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Town Crier, Inc., v. Dept. of Revenue, No. 1-98-4251

1st District, June 30, 2000

FIFTH DIVISION

JUSTICE QUINN delivered the opinion of the court:

Plaintiff Town Crier, Inc., a Wisconsin corporation, filed a complaint under the State Officers and Employees MoneyDisposition Act (30 ILCS 230/1 et seq. (West 1998)) against the Illinois Department of Revenue, Kenneth Zehnder, in hiscapacity as the Department's Director, and Judy Baar Topinka, in her capacity as Treasurer of the State of Illinois(collectively, the Department). Plaintiff's complaint alleged that the Department wrongfully assessed $33,500 in use taxes,interest and penalties on plaintiff's sales to Illinois residents from December 1, 1993, through January 31, 1996. Plaintiffalleged that the Department lacked authority to impose the use tax because plaintiff did not have a substantial nexus withIllinois under federal due process and commerce clause principles. The Department argued that plaintiff had acquired ataxable nexus in Illinois by delivering furniture to Illinois customers in plaintiff's own vehicles and by installing windowtreatments in Illinois. The circuit court of Cook County granted the Department's motion for summary judgment and deniedplaintiff's motion for reconsideration.

For the following reasons, the order of the circuit court is affirmed.

Plaintiff is a Wisconsin corporation that operates a retail furniture store in Lake Geneva, Wisconsin. In addition to furniture,plaintiff sells carpeting, artwork and window dressings. Lake Geneva is a resort community that is heavily populated byIllinois residents who maintain second homes there. Plaintiff has a listing in the Lake Geneva telephone directory; however,it does not advertise through Illinois media outlets. Plaintiff owns no property in Illinois and has no employees orindependent contractors who solicit orders in Illinois. Plaintiff uses both common carriers and its own vehicles to delivermerchandise to its customers.

In 1994, the Wisconsin Department of Revenue (WDOR) audited plaintiff and noted that it had made sales to Illinoisresidents on which it did not remit Wisconsin sales tax. WDOR notified the Illinois Department of Revenue, and in 1996the Department audited plaintiff for the period of July 1, 1989, through January 31, 1996. Because plaintiff refused to allowthe Department access to its records, the audit was conducted based upon information supplied by the WDOR. Thisinformation included a sampling of plaintiff's sales journals and invoices for the months of April 1988, October 1989,February 1990, August 1991, and June 1992.

The sales records revealed that, for the sampling period, over 50% of plaintiff's gross sales constituted sales of merchandisedelivered into Illinois. From December 1993 to January 1996, plaintiff made at least 54 deliveries of merchandise intoIllinois. Of these 54 deliveries, 30 were made in plaintiff's own vehicles and 24 were made by common carriers. During thesame time period, plaintiff installed window dressings in Illinois on five occasions. Plaintiff did not collect Illinois use taxon sales of goods delivered into Illinois, but it did collect a 5% handling fee on sales with out-of-state deliveries.

On March 29, 1996, the Department issued two notices of tax liability: the first for $101,267 for the period of July 1, 1989,through November 30, 1993, and the second for $33,500 for the period of December 1, 1993, through January 1, 1996.Plaintiff paid the second notice of tax liability under protest and filed a complaint under the State Officers and EmployeesMoney Disposition Act (30 ILCS 230/1 et seq. (West 1998)). Count I of the complaint, the only relevant count on appeal,alleged that plaintiff was entitled to a refund of the $33,500 payment plus interest because the Department lacked authorityto impose use tax collection responsibilities on plaintiff because plaintiff did not have a substantial nexus with Illinois underfederal due process and commerce clause principles. The Department denied that the assessment was in error.

The circuit court issued a preliminary injunction enjoining the Department from depositing the funds paid by plaintiff underprotest into the general revenue fund. The matter of the notice of tax liability for the period of July 1, 1989, throughNovember 30, 1993, is currently before the administrative hearings division of the Department and has been stayed pendingresolution of this matter.

In March 1998, the Department moved for summary judgment, arguing that the facts in this case presented no commerceclause or due process impediments to the assessment of use taxes. In response, plaintiff argued that it could not bedeputized as Illinois' tax collection agent because it did not solicit business here, relying principally on Miller Brothers Co.v. Maryland, 347 U.S. 340, 98 L. Ed. 744, 74 S. Ct. 535 (1954). Plaintiff further argued that the use tax burdened interstatecommerce because the tax was not fairly related to services provided by Illinois.

The circuit court granted the Department's motion for summary judgment on August 19, 1998. The court found that plaintiffhad a sufficient nexus with Illinois to justify the use tax based upon plaintiff's deliveries to Illinois in plaintiff's ownvehicles. The court also relied on the fact that plaintiff installed window treatments in Illinois on five occasions during theaudit period. Finally, the court rejected plaintiff's argument that the tax was not related to services provided by Illinoisbecause plaintiff took advantage of Illinois' roads and other services when deliveries were made into the state.

Plaintiff filed a motion for rehearing, which was denied. Plaintiff now appeals.

This appeal addresses the issue of whether the Department's assessment of use taxes against the out-of-state plaintiff-retailerwas a permissible exercise of the state's taxing power under the federal commerce and due process clauses. Plaintiff arguesthat the Department did not have the authority to assess use taxes on it because the Department did not establish a sufficientnexus with the State of Illinois to satisfy the requirements of the commerce and due process clauses. The circuit court foundthat the Department acted within the parameters of the Constitution in assessing the taxes and granted summary judgment infavor of the Department.

A circuit court's grant of summary judgment is subject to de novo review. Exhibits, Inc. v. Sweet, 303 Ill. App. 3d 423, 426,709 N.E.2d 236, 238 (1998). Summary judgment is appropriate when the pleadings and discovery, construed in thenonmovant's favor, show that there are no genuine issues of material fact and that the movant is entitled to judgment as amatter of law. Exhibits, Inc., 303 Ill. App. 3d at 426.

Illinois' use tax is imposed "upon the privilege of using in this State tangible personal property purchased at retail from aretailer." 35 ILCS 105/3 (West 1998). The tax functions as a necessary corollary to the Retailers' Occupation Tax Act (35ILCS 120/1 et seq. (West 1998)), the principal means in Illinois for taxing the retail sale of tangible personal property. Theuse tax is also imposed at the same rate as the retailers' occupation tax. 35 ILCS 105/3-10, 120/2-10 (West 1998). Theprimary purpose of the use tax is as follows: