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SECOND DIVISION

November 20, 2001

No. 1-00-1872

JUSTICE GORDON DELIVERED THE OPINION OF THE COURT:

Defendants Kenneth Zehnder, Director of the IllinoisDepartment of Revenue and Judy Topinka, Treasurer of the State ofIllinois (collectively "the Department") appeal from an order ofthe circuit court of Cook County finding that plaintiff Schawk,Inc. ("Schawk") is engaged in manufacturing and thus is entitledto a tax credit for certain equipment it uses in its business. On appeal, the Department contends that the circuit courtmisinterpreted the word "manufacturing" as it is defined in theapplicable statute. We reverse and remand for furtherproceedings.

BACKGROUND

The following facts regarding the nature of Schawk'sbusiness are not in dispute and were stipulated to by theparties. Schawk, a Delaware corporation doing business inIllinois, provides digital imaging prepress services for theconsumer products industry. Schawk produces and sells colorseparated film (referred to as "exposed film," "colorseparations" or "product") used by its customers to printpackaging materials for consumer products such as cereal boxes,promotional materials and in-store displays. Schawk does notgenerally print the materials itself, but merely supplies thefilm for printing to its customers.

When Schawk receives a new work order its customer supplieseither electronic files or hard copy transparencies which depictthe package, sales display or promotional material the customerwants printed. If Schawk receives an electronic file, it checksto verify that the files contain all of the necessary elements. If hard copy is supplied by the customer, Schawk's color scanningdepartment scans the transparencies to create an electronic file. A computer operator then corrects or retouches the electronicfile to produce a file whose colors match the transparencysupplied by the customer.

Subsequently, using a computer, an assembly operator placesall of the images in the proper order in the electronic file. This step is important because printing of multiple colorsrequires that the printing presses apply the colors in the properorder (a separate film is used for each color). Once theelectronic file is assembled, it is sent to the digital proofingdepartment. Both mechanical and digital proofs are used. Thedigital proof is inspected for digital file integrity. Themechanical proof is used to inspect the dimensions of eachgraphic element and to verify that each element meets printerspecifications. After the mechanical quality control departmentapproves the mechanical proof, the electronic file is sent to thefilm output department where a final film is produced. Variousoutput devices are used to produce exposed film, which is thendeveloped.

Once the final film is produced, it is inspected by Schawk'sfilm quality control department. A color proof is used toinspect how well the images on the film match the transparency orartwork which was originally supplied by the customer. The filmthen goes through a final mechanical inspection before it isshipped to the customer's printer.

On its Illinois income tax returns for the tax years endingDecember 31, 1992, through December 31, 1997, Schawk tookinvestment tax credits pursuant to section 201(e) of the IllinoisIncome Tax Act (35 ILCS 201(e)(West 1998)) against its personalproperty tax replacement income tax liability for various itemsof machinery and equipment purchased during those years. Thisequipment is used by Schawk in the course of its business, asdescribed above. Under the Act, the credits would only have beenavailable to Schawk if it was primarily engaged in manufacturing. The Department subsequently audited Schawk's tax returns, anddetermined that Schawk was not entitled to the investment taxcredit under section 201(e). Schawk subsequently paid additionalamounts in income tax under protest.

On January 24, 1997, Schawk filed a complaint for injunctiverelief alleging that it was engaged in manufacturing and that itwas thus entitled to claim the income tax credits at issue. Thetrial court subsequently entered summary judgement in favor ofSchawk and against the Department, finding that Schawk wasengaged in manufacturing under section 201(e). This appealfollowed.

ANALYSIS

The Department contends that Schawk is not primarily engagedin manufacturing and is thus not entitled to a tax credit forqualified property pursuant to section 201(e)(1) of the IllinoisIncome Tax Act (35 ILCS 201(e)(1)(West 1998)). We agree.

"Where facts are undisputed *** a determination of whetherproperty is exempt from taxation is a question of law." ChicagoPatrolmen's Association v. Department of Revenue, 171 Ill. 2d263, 271, 664 N.E.2d 52, 56 (1996). "Statutes exempting propertyfrom taxation are to be strictly construed in favor of taxation." Chicago Patrolmen's Association, 171 Ill. 2d at 271, 664 N.E.2dat 56 (1996)." Statutory construction is a question of law, andis thus reviewed de novo. Advincula v. United Blood Services,176 Ill. 2d 1, 12, 678 N.E.2d 1009, 1015 (1996).

