchasers” of the food manually sold, that the “selling price” is the consideration received from such sales, and that the “gross receipts” are its total receipts from sales made through both its vending devices and its manual operations. It argues that the additional revenues which it received from the employer were not paid by the “purchaser” and did not constitute any portion of either the “selling price” or the “gross receipts.” It contends too that the sums paid by the employer do not relate to any particular items sold by plaintiff to the employees, and that under the provisions of the Retailers’ Occupation Tax Act, the employer is not the purchaser. It points out that when it pays an industrial owner a commission from the sale of products from its automatic vending machines located at the industrial site, defendant does not allow it to deduct such commission from its gross receipts (see Rule 26, Illinois Retailers’ Occupation Tax Rules) and that when the industrial owner pays a subsidy to the taxpayer, the converse should apply. It argues that where, as here, the subsidy is unrelated to the sale of any particular items and the employer is not reimbursed by the purchaser of such items, the payments received should not be included in gross receipts.

Defendant contends that the fee or subsidy or the guarantee payment paid plaintiff by the employer is an inseparable part of the consideration for the sale and transfer of tangible personal property and is includable in plaintiff’s gross receipts subject to the retailers’ occupation tax. It argues that the subsidy-payment arrangement represents a “two-party split” of the consideration for the transfer of tangible personal property between the employer and employee and that the payments received from both must be combined in computing the retailers’ occupation tax.

The sales of food and beverages involved here effected a transfer of ownership or title to the employee-purchaser “for use or consumption,” and the employee who bought the item was the “purchaser.” Each sale was a separate transaction, and as defined in the statute (ch. 120, par. 440) the “selling price” was “the consideration *** valued in money whether received in money or otherwise, including cash, credits, property other than tangible personal property and services ***.” The evidence shows no basis for relating any portion of the fixed fee or guarantee payment to any individual sale as part of the “selling price.” To construe the terms “selling price” and “gross receipts” in the manner for which defendant contends would require us to hold that the manual or cafeteria-type sales at each industrial location during a calendar month were one sale to both the employer and the employees, the “selling price” of which was the aggregate of the sums received from the employees and the monthly payment received from the employer. “Taxing statutes are to be strictly construed and their language is not to be extended or enlarged by implication beyond its clear import, but in cases of doubt such laws are construed most strongly against the government and in favor of the taxpayer.” (Ingersoll Milling Machine Co. v. Department of Revenue, 405 Ill. 367, 373.) We have considered the arguments of the parties concerning the nature of the payments and conclude that whether the payments were made for the purpose of enabling plaintiff to reduce the cost of the food and beverages which it sells to the employees or to guarantee it a profit from its operation is wholly irrelevant. Under the clearly defined terms employed in the statute, the payments were not includable in plaintiff’s “gross receipts.”

Although we are not aware of any decision on this question by the highest court of another jurisdiction, we note that the holdings in Szabo Food Service, Inc. v. State Board of Equalization, 46 Cal. App. 3d 268, 119 Cal. Rptr. 911, H-W Corp. v. Department of Treasury, Mich. Bd. of Tax Appeals, aff'd, H-W Corp. v. Department of Treasury, 15 Mich. App. 554, 166 N.W.2d 822, and Mobil Research & Development Corp. v. Bob Bullock, Texas State Comptroller, Travis County, Texas (Case No. 239962), involving statutory provisions similar to those contained in the Retailers’ Occupation Tax Act, are consistent with the conclusion reached.

For the reasons set forth, the judgment of the circuit court is reversed.

Judgment reversed.