2024 IL App (1st) 230072
FOURTH DIVISION
Order filed: February 29, 2024
No. 1-23-0072
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
FIRST DISTRICT
______________________________________________________________________________
AMERICAN AVIATION SUPPLY, LLC, ) Petition for Review of Order
) of the Illinois Independent
Petitioner, ) Tax Tribunal.
)
v. ) Nos. 21TT27, 21TT54
)
ILLINOIS DEPARTMENT OF REVENUE, ILLINOIS )
INDEPENDENT TAX TRIBUNAL, ) Brian F. Barov,
) Administrative Law Judge,
Respondents. ) presiding.
JUSTICE HOFFMAN delivered the judgment of the court, with opinion.
Presiding Justice Rochford and Justice Ocasio concurred in the judgment and opinion.
OPINION
¶1 In this petition for direct administrative review of a final decision of the Illinois
Independent Tax Tribunal (“the Tribunal”), the petitioner, American Aviation Supply, LLC
(“American”), challenges the Tribunal’s determination that a sales tax exemption for property that
is bought and temporarily stored in-state before being transported and used out of state did not
apply to its customers’ purchases of aviation fuel because the fuel was not consumed solely outside
of the state. We affirm the Tribunal’s decision.
No. 1-23-0072
¶2 The factual history of this case is brief and not in dispute. At issue is the interpretation and
application of an exemption contained in the Retailers’ Occupation Tax Act (“ROTA”) (35 ILCS
120/1 et seq. (West 2010)). The ROTA generally requires retailers to pay a tax on the sale of
personal property within the state of Illinois. See 35 ILCS 120/2 (West 2022). It is complemented
by the Use Tax Act (“UTA”) (35 ILCS 105/1 et seq. (West 2022)), which imposes a tax on the in-
state use of property that was purchased outside of the state. Together, the ROTA and UTA form
what is commonly referred to as the Illinois “sales tax.” Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d
351, 362 (2009).
¶3 Among the ROTA’s exemptions is one that, during the relevant time period of 2011 to
2016, exempted “personal property purchased from an Illinois retailer by a taxpayer engaged in
centralized purchasing activities in Illinois who will, upon receipt of the property in Illinois,
temporarily store the property in Illinois (i) for the purpose of subsequently transporting it outside
this State for use or consumption thereafter solely outside this State.” 35 ILCS 120/2-5(38) (West
2010). This “expanded temporary storage exemption” (“ETS Exemption”) also provides that the
Director of the Department of Revenue shall “issue a permit to any taxpayer in good standing with
the Department who is eligible for the exemption under this paragraph (38),” and that the permit
“shall authorize the holder, to the extent and in the manner specified in the rules adopted under
this Act, to purchase tangible personal property from a retailer exempt from the taxes imposed by
this Act.” Id. Notably, as one of the “rules adopted under this act,” the Department promulgated a
rule (“the Permitting Regulation”) stating that “[i]f an Expanded Temporary Storage Permit holder
knows that a certain percentage of all his or her purchases from a given seller will qualify for the
expanded temporary storage exemption, he or she may provide a blanket certificate of expanded
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temporary storage stating that a designated percentage of purchases qualify for the expanded
temporary storage exemption.” 86 Ill. Adm. Code 150.310(a)(6)(D)(ii).
¶4 American is a Delaware LLC and a wholly owned subsidiary of American Airlines, Inc. It
operated in Illinois as an aviation fuel retailer during the relevant time period of 2011 to 2016.
During that time, American sold fuel to American Airlines and U.S. Airways, Inc. (together “the
Airlines”), who took delivery of the fuel in Illinois and temporarily stored it in consortium tanks
at O’Hare International Airport (“O’Hare”) in Chicago before loading the fuel into airplanes
operating out of the airport. According to the Airlines, only 2% of the fuel purchased from
American and loaded into planes at O’Hare was consumed inside the state of Illinois, with the
remaining 98% being consumed after the planes left the state’s airspace.