"The cardinal rule of statutory construction is to ascertainand give effect to the true intent of the legislature." Paris v.Feder, 179 Ill. 2d 173, 177, 688 N.E.2d 137, 139 (1997). "Thebest evidence of legislative intent is the language used in thestatute itself, which must be given its plain and ordinarymeaning." Paris, 179 Ill. 2d at 177, 688 N.E.2d at 139. "Thestatute should be evaluated as a whole, with each provisionconstrued in connection with every other section." Paris, 179Ill. 2d at 177, 688 N.E.2d at 139. "If legislative intent can beascertained from the statute's plain language, that intent mustprevail without resort to other interpretive aids." Paris, 179Ill. 2d at 177, 688 N.E.2d at 139.

Pursuant to section 201(c) of the Act, a tax known as thePersonal Property Tax Replacement Income Tax (the tax) is imposedon every corporation, partnership and trust in Illinois. 35 ILCS5/201(c)(West 1998). A taxpayer is allowed a credit against thetax for investment in qualified property. 35 ILCS 5/201(e)(1)(West 1998). The definition of qualified property provides,inter alia, that the property "is used in Illinois by a taxpayerwho is primarily engaged in manufacturing or in mining coal orfluorite, or in retailing." 35 ILCS 5/201(e)(2)(D)(West 1998). The Act further defines "manufacturing" as "the material stagingand production of tangible personal property by procedurescommonly regarded as manufacturing, processing, fabrication, orassembling which changes some existing material into new shapes,new qualities, or new combinations." 35 ILCS 5/201(e)(3)(West1998).

We find that the plain language of the statute at issue isclear and that the activities engaged in by Schawk are notembraced under the statute's definition of manufacturing. TheOxford English Dictionary defines "manufacture" as follows: "1.*** To work up (material) into form suitable for use. *** 2. Tomake or fabricate from material; to produce by labour (now esp.on a large scale)." IX Oxford English Dictionary 341 (2^nd ed.1989). The American Heritage Dictionary, defines "manufacture"as "1. a. To make or process (a raw material) into a finishedproduct, esp. by means of a large-scale industrial operation. b.To make or process (a product) *** 2. To create, produce or turnour in a mechanical manner *** 3. *** To make or process goods,esp. in large quantities and by means of industrial machines." The American Heritage Dictionary 764 (1982).

Schawk's activities on their face do not appear to fitwithin the parameters of these definitions. First, Schawk doesnot appear to be turning out its product in a mechanical manner. Rather, Schawk's business requires the involvement of skilledcomputer operators who tailor each individual color separationproduct to the unique needs of each customer. For example,Schawk's computer operators retouch the electronic files for thecolor separations in order to insure that the colors in the filematch the customer's order. Computer operators also assemble anelectronic file for each product to place all of the images inthe proper order for printing. Further, Schawk does not massproduce its products in large quantities. Rather, it produces asubstantially unique product in response to each order from acustomer. Finally, since each completed product contains imagesor artwork unique to the particular customer, Schawk's servicesdestroy all commercial value the unexposed film with which it wasproduced would have to anyone other than the customer for whomthe product was made.

Moreover, as we look beyond the dictionary definitions ofmanufacturing, the inclusion of Schawk's business in theclassification "manufacturing" is inconsistent with Illinoisprecedent classifying the graphic arts as a service occupation inthe context of other tax statutes.⁽¹⁾ In Spagat v. Mahin, 50 Ill.2d 183, 189, 277 N.E.2d 834, 837-38 (1971), our supreme courtarticulated a test to determine if a business is engaged in aservice occupation or a retail occupation:

"If the article sold has no value to the purchaserexcept as a result of services rendered by the vendorand the transfer of the article to the purchaser is anactual and necessary part of the service rendered, thenthe vendor is engaged in the business of renderingservice and not in the business of selling at retail. If the article sold is the substance of the transactionand the service rendered is merely incidental to and aninseparable part of the transfer to the purchaser ofthe article sold, then the vendor is engaged in thebusiness of selling at retail." Spagat, 50 Ill. 2d at189, 277 N.E.2d at 837-38.

