Richard's Tire Co. v. Zehnder
Annotate this Case
No. 2 -96- 1406
_________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
_________________________________________________________________
RICHARD S TIRE COMPANY, ) Appeal from the Circuit Court
) of Kane County.
)
Plaintiff-Appellee, ) No. 96- TX- 5
)
v. )
)
KENNETH E. ZEHNDER, as )
Director of Revenue; and )
THE DEPARTMENT OF REVENUE, )
)
) Honorable
) Melvin E. Dunn,
Defendants-Appellants. ) Judge, Presiding.
_________________________________________________________________
JUSTICE HUTCHINSON delivered the opinion of the court:
Defendants, the Department of Revenue (the Department) and
Kenneth E. Zehnder, Director of Revenue (Zehnder), appeal from an
order of the trial court upon administrative review reversing
defendants decision that plaintiff, Richard s Tire Company, is
liable to pay taxes on certain machinery and equipment plaintiff
used in the process of manufacturing retread tires. The trial court
held that defendants final administrative decision was against the
manifest weight of the evidence. Defendants raise two issues on
appeal: (1) whether plaintiff s failure to name the Department as
defendant deprived the trial court of jurisdiction, and (2) whether
the manufacturing and assembling machinery and equipment exemption
in section 3- 5(18) of the Use Tax Act (35 ILCS 105/3 -5(18)(West
1996)) applied to the machinery and equipment used by plaintiff in
producing retread tires. We affirm the order of the trial court.
The administrative hearing record, including Zehnder s
decision, reveals the following salient facts. Plaintiff was
engaged in the business of retreading motor vehicle tires from 1966
until 1992, when substantially all of its assets were sold and the
corporation dissolved. In December 1992 the Department issued a
notice of tax liability to plaintiff. The notice stated that
plaintiff owed $11,449, which represented unpaid use tax due, plus
penalties and interest for the period between July 1989 and December
1991. The Department assessed the use tax on machinery that
plaintiff purchased during this period and used to retread tires.
Plaintiff filed a timely protest of this assessment and contended
that the statutory exemption for manufacturing and assembling
machinery and equipment (see 35 ILCS 105/3 -5(18) (West 1996))
applied to the machinery.
In October 1994 the Department held an administrative hearing
before Administrative Law Judge (ALJ) Alan Osheff. The Department
contended that (1) plaintiff s assets were tangible personal
property purchased at retail from a retailer; (2) no retailer s
occupation tax had been paid to the sellers; and (3) use tax should
be imposed. ALJ Osheff allowed into evidence the notice of tax
liability and certificate of mailing.
The Department s sole witness was David Wheet, an auditor
employed by the Department. Wheet testified that, in reviewing
plaintiff s records, he found that plaintiff had purchased certain
items of machinery and equipment during the audit period for which
no use tax had been paid. Wheet described the process of retreading
tires: a customer would bring in a tire casing, and the machines
that the Department assessed would be utilized in the process of
retreading the casing; when the process was complete, the tire would
be returned to the customer. Wheet determined that no sale or lease
occurred in this process, and on that basis Wheet concluded that the
machinery was taxable. Upon the conclusion of the cross-examination
of Wheet, the Department rested its case.
Testifying on behalf of plaintiff was Richard Weagley,
plaintiff s former president, chief executive officer, secretary-
treasurer, and sole stockholder throughout the relevant period.
Weagley testified that the machinery and equipment at issue included
expandable chuck conversion kits, compressors, a tank, a twin line
conversion kit, a tread kit, a buffer, and a builder. All of these
items were used to produce a retread tire. The finished products
were sold to individual customers or dealers who resold such tires.
Weagley explained the pricing structure of selling retreaded tires.
Sales tax was not charged to customers who possessed an interstate
carrier exemption; sales tax would be charged to end users who were
not interstate carriers.
Weagley also explained the retreading process. Tire casings
are first procured by plaintiff, a customer, or some other third
party; then the casings are inspected. If the tire casing is
unsuitable for retreading, it is rejected. If the tire casing is
suitable for retreading, it will then be cut down, reshaped, and
resurfaced with a buffer. Damaged areas are skived and the
resulting holes are refilled with rubber compound. The refurbished
casing is then cleaned and, if necessary, repaired. Resized and
reconditioned, the casing is next placed on a machine called a
builder, where strips of manufactured cushion gum and tread rubber
are cut to size and applied to the casing along with bonding agents.
Next, a United States Department of Transportation assigned number
is embossed on the tire to identify it as a retread and to show its
place of origin. The tire is next mounted on a rim or ring,
enclosed in an envelope, and pressurized. A number of mounted
pressurized tires are then inserted into a large curing chamber
where, through the application of heat and a pressure differential,
a chemical change takes place resulting in the vulcanization of the
cushion gum and the integration of the tread rubber with the casing.
During Weagley s examination, plaintiff and the Department
stipulated that a total of $24,036 representing certain leasehold
improvements should not have been assessed and, therefore, should
be deleted from plaintiff s tax liability.
Plaintiff also introduced into evidence correspondence from
1985 between Bandag, Inc. (Bandag), and the Department. Plaintiff
was a franchise of Bandag, which engaged in the tire retreading
business. In a May 30, 1985, letter from Bandag to the Department,
Bandag requested a written ruling that the purchase or lease from
it by its franchisees of machinery and equipment for use in its
retreading process was exempt from taxation under the manufacturing
and assembling machinery and equipment exemption. Bandag s letter
informed the Department that its franchisees engage in two types of
transactions: (1) when customers supply their own tire casings, or
(2) when the franchisee supplies the tire casing. A Department
staff attorney initially replied that the exemption would not apply;
however, the same attorney responded nine days later, reversing the
Department s earlier ruling, stating that the previous letter should
be disregarded and that the Department ruled that Bandag s machinery
did qualify for the exemption. In ruling that the exemption
applied, the attorney cited to a private letter ruling issued
January 25, 1985, by the Department, stating that machinery used
in the retreading of tires does qualify for the manufacturing
machinery and equipment exemption.