¶5 In 2010 and 2014, the Airlines obtained permits from the Illinois Department of Revenue
(“the Department”) pursuant to section 2-5(38) of the ROTA certifying that 98% of their purchased
fuel was consumed outside the state of Illinois. The Airlines considered that portion to be exempt
from the retailers’ occupation tax. After being provided with the Airlines’ permits, American
sought reimbursement from the Department of approximately $162.7 million in occupation taxes
that it had paid on its fuel sales to the Airlines between 2011 and 2016, plus interest. The
Department denied the refund claims based on its interpretation of existing law, including section
2-5(38) and the case of United Air Lines v. Mahin, 49 Ill. 2d 45 (1971) (United I), which will be
discussed further in our analysis to follow.
¶6 American then petitioned for review with the Tribunal. The parties conducted discovery,
submitted joint stipulations of fact, and then filed cross-motions for summary judgment. In support
of its case, American argued that the plain text of section 2-5(38) of the ROTA and the Permitting
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No. 1-23-0072
Regulation allowed for its fuel sales to the Airlines to be divided into taxable and non-taxable
portions in accordance with what has been called the “burn-off rule,” with only the fuel used or
“burned off” while in Illinois being subject to tax. American also contended that United I was not
applicable to the facts of this case because it concerned the “use” of fuel, which was interpreted to
include the loading of fuel into the planes’ tanks, while the ETS Exemption concerns
“consumption,” which occurs both inside and outside of Illinois. After holding oral argument on
the motions, the Tribunal granted the parties leave to submit supplemental authority on whether
construing the ETS Exemption as exempting the percentage of the fuel consumed solely outside
of Illinois unconstitutionally discriminated against interstate commerce.
¶7 After the parties filed their supplemental authority, the Tribunal issued its ruling denying
American’s motion for summary judgment and granting the Department’s. The Tribunal
concluded that American’s fuel sales to the Airlines did not qualify for the ETS Exemption because
the fuel was not consumed “solely” outside of Illinois. The Tribunal also rejected American’s
contention that the Permitting Regulation supported its view that the temporarily stored fuel could
be divided into taxable and tax-exempt portions, with the Tribunal explaining that American’s
reading of the Permitting Regulation would expand the governing statute in an impermissible
manner. Finally, the Tribunal opined that American’s interpretation of the ETS Exemption would
likely result in unconstitutional economic discrimination under the commerce clause of the United
States Constitution (U.S. Const., art. I, § 8) because it would give an advantage to in-state retailers.
The Tribunal, therefore, affirmed the Department’s denial of American’s refund claims. This
petition for review pursuant to Supreme Court Rule 335(a) (eff. July 1, 2017) follows.
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No. 1-23-0072
¶8 When, as in this case, parties file cross-motions for summary judgment, they agree that
only a question of law is involved and invite a decision based upon the record. Pielet v. Pielet,
2012 IL 112064, ¶ 28. The Tribunal’s decision on a question of law is reviewed de novo.
Horsehead Corp. v. Department of Revenue, 2019 IL 12415, ¶ 27 (citing Elementary School
District 159 v. Schiller, 221 Ill. 2d 130, 142 (2006)).
¶9 The instant case presents a question of statutory construction. We are not bound by the
Tribunal's interpretation of a statute, but, due to its expertise on tax law, the Tribunal’s
“interpretation is relevant where there is reasonable debate about the statute's meaning.” Id. In
addition to the consideration we give the Tribunal’s interpretation, we grant even greater deference
to that of the Department. Indeed, “[e]ven where review is de novo, an agency's construction is
entitled to substantial weight and deference. Courts accord such deference in recognition of the
fact 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)
¶ 10 Before beginning our analysis, it is necessary to provide additional background information
regarding the ROTA, the UTA, and the case of United I, which interpreted the UTA’s similarly-
worded temporary storage exemption. The UTA was enacted in 1955 as a complement to the
ROTA. United I, 49 Ill. 2d at 46. While the ROTA imposed a tax on the sale of property within
the state of Illinois, the UTA taxed the in-state use of property that was purchased out of state for
the purposes of “preventing evasion of retailers' occupation tax by persons making out-of-state
purchases of tangible personal property for use in Illinois, and of protecting Illinois merchants
against diversion of business.” Id. at 46–47.
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¶ 11 Unlike the ROTA, at least as it was composed at the relevant time in United I, the UTA
contained a temporary storage exemption providing that the use tax would not be imposed on “the
temporary storage, in this State, of tangible personal property which is acquired outside this State
and which, subsequent to being brought into this State and stored here temporarily, is used solely
outside this State.” Id. at 47; see also Ill. Rev. Stat. 1955, ch. 120, ¶ 439.3. From the time that it
was enacted, as it relates to common carriers such as airlines, the Department interpreted the tax
as only applying to the portion of fuel consumed in or over Illinois. United I, 49 Ill. 2d at 48. As
mentioned previously, this was known as a the “burn-off” rule. Id. However, in 1963 the
Department changed its interpretation and abandoned the burn-off rule, declaring by bulletin that
“[t]he Department's position is that temporary storage ends and a taxable use occurs when the fuel
is taken out of storage and placed into the tanks of the airplane, railroad engine or truck. At this
point the fuel is converted into its ultimate use, and, therefore, a taxable use occurs in Illinois.” Id.
In other words, the exemption would apply “only if the temporarily stored fuel is transported out
of the state for use elsewhere by some means other than placing it in equipment which would
consume it.” Id.
¶ 12 United Air Lines, Inc. (“United”), challenged this new interpretation in court, ultimately
reaching the Supreme Court of Illinois, which upheld the Department’s new application of the
statute. The court found the statute’s language to be “plain, simple and unambiguous” and read it
as providing that “the temporary storage and the withdrawal therefrom are not taxable uses, if the
property in question is to be used solely outside the State.” Id. at 55. According to our supreme
court, if United were to temporarily store fuel in Illinois, transport the fuel from Illinois to
Wisconsin, and then load it into a plane there, “neither the storage, nor the withdrawal, nor the
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transportation of the fuel outside the State would be uses subject to the tax.” Id. But United was
not storing its fuel “with any intention that the fuel will be used solely outside this state.” Id.
“Rather, the fuel [was] stored here only to facilitate United's operations from the O'Hare and
Midway airports within the State.” Id. That form of storage, the supreme court concluded, did not
qualify for the temporary storage exemption, and “either the storage itself or the withdrawal
therefrom are uses which may be taxed” under the UTA. Id. at 56.
¶ 13 The two justices writing our supreme court’s per curiam opinion in United I also opined
that the burn-off rule was likely unconstitutional as a violation of the commerce clause of the U.S.
Constitution. Id. at 51–53. On appeal of our supreme court’s decision, the United States Supreme
Court removed that concern and held that there was no constitutional barrier to the use of the burn-
off rule. United Air Lines, Inc. v. Mahin, 410 U.S. 623, 632 (1973) (United II). In light of that
holding, the Supreme Court vacated our supreme court’s ruling and remanded for the two justices
to reconsider their decision. Id. On remand, the Supreme Court of Illinois stated simply that “[t]he
conclusions of those justices is that the current interpretation of the [UTA] and the application of
it by the Department are not improper.” United Air Lines, Inc. v. Mahin, 54 Ill. 2d 431, 432 (1973)
(United III).
¶ 14 In 2001, the ROTA was amended to add the ETS Exemption contained in section 2-5(38),
and the temporary storage exemption contained in section 3-55(j) of the UTA was amended to be
practically identical. See Public Act 92-488 (eff. Aug. 23, 2001).
¶ 15 With that history in mind, we now turn to the case before us. In urging reversal of the
summary judgment entered by the Tribunal in favor of the Department, American raises two
arguments in support of its refund claims. First, it contends that the ETS Exemption contains what
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it calls a “timing rule” that limits the scope of the word “solely” in a manner that the UTA’s
exemption at issue in United I did not. Second, American asserts that the Department’s Permitting
Regulation is consistent with and supports its interpretation that only the fuel consumed inside
Illinois is subject to the ROTA. We disagree.
¶ 16 “The fundamental rule of statutory interpretation is to ascertain and effectuate the
legislature's intent.” Horsehead, 2019 IL 124155, ¶ 37 (citing Comprehensive Community
Solutions, Inc., v. Rockford School District No. 205, 216 Ill. 2d 455, 473 (2005)). “The plain
language of the statute remains the best indication of this intent. [Citation.] Where the language of
a statute is clear, we may not read into it exceptions that the legislature did not express, and we
will give it effect as written. [Citation.] We also will give undefined statutory terms their ordinary
meanings. [Citation.]” Id.