Relying on this distinction, courts have concluded that variousactivities which can be loosely grouped under the classification"graphic arts" constitute services rather than sales of personalproperty at retail. See, e.g., H.G. Adair Printing Co. v. Ames,364 Ill. 342, 4 N.E.2d 481 (1936) (commercial printing is aservice occupation and thus commercial printers are not liablefor retailer's occupation tax); A.B.C. Electrotype Co. v. Ames,364 Ill. 360, 4 N.E.2d 476 (1936) (persons producing"electrotypes, stereotypes, and matrices" are engaged in aservice occupation); J.A. Burgess Co. v. Ames, 359 Ill. 427, 194N.E. 565 (1935) (blue printers and photostaters are engaged in aservice occupation).

Likewise, in the case at bar, Schawk is engaged in thebusiness of producing color separations on exposed film, whichcan also be included as one of the graphic arts. It appears thatthe primary value of the film which Schawk sells to its customerscomes from the services performed by Schawk to customize the filmto contain the artwork or designs supplied by the customer. If acustomer simply wanted to acquire unexposed film, it is unlikelythat they would seek a provider who also performed significantservices to place artwork and designs on that film. Furthermore,the services which Schawk provides destroy any value which theunexposed film has to anyone but Schawk's customers. The primaryvalue which Schawk provides its customers is thus the value ofthese services.

Although the forgoing cases involve the differentiation ofservice occupations from retail occupations, our supreme court inColorcraft Corp. v. Department of Revenue, 112 Ill. 2d 473, 493N.E.2d 1066 (1986), has adopted its test for service occupationsin order to differentiate them from manufacturing, and issquarely on point. The Colorcraft court held that photofinishing services constitute services rather than manufacturingfor the purpose of an exemption available to manufacturers underthe Use Tax Act (Ill.Rev.Stat.1983, ch. 120, par 439.3). InColorcraft the taxpayer was a business which processed color filminto finished photographs for consumers. The taxpayer arguedthat it was engaged in the business of manufacturing and thus itsphoto finishing equipment was exempt from the use tax. Thestatute at issue defined manufacturing similarly to the statuteat issue in the instant case.⁽²⁾

The Colorcraft court reasoned that the graphic arts had beenclassified as service occupations rather than retail sales inseveral earlier cases construing the Retailer's Occupation Tax Act. H.G. Adair Printing Co., 364 Ill. 342, 4 N.E.2d 481; A.B.C. Electrotype Co., 364 Ill. 360, 4 N.E.2d 476; J.A. BurgessCo., 359 Ill. 427, 194 N.E. 565. The Colorcraft court noted thatour supreme court in Spagat had articulated a test to determineif a business is engaged in a service or retail occupation.

The court then held that, like the other graphic arts, photofinishing is a service occupation. The photo finishing process"destroys the materials used as far as their commercial value isconcerned." Colorcraft, 112 Ill. 2d at 483, 493 N.E.2d at 1070. "Once the paper is used to make the customers' prints, exceptperhaps in rare instances, it is of no value to anyone other thanthe person for whom the pictures are developed. It is unlikelythat the average person would be even remotely interested inpurchasing prints developed for another." Colorcraft, 112 Ill.2d at 483, 493 N.E.2d at 1070. The primary value provided by thetaxpayer to its customers is thus the service which it renders,and the taxpayer is not in the business of selling tangiblepersonal property. Colorcraft, 112 Ill. 2d at 483, 493 N.E.2d at1070.

We note that not only is the case at bar consistent with theholding in Colorcraft, but also on its facts presents a strongercase for determining that the taxpayer's activities are notmanufacturing than did the facts in Colorcraft. While theactivities of processing large numbers of photographs in alargely automated system could be termed mass production (whichis generally associated with manufacturing) no such designationcan be made in the case at bar. The color separated filmproduced by Schawk does not just require development by automatedmeans. Rather, each must be prepared to the customer's uniquespecifications, with the assistance of human computer operators. A fortiori, Schawk is not engaged in manufacturing.

We do not agree with Schawk's contention that the inclusionof the word "process" in the Act's definition of "manufacturing"expands the definition of "manufacturing" to include Schawk'sprepress business. Such a construction would broaden thedefinition of "manufacturing" well beyond the construction of oursupreme court in Colorcraft. If "process" and thus"manufacturing" were to be expanded to include Schawk'sactivities, then certainly the definition would have to beexpanded to include the activities which the court in Colorcraftspecifically held were not manufacturing, even though the statuteconstrued therein was virtually identical in its essential termsand also included "process" as part of its definition ofmanufacturing. Ill.Rev.Stat.1983, ch. 120, par. 439.3, quotedin, Colorcraft, 112 Ill. 2d at 476-77, 493 N.E.2d at 1067.