In his recommendation for disposition, ALJ Osheff determined
that the assets at issue were manufacturing and assembling machinery
and equipment used primarily in the process of manufacturing retread
tires for wholesale or retail sale. He summarized as follows:
[T]he evidence reveals that the process involved was one
of manufacturing and the taxpayer in fact sold a retreaded
tire to his customer. In my opinion a sale occurred in those
instances where the customer had supplied a casing since the
casing was only an ingredient that became incorporated in the
newly transferred product. A substantial ingredient that was
supplied by the taxpayer was the rubber and the product
received by the customer was not the same as received by the
taxpayer.
ALJ Osheff recommended to Zehnder that the assessment be canceled.
In his final administrative decision, Zehnder declined to
follow ALJ Osheff s recommended disposition. Zehnder acknowledged
that the process of producing retread tires is obviously
manufacturing. However, Zehnder defined the issue as whether the
transactions which take place between [plaintiff] and its customers
in situations where the customer supplies the casing, are in
actuality a service or a retail (sometimes wholesale) sale.
Zehnder noted that the exemption applies only if the machinery and
equipment in question are used to manufacture personal property for
wholesale, retail sale, or lease. Zehnder relied upon a Department
regulation codified at 86 Ill. Adm. Code 130.2015 (1996), which
states, inter alia, that the retreading of tires would not be
considered a product sale subject to the retailer s occupation tax.
Instead, Zehnder considered the retreading of tires a service
subject to the service occupation tax.
Zehnder s decision also disagreed with ALJ Osheff s conclusion
that the product the customer ultimately received was different from
the product brought in by the customer. Zehnder stated that the
customer brought in a worn tire, and plaintiff returned a
reconditioned tire to the customer. He further stated that, under
ALJ Osheff s logic, persons who bring their shoes to be resoled
and/or reheeled, buffed and shined, are in fact buying new shoes
from the corner cobbler.
Zehnder affirmed the auditor s notice of tax liability, and the
Department issued the final assessment to plaintiff on December 11,
1995. The final assessment stated that plaintiff owed $14,077.81
in use tax, interest, and penalties. Both parties agree that the
final assessment failed to take into account the Department s
stipulation at the hearing that $24,036 worth of leasehold
improvements had been erroneously assessed.
Plaintiff filed a complaint against Zehnder, in his capacity
as Director of the Department of Revenue, in administrative review
on January 5, 1996, contesting the Department s final assessment.
Zehnder filed his notice of appearance on February 8, 1996. On
April 8, 1996, pursuant to section 3 -108(b) of the Administrative
Review Law (735 ILCS 5/3 -108(b)(West 1996)), plaintiff moved for
an order of default against Zehnder for failure to file an answer,
a motion the trial court later denied. On April 10, 1996, Zehnder
filed a motion to dismiss the complaint, alleging that, pursuant to
section 3--107(a) of the Administrative Review Law (735 ILCS 5/3--
107(a) (West 1996)), the failure of plaintiff to name the Department
as a party and serve it with summons mandated the dismissal of the
complaint.
On April 15, 1996, plaintiff filed a motion for leave to amend
its complaint to add the Department as a party. Zehnder responded
to the motion and requested that the trial court deny plaintiff s
motion and grant his motion to dismiss. On July 1, 1996, the trial
court entered an order dismissing plaintiff s complaint without
prejudice and granting plaintiff leave to amend the complaint to add
the Department as a defendant. Plaintiff filed its amended
complaint on July 3, 1996.
At a hearing conducted on October 4, 1996, plaintiff and
defendants agreed that the $24,036 worth of leasehold improvements
was erroneously assessed. In an order dated October 4, 1996, the
trial court reversed the final administrative decision to the extent
that $24,036 was improperly assessed to plaintiff and took under
advisement the issue of whether the remainder of the assessment was
exempt.
On October 30, 1996, the trial court found that the
recommendation by ALJ Osheff was correct and entered an order
reversing the Department s decision on the ground that it was far
beyond the manifest weight of the evidence. Zehnder and the
Department filed a timely notice of appeal.
Defendants first issue on appeal is whether the failure of
plaintiff to name the Department as a party in its original
complaint for administrative review mandates the dismissal of
plaintiff s complaint. See 735 ILCS 5/3 -107(a)(West 1996);
McGaughy v. Illinois Human Rights Comm n, 165 Ill. 2d 1 (1995);
Lockett v. Chicago Police Board, 133 Ill. 2d 349 (1990). Section
3- 107(a) of the Administrative Review Law provides, in pertinent
part, as follows:
[I]n any action to review any final decision of an
administrative agency, the administrative agency and all
persons, other than the plaintiff, who were parties of record
to the proceedings before the administrative agency shall be
made defendants. 735 ILCS 3- 107(a) (West 1996).
Since McGaughy and Lockett were decided, our legislature has
amended section 3- 107(a) of the Administrative Review Law. Section
3--107 of the Law as amended, provides, inter alia:
[I]n any action to review any final decision of an
administrative agency, the administrative agency and all
persons, other than the plaintiff, who were parties of record
to the proceedings before the administrative agency shall be
made defendants. No action for administrative review shall be
dismissed for lack of jurisdiction based upon the failure to
name an employee, agent, or member, who acted in his or her
official capacity, of an administrative agency, board
committee, or government entity, where the administrative
agency, board, committee, or government entity, has been named
as a defendant as provided in this Section. Naming the
director or agency head, in his or her official capacity,
shall be deemed to include as defendant the administrative
agency, board, committee, or government entity that the named
defendants direct or head. No action for administrative
review shall be dismissed for lack of jurisdiction based upon
the failure to name an administrative agency, board,
committee, or government entity, where the director or agency
head, in his or her official capacity, has been named as a
defendant as provided in this Section. (Emphasis added.)
735 ILCS Ann. 5/3--107(a) (Smith-Hurd Supp. 1997).
Therefore, we must first address whether the amended version of the
statute applies to the pending appeal. Should the amended version
apply, plaintiff s failure to name the Department is not fatal to
its cause of action.
In First of America Trust Co. v. Armstead, 171 Ill. 2d 282
(1996), our supreme court discussed the various analyses reviewing
courts have applied in determining whether a statutory amendment
applied to an existing controversy on appeal. Armstead enunciated
the rule that a reviewing court should simply apply the law as it
exists at the time of the appeal, unless doing so would interfere
with a vested right. Armstead, 171 Ill. 2d at 290; see also
Johnson v. Edgar, 176 Ill. 2d 499, 518-19 (1997); Rhoads v. Board
of Trustees of the City of Calumet City Policemen s Pension Fund,
No. 1 -96- 1920, slip op. at 3 (Ill. App. December 26, 1997). Under
the due process clause of our constitution (Ill. Const. 1970, art.
I, 2), vested rights are interests that are protected from
legislative interference.
Plaintiff cites Martin v. Department of Professional
Regulation, 284 Ill. App. 3d 591 (1996), in which the reviewing
court applied the then newly amended 1994 version of section 3--
107(a) to that case on appeal. Martin held that vested rights were
not impaired by allowing the plaintiff to name a necessary party
pursuant to the amendment. Martin, 284 Ill. App. 3d at 596.
We find persuasive Rhoads v. Board of Trustee of the City of
Calumet City Policemen s Pension Fund, No. 1- 96 -1920 (Ill. App.
December 26, 1997). In Rhoads, the plaintiff was appointed the
chief of police of Calumet City in 1988 and subsequently accepted
into the police officer s pension fund. In 1993 Rhoads was
terminated from his position after applying for a line-of-duty
disability pension. In January 1995 after a hearing, the pension
board granted Rhoads a not-on-duty disability pension. Rhoads
appealed to the circuit court, which reversed the pension board s
decision. The pension board appealed, alleging that Rhoads failure
to name the individual pension board trustees as defendants deprived
the circuit court of jurisdiction. The Appellate Court, First
District, disagreed, stating that the amended version of section 3--
107(a) (735 ILCS 5/3- 107(a)(West Supp. 1997)) no longer requires
the joinder of individual pension board trustees to invoke
jurisdiction under administrative review. After a brief application
of the principles enunciated in Armstead and Martin, the reviewing
court concluded that the 1997 amendment to section 3- 107(a) did not
interfere with a vested right. The Rhoads court concluded that
Rhoads failure to name the individual defendants was not fatal to
his cause of action.
Defendants in the present case contend that their vested right
is the statutory 35-day limitation period during which plaintiff was
allowed to name the Department as a defendant. However, defendants
have no vested right in the continuance of a law. See Envirite
Corp. v. Illinois Environmental Protection Agency, 158 Ill. 2d 210,
215 (1994). The legislature has an immutable right to amend a
statute. Envirite, 158 Ill. 2d at 215. Therefore, the State, by
not specifying prospective application, implicitly gave up any
vested rights. Defendants cite Sepmeyer v. Holman, 162 Ill. 2d 249 (1994), for the proposition that the expiration of a statute of
limitations creates a vested right. Defendant s reliance on
Sepmeyer is misplaced, as plaintiff here is not seeking to revive
a cause of action previously time-barred by the statute of
limitations. No such statute is involved in the present case.
After reviewing the record, we determine that there was no
unconditional exemption in the 35-day limit such that it could be
equated with a property interest. See Martin, 284 Ill. App. 3d at
596.
Accordingly, we review plaintiff s complaint in light of
section 3 -107(a) as amended. Therefore, pursuant to Armstead,
Martin, and Rhoads, plaintiff s failure to name the Department as
a defendant did not divest the trial court of jurisdiction under the
Administrative Review Law and is not fatal to its cause of action.
We next consider our standard of review. Our standard of
review for a final administrative decision is governed by the
Administrative Review Law. 735 ILCS 5/3--101 et seq. (West 1996).
The Administrative Review Law provides that our review encompasses
all questions of law and fact presented by the entire record. 735
ILCS 5/3--110 (West 1996); Bridgestone/Firestone, Inc. v. Aldridge,
179 Ill. 2d 141, 148 (1997). Our role is to review the
administrative decision, not the trial court s determination. Board
of Education of Round Lake Area Schools v. State Board of Education,
292 Ill. App. 3d 101, 109 (1997). The statute further mandates that
an administrative agency's factual findings are "held to be prima
facie true and correct." 735 ILCS 5/3-110 (West 1996); see also
Board of Education of Round Lake Area Schools, 292 Ill. App. 3d at
108.
However, an administrative agency's determinations of law are
not accorded the same deference as its findings of fact. Oregon
Community Unit School District No. 220 v. Property Tax Appeal Board,
285 Ill. App. 3d 170, 175, leave to appeal allowed, 172 Ill. 2d 554
(1996). The interpretation of a statute is a question of law.
Branson v. Department of Revenue, 168 Ill. 2d 247, 254 (1995). An
administrative agency's finding on a question of law or an
interpretation of a statute, including a statute it is charged with
administering, is not binding upon this court. Branson, 168 Ill. 2d at 254. Our review of legal issues is de novo. Du Page County
Board of Review v. Property Tax Appeal Board, 284 Ill. App. 3d 649,
653 (1996). We have reviewed the record, including the transcript
of the hearing and Zehnder s final administrative decision, and note
that the material facts are not in dispute, only the legal
conclusions drawn therefrom. Accordingly, a de novo standard of
review is appropriate.
Defendants second issue on appeal is whether plaintiff s
machinery is exempt from taxation under the manufacturing and
assembling machinery and equipment exemption to the Use Tax Act (35
ILCS 105/3 -5(18)(West 1996)). In determining whether the machinery
is exempt, we must follow the analysis our supreme court enunciated
in Van s Material Co. v. Department of Revenue, 131 Ill. 2d 196
(1989), a case involving the same statutory provision as the present
case. In Van s Material, the court engaged in a two-part analysis:
it analyzed the exemption itself and then determined whether the
exemption applied to the case. See Van s Material, 131 Ill. 2d at
201; see also Zenith Electronics Corp. v. Department of Revenue, No.
1 -96 -0326 (Ill. App. November 26, 1997); Thomas M. Madden & Co.
v. Department of Revenue, 272 Ill. App. 3d 212 (1995).
Illinois use tax is imposed upon the privilege of using in
this State tangible personal property purchased at retail from a
retailer. 35 ILCS 105/3 (West 1996). Plaintiff has maintained
throughout the pendency of the proceedings that its machinery is
exempt from taxation because it falls within the manufacturing
exemption to the Use Tax Act. See 35 ILCS 105/3 -5(18)(West 1996).
Under the provisions of section 3 -5 of the Use Tax Act, certain
tangible personal property may be exempt from taxation. The
exemption statute at issue in the present case, section 3--5(18),
states that the following is exempt from tax imposed by the Use Tax
Act:
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 *** or other similar items of
no commercial value on special order for a particular
purchaser. 35 ILCS 105/3 -5(18)(West 1996).
Defendants argue that this exemption does not pertain to plaintiff s
equipment because plaintiff is engaged in a service occupation,
contending that plaintiff is not manufacturing personal property for
wholesale, retail sale, or lease.
The preeminent goal of a court construing a statute is to give
effect to the legislature's intent. Jahn v. Troy Fire Protection
District, 163 Ill. 2d 275, 282 (1994). Statutory language is the
best indicator of this intent, and where such language reveals the
legislative drafters' intent, we may not resort to other aids for
construction. People v. Brooks, 158 Ill. 2d 260, 264 (1994).
Statutes granting tax exemptions are to be construed strictly in
favor of the taxing body and against exemption, and the burden of
proof rests with the party claiming the exemption. Madden, 272 Ill.
App. 3d at 215-16.
In its examination of the statutory exemption, the court in
Van s Material focused on three words or phrases forming the gist
of the statute: (1) tangible personal property ; (2) process of
the manufacturing or assembling ; and (3) primarily. Van s
Material, 131 Ill. 2d at 203. The Van s Material court determined
that the taxpayer met the burden establishing that its ready-mix
concrete truck, in mixing sand, limestone, water, and cement into
concrete, was a machine primarily used in the manufacture of
tangible personal property and, therefore, entitled to benefit from
the exemption provisions. Van s Material, 131 Ill. 2d at 216-17.
In its construction of the statute, this court in Madden determined
that a slip form paver used to smooth concrete in a roadway was not
used in the manufacturing or assembling of tangible personal
property and thus did not qualify for a manufacturing exemption.
Madden, 272 Ill. App. 3d at 219. Recently the Appellate Court,
First District, considered the same statutory provision as the one
at issue here. See Zenith Electronics Corp. v. Department of
Revenue, No. 1 -96 -0326. The Zenith Electronics court held that
tray sets used by Zenith Electronics Corporation, a manufacturer of
cathode ray tubes, to protect the tubes during transportation to
other plants for manufacture into television sets were statutorily
exempt from use tax. Zenith Electronics, No. 1 -96 -0326, slip op.
at 3.
For our analysis, neither party disputes that plaintiff s
machinery assessed by the Department is tangible personal property
purchased out of state for use in Illinois. Additionally, neither
party disputes, and Zehnder acknowledges in his final administrative
decision, that the process of producing retread tires is obviously
manufacturing. The record is silent as to defendants position
regarding whether plaintiff s machinery is primarily used in the
process of manufacturing. However, our review of the record leads
us to clearly conclude that plaintiff s machinery is primarily used
in the process of manufacturing retread tires.
The dispute between the parties is seemingly based upon the
interpretation of the final portion of the manufacturing exemption,
that is, the portion that reads for wholesale or retail sale or
lease (35 ILCS 105/3-5(18) (West 1996)). Zehnder considered the
retreading of tires as a service. Defendants rely heavily on the
Department s own rules and regulations in support of their argument
that plaintiff s business is a service occupation. See 86 Ill. Adm.
Code 130.2015 (1996) (stating, inter alia, that the retreading of
tires would not be considered a product sale subject to the
retailer s occupation tax). However, our courts have long held
that administrative rules may not limit the scope of a statute.
Van s Material, 131 Ill. 2d at 209, citing Du-Mont Ventilating Co.
v. Department of Revenue, 73 Ill. 2d 243, 247-48 (1978).
Furthermore, [e]ven if the regulations were not determined to be
unduly restrictive, we are not bound by the Department s
interpretations of the statute. Van s Material, 131 Ill. 2d at
209-10.
We decline to look to the Department s administrative rules and
regulations to determine whether plaintiff s business is a service
or a retail occupation. Rather, we are guided by our supreme court,
which, in Velten & Pulver, Inc. v. Department of Revenue, 29 Ill. 2d 524 (1963), first synthesized into a rule the standards for
determining whether a business is a service or a retail occupation:
[I]f the article sold is the substance of the transaction and
the service rendered is merely incidental thereto and an
inseparable part of the transfer to the purchaser of the
article sold, then the vendor is engaged in retail selling.
Velten & Pulver, 29 Ill. 2d at 529-30.
This standard is well established in Illinois jurisprudence. See,
e.g., Colorcraft Corp., Inc. v. Department of Revenue, 112 Ill. 2d 473, 481-82 (1986); Rodman v. Department of Revenue, 51 Ill. 2d 314,
317-18 (1972); Spagat v. Mahin, 50 Ill. 2d 183, 189 (1971); New
Yorker Magazine, Inc. v. Department of Revenue, 187 Ill. App. 3d
931, 937-38 (1989).
Defendants argue that the exemption should not apply because
putting new tread on a tire brought in by a customer constitutes the
provision of a service. They contend that plaintiff s machinery was
used to provide a repair service, rather than to manufacture
tangible personal property for wholesale or retail sale or lease.
They argue that, because plaintiff s customers supplied the tire
casing, the provision of materials by plaintiff, such as new tread
and cushion gum, was merely incidental to this purpose. Plaintiff
counters that the substance of the transaction is the purchase of
a retread tire. The retread tire is composed of a casing, cushion
gum, bonding agents, and tread rubber with a unique tread pattern.
Both parties agree that the service rendered is merely incidental
thereto, and clearly it is an inseparable part of the transfer to
the purchaser of the retread tire. We agree with plaintiff and hold
that plaintiff is engaged in retail selling.
We believe that the source of the tire casing is irrelevant in
our determination that plaintiff s machinery is exempt from taxation
under the Use Tax Act. See 35 ILCS 105/3 -5(18)(West
1996)(providing that the exemption may apply whether the materials
used in the process are owned by the manufacturer or some other
person ). Our analysis is not affected simply because some
customers provide tire casings. Indeed, it cannot be, because then
the alternative would also have to be considered, that is, whether
plaintiff would be entitled to the benefit of the exemption if
plaintiff supplied all of its own tire casings. We decline to adopt
such a limited view in interpreting the statute at issue.
Based on our review of the record, we conclude that defendants
interpretation of the manufacturing and assembling machinery and
equipment exemption was against the manifest weight of the evidence.
We hold that plaintiff met the burden of proving that its machinery
was exempt from taxation under the Use Tax Act (35 ILCS 105/1 et
seq. (West 1996)) as machinery used primarily in the manufacturing
or assembling of tangible personal property.
Our determination that defendants final administrative
decision was against the manifest weight of the evidence obviates
the need to address defendants other arguments on appeal.
For the foregoing reasons, the judgment of the circuit court
of Kane County is affirmed.
Affirmed.
McLAREN and BOWMAN, JJ., concur.
_________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
_________________________________________________________________
RICHARD S TIRE COMPANY, ) Appeal from the Circuit Court
) of Kane County.
)
Plaintiff-Appellee, ) No. 96- TX- 5
)
v. )
)
KENNETH E. ZEHNDER, as )
Director of Revenue; and )
THE DEPARTMENT OF REVENUE, )
)
) Honorable
) Melvin E. Dunn,
Defendants-Appellants. ) Judge, Presiding.
_________________________________________________________________
JUSTICE HUTCHINSON delivered the opinion of the court:
Defendants, the Department of Revenue (the Department) and
Kenneth E. Zehnder, Director of Revenue (Zehnder), appeal from an
order of the trial court upon administrative review reversing
defendants decision that plaintiff, Richard s Tire Company, is
liable to pay taxes on certain machinery and equipment plaintiff
used in the process of manufacturing retread tires. The trial court
held that defendants final administrative decision was against the
manifest weight of the evidence. Defendants raise two issues on
appeal: (1) whether plaintiff s failure to name the Department as
defendant deprived the trial court of jurisdiction, and (2) whether
the manufacturing and assembling machinery and equipment exemption
in section 3- 5(18) of the Use Tax Act (35 ILCS 105/3 -5(18)(West
1996)) applied to the machinery and equipment used by plaintiff in
producing retread tires. We affirm the order of the trial court.
The administrative hearing record, including Zehnder s
decision, reveals the following salient facts. Plaintiff was
engaged in the business of retreading motor vehicle tires from 1966
until 1992, when substantially all of its assets were sold and the
corporation dissolved. In December 1992 the Department issued a
notice of tax liability to plaintiff. The notice stated that
plaintiff owed $11,449, which represented unpaid use tax due, plus
penalties and interest for the period between July 1989 and December
1991. The Department assessed the use tax on machinery that
plaintiff purchased during this period and used to retread tires.
Plaintiff filed a timely protest of this assessment and contended
that the statutory exemption for manufacturing and assembling
machinery and equipment (see 35 ILCS 105/3 -5(18) (West 1996))
applied to the machinery.
In October 1994 the Department held an administrative hearing
before Administrative Law Judge (ALJ) Alan Osheff. The Department
contended that (1) plaintiff s assets were tangible personal
property purchased at retail from a retailer; (2) no retailer s
occupation tax had been paid to the sellers; and (3) use tax should
be imposed. ALJ Osheff allowed into evidence the notice of tax
liability and certificate of mailing.
The Department s sole witness was David Wheet, an auditor
employed by the Department. Wheet testified that, in reviewing
plaintiff s records, he found that plaintiff had purchased certain
items of machinery and equipment during the audit period for which
no use tax had been paid. Wheet described the process of retreading
tires: a customer would bring in a tire casing, and the machines
that the Department assessed would be utilized in the process of
retreading the casing; when the process was complete, the tire would
be returned to the customer. Wheet determined that no sale or lease
occurred in this process, and on that basis Wheet concluded that the
machinery was taxable. Upon the conclusion of the cross-examination
of Wheet, the Department rested its case.
Testifying on behalf of plaintiff was Richard Weagley,
plaintiff s former president, chief executive officer, secretary-
treasurer, and sole stockholder throughout the relevant period.
Weagley testified that the machinery and equipment at issue included
expandable chuck conversion kits, compressors, a tank, a twin line
conversion kit, a tread kit, a buffer, and a builder. All of these
items were used to produce a retread tire. The finished products
were sold to individual customers or dealers who resold such tires.
Weagley explained the pricing structure of selling retreaded tires.
Sales tax was not charged to customers who possessed an interstate
carrier exemption; sales tax would be charged to end users who were
not interstate carriers.
Weagley also explained the retreading process. Tire casings
are first procured by plaintiff, a customer, or some other third
party; then the casings are inspected. If the tire casing is
unsuitable for retreading, it is rejected. If the tire casing is
suitable for retreading, it will then be cut down, reshaped, and
resurfaced with a buffer. Damaged areas are skived and the
resulting holes are refilled with rubber compound. The refurbished
casing is then cleaned and, if necessary, repaired. Resized and
reconditioned, the casing is next placed on a machine called a
builder, where strips of manufactured cushion gum and tread rubber
are cut to size and applied to the casing along with bonding agents.
Next, a United States Department of Transportation assigned number
is embossed on the tire to identify it as a retread and to show its
place of origin. The tire is next mounted on a rim or ring,
enclosed in an envelope, and pressurized. A number of mounted
pressurized tires are then inserted into a large curing chamber
where, through the application of heat and a pressure differential,
a chemical change takes place resulting in the vulcanization of the
cushion gum and the integration of the tread rubber with the casing.
During Weagley s examination, plaintiff and the Department
stipulated that a total of $24,036 representing certain leasehold
improvements should not have been assessed and, therefore, should
be deleted from plaintiff s tax liability.
Plaintiff also introduced into evidence correspondence from
1985 between Bandag, Inc. (Bandag), and the Department. Plaintiff
was a franchise of Bandag, which engaged in the tire retreading
business. In a May 30, 1985, letter from Bandag to the Department,
Bandag requested a written ruling that the purchase or lease from
it by its franchisees of machinery and equipment for use in its
retreading process was exempt from taxation under the manufacturing
and assembling machinery and equipment exemption. Bandag s letter
informed the Department that its franchisees engage in two types of
transactions: (1) when customers supply their own tire casings, or
(2) when the franchisee supplies the tire casing. A Department
staff attorney initially replied that the exemption would not apply;
however, the same attorney responded nine days later, reversing the
Department s earlier ruling, stating that the previous letter should
be disregarded and that the Department ruled that Bandag s machinery
did qualify for the exemption. In ruling that the exemption
applied, the attorney cited to a private letter ruling issued
January 25, 1985, by the Department, stating that machinery used
in the retreading of tires does qualify for the manufacturing
machinery and equipment exemption.
In his recommendation for disposition, ALJ Osheff determined
that the assets at issue were manufacturing and assembling machinery
and equipment used primarily in the process of manufacturing retread
tires for wholesale or retail sale. He summarized as follows:
[T]he evidence reveals that the process involved was one
of manufacturing and the taxpayer in fact sold a retreaded
tire to his customer. In my opinion a sale occurred in those
instances where the customer had supplied a casing since the
casing was only an ingredient that became incorporated in the
newly transferred product. A substantial ingredient that was
supplied by the taxpayer was the rubber and the product
received by the customer was not the same as received by the
taxpayer.
ALJ Osheff recommended to Zehnder that the assessment be canceled.
In his final administrative decision, Zehnder declined to
follow ALJ Osheff s recommended disposition. Zehnder acknowledged
that the process of producing retread tires is obviously
manufacturing. However, Zehnder defined the issue as whether the
transactions which take place between [plaintiff] and its customers
in situations where the customer supplies the casing, are in
actuality a service or a retail (sometimes wholesale) sale.
Zehnder noted that the exemption applies only if the machinery and
equipment in question are used to manufacture personal property for
wholesale, retail sale, or lease. Zehnder relied upon a Department
regulation codified at 86 Ill. Adm. Code 130.2015 (1996), which
states, inter alia, that the retreading of tires would not be
considered a product sale subject to the retailer s occupation tax.
Instead, Zehnder considered the retreading of tires a service
subject to the service occupation tax.
Zehnder s decision also disagreed with ALJ Osheff s conclusion
that the product the customer ultimately received was different from
the product brought in by the customer. Zehnder stated that the
customer brought in a worn tire, and plaintiff returned a
reconditioned tire to the customer. He further stated that, under
ALJ Osheff s logic, persons who bring their shoes to be resoled
and/or reheeled, buffed and shined, are in fact buying new shoes
from the corner cobbler.
Zehnder affirmed the auditor s notice of tax liability, and the
Department issued the final assessment to plaintiff on December 11,
1995. The final assessment stated that plaintiff owed $14,077.81
in use tax, interest, and penalties. Both parties agree that the
final assessment failed to take into account the Department s
stipulation at the hearing that $24,036 worth of leasehold
improvements had been erroneously assessed.
Plaintiff filed a complaint against Zehnder, in his capacity
as Director of the Department of Revenue, in administrative review
on January 5, 1996, contesting the Department s final assessment.
Zehnder filed his notice of appearance on February 8, 1996. On
April 8, 1996, pursuant to section 3 -108(b) of the Administrative
Review Law (735 ILCS 5/3 -108(b)(West 1996)), plaintiff moved for
an order of default against Zehnder for failure to file an answer,
a motion the trial court later denied. On April 10, 1996, Zehnder
filed a motion to dismiss the complaint, alleging that, pursuant to
section 3--107(a) of the Administrative Review Law (735 ILCS 5/3--
107(a) (West 1996)), the failure of plaintiff to name the Department
as a party and serve it with summons mandated the dismissal of the
complaint.
On April 15, 1996, plaintiff filed a motion for leave to amend
its complaint to add the Department as a party. Zehnder responded
to the motion and requested that the trial court deny plaintiff s
motion and grant his motion to dismiss. On July 1, 1996, the trial
court entered an order dismissing plaintiff s complaint without
prejudice and granting plaintiff leave to amend the complaint to add
the Department as a defendant. Plaintiff filed its amended
complaint on July 3, 1996.
At a hearing conducted on October 4, 1996, plaintiff and
defendants agreed that the $24,036 worth of leasehold improvements
was erroneously assessed. In an order dated October 4, 1996, the
trial court reversed the final administrative decision to the extent
that $24,036 was improperly assessed to plaintiff and took under
advisement the issue of whether the remainder of the assessment was
exempt.
On October 30, 1996, the trial court found that the
recommendation by ALJ Osheff was correct and entered an order
reversing the Department s decision on the ground that it was far
beyond the manifest weight of the evidence. Zehnder and the
Department filed a timely notice of appeal.
Defendants first issue on appeal is whether the failure of
plaintiff to name the Department as a party in its original
complaint for administrative review mandates the dismissal of
plaintiff s complaint. See 735 ILCS 5/3 -107(a)(West 1996);
McGaughy v. Illinois Human Rights Comm n, 165 Ill. 2d 1 (1995);
Lockett v. Chicago Police Board, 133 Ill. 2d 349 (1990). Section
3- 107(a) of the Administrative Review Law provides, in pertinent
part, as follows:
[I]n any action to review any final decision of an
administrative agency, the administrative agency and all
persons, other than the plaintiff, who were parties of record
to the proceedings before the administrative agency shall be
made defendants. 735 ILCS 3- 107(a) (West 1996).
Since McGaughy and Lockett were decided, our legislature has
amended section 3- 107(a) of the Administrative Review Law. Section
3--107 of the Law as amended, provides, inter alia:
[I]n any action to review any final decision of an
administrative agency, the administrative agency and all
persons, other than the plaintiff, who were parties of record
to the proceedings before the administrative agency shall be
made defendants. No action for administrative review shall be
dismissed for lack of jurisdiction based upon the failure to
name an employee, agent, or member, who acted in his or her
official capacity, of an administrative agency, board
committee, or government entity, where the administrative
agency, board, committee, or government entity, has been named
as a defendant as provided in this Section. Naming the
director or agency head, in his or her official capacity,
shall be deemed to include as defendant the administrative
agency, board, committee, or government entity that the named
defendants direct or head. No action for administrative
review shall be dismissed for lack of jurisdiction based upon
the failure to name an administrative agency, board,
committee, or government entity, where the director or agency
head, in his or her official capacity, has been named as a
defendant as provided in this Section. (Emphasis added.)
735 ILCS Ann. 5/3--107(a) (Smith-Hurd Supp. 1997).
Therefore, we must first address whether the amended version of the
statute applies to the pending appeal. Should the amended version
apply, plaintiff s failure to name the Department is not fatal to
its cause of action.
In First of America Trust Co. v. Armstead, 171 Ill. 2d 282
(1996), our supreme court discussed the various analyses reviewing
courts have applied in determining whether a statutory amendment
applied to an existing controversy on appeal. Armstead enunciated
the rule that a reviewing court should simply apply the law as it
exists at the time of the appeal, unless doing so would interfere
with a vested right. Armstead, 171 Ill. 2d at 290; see also
Johnson v. Edgar, 176 Ill. 2d 499, 518-19 (1997); Rhoads v. Board
of Trustees of the City of Calumet City Policemen s Pension Fund,
No. 1 -96- 1920, slip op. at 3 (Ill. App. December 26, 1997). Under
the due process clause of our constitution (Ill. Const. 1970, art.
I, 2), vested rights are interests that are protected from
legislative interference.
Plaintiff cites Martin v. Department of Professional
Regulation, 284 Ill. App. 3d 591 (1996), in which the reviewing
court applied the then newly amended 1994 version of section 3--
107(a) to that case on appeal. Martin held that vested rights were
not impaired by allowing the plaintiff to name a necessary party
pursuant to the amendment. Martin, 284 Ill. App. 3d at 596.
We find persuasive Rhoads v. Board of Trustee of the City of
Calumet City Policemen s Pension Fund, No. 1- 96 -1920 (Ill. App.
December 26, 1997). In Rhoads, the plaintiff was appointed the
chief of police of Calumet City in 1988 and subsequently accepted
into the police officer s pension fund. In 1993 Rhoads was
terminated from his position after applying for a line-of-duty
disability pension. In January 1995 after a hearing, the pension
board granted Rhoads a not-on-duty disability pension. Rhoads
appealed to the circuit court, which reversed the pension board s
decision. The pension board appealed, alleging that Rhoads failure
to name the individual pension board trustees as defendants deprived
the circuit court of jurisdiction. The Appellate Court, First
District, disagreed, stating that the amended version of section 3--
107(a) (735 ILCS 5/3- 107(a)(West Supp. 1997)) no longer requires
the joinder of individual pension board trustees to invoke
jurisdiction under administrative review. After a brief application
of the principles enunciated in Armstead and Martin, the reviewing
court concluded that the 1997 amendment to section 3- 107(a) did not
interfere with a vested right. The Rhoads court concluded that
Rhoads failure to name the individual defendants was not fatal to
his cause of action.
Defendants in the present case contend that their vested right
is the statutory 35-day limitation period during which plaintiff was
allowed to name the Department as a defendant. However, defendants
have no vested right in the continuance of a law. See Envirite
Corp. v. Illinois Environmental Protection Agency, 158 Ill. 2d 210,
215 (1994). The legislature has an immutable right to amend a
statute. Envirite, 158 Ill. 2d at 215. Therefore, the State, by
not specifying prospective application, implicitly gave up any
vested rights. Defendants cite Sepmeyer v. Holman, 162 Ill. 2d 249 (1994), for the proposition that the expiration of a statute of
limitations creates a vested right. Defendant s reliance on
Sepmeyer is misplaced, as plaintiff here is not seeking to revive
a cause of action previously time-barred by the statute of
limitations. No such statute is involved in the present case.
After reviewing the record, we determine that there was no
unconditional exemption in the 35-day limit such that it could be
equated with a property interest. See Martin, 284 Ill. App. 3d at
596.
Accordingly, we review plaintiff s complaint in light of
section 3 -107(a) as amended. Therefore, pursuant to Armstead,
Martin, and Rhoads, plaintiff s failure to name the Department as
a defendant did not divest the trial court of jurisdiction under the
Administrative Review Law and is not fatal to its cause of action.
We next consider our standard of review. Our standard of
review for a final administrative decision is governed by the
Administrative Review Law. 735 ILCS 5/3--101 et seq. (West 1996).
The Administrative Review Law provides that our review encompasses
all questions of law and fact presented by the entire record. 735
ILCS 5/3--110 (West 1996); Bridgestone/Firestone, Inc. v. Aldridge,
179 Ill. 2d 141, 148 (1997). Our role is to review the
administrative decision, not the trial court s determination. Board
of Education of Round Lake Area Schools v. State Board of Education,
292 Ill. App. 3d 101, 109 (1997). The statute further mandates that
an administrative agency's factual findings are "held to be prima
facie true and correct." 735 ILCS 5/3-110 (West 1996); see also
Board of Education of Round Lake Area Schools, 292 Ill. App. 3d at
108.