¶ 17 The plain language of the ETS Exemption contained in section 2-5(38) of the ROTA is, in
our opinion, clear and unambiguous. Again, it states that property is exempt from the occupation
tax when it is purchased from an Illinois retailer and the purchaser will, “upon receipt of the
property in Illinois, temporarily store the property in Illinois (i) for the purpose of subsequently
transporting it outside this State for use or consumption thereafter solely outside this State.” With
instruction from United I, which we find applicable to the present case and informative regarding
the meaning and significance of the use of “solely,” we read this language as exempting property
that is purchased and temporarily stored in Illinois and then solely used or consumed entirely
outside of the state. As it relates to aviation fuel, when fuel is removed from its temporary storage,
loaded into a plane at O’Hare, and then consumed partly in Illinois, that fuel does not qualify for
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the ETS Exemption because it was not transported outside of the State for consumption “solely”
outside of Illinois.
¶ 18 American raises two arguments in support of its contrary reading of section 2-5(38), but
neither changes our interpretation of the meaning of the statute’s plain language. First, it argues
that a “timing rule” limits the ETS Exemption’s use of “solely” in a manner that the exemption
contained in the UTA that was at issue in United I did not. Specifically, American contends that
by using “thereafter” following “transporting” in the phrase “for the purpose of subsequently
transporting it outside this State for use or consumption thereafter solely outside this State,” the
statute only requires that the fuel be used solely outside of Illinois after it is transported out of the
state. In other words, according to American, the ETS Exemption “allows some of the fuel to be
consumed in Illinois without destroying the exemption for the fuel that is transported outside of
Illinois for consumption thereafter solely outside Illinois” and that the use of “solely” merely
means that “the fuel transported outside of Illinois cannot be returned later to Illinois for use or
consumption in Illinois.”
¶ 19 In our view, however, the statute’s use of “thereafter” is consistent with the Tribunal’s view
that the entire use or consumption of the property at issue must be outside of the state of Illinois.
As we read the statute, the meaning of “thereafter” is that the use or consumption will be after
transportation outside the state, not before, and that the use or consumption will be entirely outside
the state. Stated differently, in order to qualify for the ETS Exemption, the purpose of the
temporary storage must be for future transportation outside of Illinois for use or consumption
solely and entirely outside of the state.
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¶ 20 Second, American argues that the Permitting Regulation supports its view that the fuel
consumed out of state is eligible for the ETS Exemption. As we recited earlier, the Permitting
Regulation promulgated by the Department provided that “[i]f an Expanded Temporary Storage
Permit holder knows that a certain percentage of all his or her purchases from a given seller will
qualify for the expanded temporary storage exemption, he or she may provide a blanket certificate
of expanded temporary storage stating that a designated percentage of purchases qualify for the
expanded temporary storage exemption.” 86 Ill. Adm. Code 150.310(a)(6)(D)(ii). American
contends, therefore, that through the Permitting Regulation the Department has confirmed that the
ETS Exemption may apply on a percentage basis. Again, we do not share American’s view of the
issue.
¶ 21 While it is true that the Permitting Regulation allows purchasers to certify that they believe
that only a portion of a given purchase will be tax exempt, that is not inconsistent with our and the
Department’s reading of section 2-5(38). Our supreme court’s analysis in United I is again
instructive on this issue. There, the court explained that a party would not run afoul of the “solely”
language in the UTA’s similar temporary storage exemption if it were to withdraw fuel from
storage, transport it to another state, and then load it into a plane there for use solely outside of
Illinois. United I, 49 Ill. 2d at 55. Thus, if the Airlines were to have purchased fuel from American,
temporarily stored it in Illinois, transported a portion of it to Wisconsin, and then used that portion
in planes there, that portion of the purchase would qualify for the ETS Exemption. In such a
scenario, it would be proper for the Airlines to certify, pursuant to the Permitting Regulation, that
the percentage of the purchase being transported to Wisconsin was tax exempt. Thus, the
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Permitting Regulation is consistent with our reading of section 2-5(38) and with the Department’s
interpretation and application of the statute.