Our holding does not, however, remove the word "process"from the definition of manufacturing. As made clear inColorcraft, the inclusion of "process" in the definition ofmanufacturing does not pre-empt the other pre-requisitesassociated with the definition of manufacturing, namely and amongother things, a lack of emphasis on specialized skills, themerchantability of the finish products in the marketplace as awhole rather than only to the specific customer for whom theywere prepared, mass production and a lack of uniqueness of eachproduct produced.

Schawk's cases, Dolese & Shepard Co. v. O'Connell, 257 Ill.43, 45, 100 N.E. 235, 236 (1912); H.H.Kohlsaat & Co. v.O'Connell, 255 Ill. 271, 272, 99 N.E. 689, 690 (1912); and Van'sMaterial Co. v. Department of Revenue, 131 Ill. 2d 196, 545N.E.2d 695 (1989), are inapposite. None of the activities in thecases cited by Schawk have the distinctive features of serviceoccupations which we discussed above, and which were discussed inColorcraft. See, e.g., Dolese & Shepard, 257 Ill. at 45, 100N.E. at 236 (holding that constructing roads of sand, gravel ordirt was manufacturing); H.H. Kohlsatt, 255 Ill. at 272, 99 N.E.at 690 (making baker's goods and restaurant supplies ismanufacturing); Van's Material, 131 Ill. 2d at 208, 545 N.E.2d at701 (utilizing above definitions to determine that a ready-mixconcrete dump truck was primarily used in the manufacture oftangible personal property). In none of these cases do we havethe distinctive features which characterize a service occupation,discussed above, that are present in Schawk's business and thatwere present in the taxpayer's business in Colorcraft.

Finally, we need not address the arguments based on thelegislative history. As we stated above, the statute at issue isnot ambiguous. Rather, the commonly understood definitions ofthe words used are readily apparent, as Schawk readily admits. Any resort to legislative history is thus inappropriate. Paris,179 Ill. 2d at 177, 688 N.E.2d at 139; Nevitt v. Langfelder, 157Ill.2d 116, 134, 623 N.E.2d 281, 289 (1993). Moreover, even ifwe were to look to the legislative history, it would not aidSchawk. While Schawk correctly asserts that the bill's sponsorstated that he intended the graphic arts industry to be coveredby this exemption, this sole comment by one legislator is of nomoment. Atkins v. Deere & Company, 177 Ill. 2d 222, 244-45, 685N.E.2d 342, 347-48 (1997) ("a preamble constitutes a strongerexpression of intent than does a passing comment made by a singlelegislator during legislative debates); People v. Hickman, 163Ill. 2d 250, 262, 644 N.E.2d 1147, 1153 (1994) ("while a courtgives some consideration to statements by the sponsor of a bill,such statements are not controlling").

For the reasons discussed above, the judgement of thecircuit court of Cook County is reversed and this cause is herebyremanded for further proceedings not inconsistent with thisopinion.

Reversed; cause remanded.

CAHILL and McBRIDE, JJ., concur.

1. The department would contend that the tax statute at issueis in pari materia with other tax statutes, including theRetailer's Occupation Tax Act and thus these statutes should beconstrued together. However, we need not decide that issue sincewe can look to cases construing other statutes havingsubstantially similar language to determine whether thosestatutes are in pari materia or not. Anderson v. City of ParkRidge, 396 Ill. 235, 244, 72 N.E.2d 210, 215 (1947) ("It isproper *** to consider statutes upon related subjects though notstrictly in pari materia"); cf. Colorcraft Corp. v. Department ofRevenue, 112 Ill. 473, 482-83, 493 N.E.2d 1066, 1070 (1986)(construing definition of manufacturing in the Use Tax Actthrough analysis of cases which construe other taxes, includingthe Retailers' Occupation Tax Act but not arguing that the otherstatutes are in pari materia).

2. Section 3 of the Use Tax Act defined "manufacturingprocess" as "the production of any article of tangible personalproperty, whether such article is a finished product or anarticle for use in the process of manufacturing or assembling adifferent article of tangible personal property, by procedurescommonly regarded as manufacturing, processing, fabricating, orrefining which changes some existing material or materials into amaterial with a different form, use or name." Ill.Rev.Stat.1983,ch. 120, par. 439.3, quoted in, Colorcraft, 112 Ill. 2d at 476-77, 493 N.E.2d at 1067.