¶ 22 In addition to those two primary arguments, American also asserts that the legislative
history of the storage exemptions contained in the ROTA and UTA supports its reading of the ETS
Exemption. However, because we do not view section 2-5(38) as ambiguous, “we cannot resort to
extrinsic aids such as legislative history.” Cripe v. Leiter, 291 Ill. App. 3d 155, 159 (1997).
Therefore, we will not engage in that analysis.
¶ 23 Finally, American appears to argue that it is entitled to an abatement of the occupation
taxes that it paid on its fuel sales to the Airlines between 2011 and 2016 based on the provisions
of section 4(c) of the Taxpayers’ Bill of Rights, which provides that the Department has the power
and duty to “abate taxes and penalties assessed based upon erroneous written information or advice
given by the Department.” 20 ILCS 2520/4(c) (West 2022). American’s argument based on section
4(c) appears to be premised on the contention that the Permitting Regulation is either invalid or
inconsistent with the statutory ETS Exemption. Having found that the Department’s interpretation
of the ETS Exemption found in section 2-5(38) of the ROTA is consistent with the unambiguous
language of the statute and that the Permitting Regulation is consistent with that interpretation, we
reject American’s argument that it is entitled to relief based on the Taxpayers’ Bill of Rights.
¶ 24 “Under Illinois law, taxation is the rule, and exemption is the exception.” Horsehead, 2019
IL 124155, ¶ 33. “If there is any doubt as to applicability of an exemption, it must be resolved in
favor of requiring that tax be paid.” Provena, 236 Ill. 2d at 388 (citing Streeterville Corp. v.
Department of Revenue, 186 Ill. 2d 534, 539 (1999) (Harrison, J., dissenting, joined by
McMorrow, J.)).
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¶ 25 Further, because we can decide this case on non-constitutional grounds, we also will not
address the parties’ arguments regarding whether American’s interpretation of the ETS Exemption
would run afoul of the commerce clause of the U.S. Constitution. See U.S. Const., art. 1, § 8, cl. 3;
People v. Bass, 2021 IL 125434, ¶ 30 (“[T]his court's long-standing rule is that cases should be
decided on nonconstitutional grounds whenever possible, reaching constitutional issues only as a
last resort. [Citation.] Consequently, courts must avoid reaching constitutional issues unless
necessary to decide a case. [Citation.]”).
¶ 26 Based on the foregoing analysis, we conclude that the plain language of section 2-5(38)
supports the Department’s interpretation of the statute, and based on that interpretation, the fuel at
issue did not qualify for the ETS Exemption because, after being loaded into the Airlines’ planes
in Illinois, it was consumed partly in Illinois. As a consequence, we affirm the decision of the
Tribunal denying American’s motion for summary judgment and granting the Department’s cross-
motion for summary judgment.
¶ 27 Tribunal decision affirmed.
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No. 1-23-0072
American Aviation Supply v. Illinois Department of Revenue 2024 IL App (1st) 230072
Petition for Review of Order of the Illinois Independent Tax Tribunal; Nos. 21TT27, 21TT54
Brian F. Barov, Administrative Law Judge, presiding.
Appellants: Mary A. McNulty (admitted pro hac vice)
Lee S. Meyercord (admitted pro hac vice)
HOLLAND & KNIGHT LLP
1722 Routh Street, Suite 1500
Dallas, Texas 75201
Phone: (214) 969-1700
William F. Farley
Holland & Knight LLP
150 N. Riverside Plaza, Suite 2700
Chicago, Illinois 60606
Phone: (312) 263-3600
Appellee: KWAME RAOUL Attorney General State of Illinois
JANE ELINOR NOTZ Solicitor General
100 West Randolph Street 12th Floor
Chicago, Illinois 60601
Phone: (312) 814-3312
BRIDGET DIBATTISTA Assistant Attorney General
100 West Randolph Street 12th Floor
Chicago, Illinois 60601
Phone: (312) 814-2130
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