However, an administrative agency's determinations of law are
not accorded the same deference as its findings of fact. Oregon
Community Unit School District No. 220 v. Property Tax Appeal Board,
285 Ill. App. 3d 170, 175, leave to appeal allowed, 172 Ill. 2d 554
(1996). The interpretation of a statute is a question of law.
Branson v. Department of Revenue, 168 Ill. 2d 247, 254 (1995). An
administrative agency's finding on a question of law or an
interpretation of a statute, including a statute it is charged with
administering, is not binding upon this court. Branson, 168 Ill. 2d at 254. Our review of legal issues is de novo. Du Page County
Board of Review v. Property Tax Appeal Board, 284 Ill. App. 3d 649,
653 (1996). We have reviewed the record, including the transcript
of the hearing and Zehnder s final administrative decision, and note
that the material facts are not in dispute, only the legal
conclusions drawn therefrom. Accordingly, a de novo standard of
review is appropriate.
Defendants second issue on appeal is whether plaintiff s
machinery is exempt from taxation under the manufacturing and
assembling machinery and equipment exemption to the Use Tax Act (35
ILCS 105/3 -5(18)(West 1996)). In determining whether the machinery
is exempt, we must follow the analysis our supreme court enunciated
in Van s Material Co. v. Department of Revenue, 131 Ill. 2d 196
(1989), a case involving the same statutory provision as the present
case. In Van s Material, the court engaged in a two-part analysis:
it analyzed the exemption itself and then determined whether the
exemption applied to the case. See Van s Material, 131 Ill. 2d at
201; see also Zenith Electronics Corp. v. Department of Revenue, No.
1 -96 -0326 (Ill. App. November 26, 1997); Thomas M. Madden & Co.
v. Department of Revenue, 272 Ill. App. 3d 212 (1995).
Illinois use tax is imposed upon the privilege of using in
this State tangible personal property purchased at retail from a
retailer. 35 ILCS 105/3 (West 1996). Plaintiff has maintained
throughout the pendency of the proceedings that its machinery is
exempt from taxation because it falls within the manufacturing
exemption to the Use Tax Act. See 35 ILCS 105/3 -5(18)(West 1996).
Under the provisions of section 3 -5 of the Use Tax Act, certain
tangible personal property may be exempt from taxation. The
exemption statute at issue in the present case, section 3--5(18),
states that the following is exempt from tax imposed by the Use Tax
Act:
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 *** or other similar items of
no commercial value on special order for a particular
purchaser. 35 ILCS 105/3 -5(18)(West 1996).
Defendants argue that this exemption does not pertain to plaintiff s
equipment because plaintiff is engaged in a service occupation,
contending that plaintiff is not manufacturing personal property for
wholesale, retail sale, or lease.
The preeminent goal of a court construing a statute is to give
effect to the legislature's intent. Jahn v. Troy Fire Protection
District, 163 Ill. 2d 275, 282 (1994). Statutory language is the
best indicator of this intent, and where such language reveals the
legislative drafters' intent, we may not resort to other aids for
construction. People v. Brooks, 158 Ill. 2d 260, 264 (1994).
Statutes granting tax exemptions are to be construed strictly in
favor of the taxing body and against exemption, and the burden of
proof rests with the party claiming the exemption. Madden, 272 Ill.
App. 3d at 215-16.
In its examination of the statutory exemption, the court in
Van s Material focused on three words or phrases forming the gist
of the statute: (1) tangible personal property ; (2) process of
the manufacturing or assembling ; and (3) primarily. Van s
Material, 131 Ill. 2d at 203. The Van s Material court determined
that the taxpayer met the burden establishing that its ready-mix
concrete truck, in mixing sand, limestone, water, and cement into
concrete, was a machine primarily used in the manufacture of
tangible personal property and, therefore, entitled to benefit from
the exemption provisions. Van s Material, 131 Ill. 2d at 216-17.
In its construction of the statute, this court in Madden determined
that a slip form paver used to smooth concrete in a roadway was not
used in the manufacturing or assembling of tangible personal
property and thus did not qualify for a manufacturing exemption.
Madden, 272 Ill. App. 3d at 219. Recently the Appellate Court,
First District, considered the same statutory provision as the one
at issue here. See Zenith Electronics Corp. v. Department of
Revenue, No. 1 -96 -0326. The Zenith Electronics court held that
tray sets used by Zenith Electronics Corporation, a manufacturer of
cathode ray tubes, to protect the tubes during transportation to
other plants for manufacture into television sets were statutorily
exempt from use tax. Zenith Electronics, No. 1 -96 -0326, slip op.
at 3.
For our analysis, neither party disputes that plaintiff s
machinery assessed by the Department is tangible personal property
purchased out of state for use in Illinois. Additionally, neither
party disputes, and Zehnder acknowledges in his final administrative
decision, that the process of producing retread tires is obviously
manufacturing. The record is silent as to defendants position
regarding whether plaintiff s machinery is primarily used in the
process of manufacturing. However, our review of the record leads
us to clearly conclude that plaintiff s machinery is primarily used
in the process of manufacturing retread tires.
The dispute between the parties is seemingly based upon the
interpretation of the final portion of the manufacturing exemption,
that is, the portion that reads for wholesale or retail sale or
lease (35 ILCS 105/3-5(18) (West 1996)). Zehnder considered the
retreading of tires as a service. Defendants rely heavily on the
Department s own rules and regulations in support of their argument
that plaintiff s business is a service occupation. See 86 Ill. Adm.
Code 130.2015 (1996) (stating, inter alia, that the retreading of
tires would not be considered a product sale subject to the
retailer s occupation tax). However, our courts have long held
that administrative rules may not limit the scope of a statute.
Van s Material, 131 Ill. 2d at 209, citing Du-Mont Ventilating Co.
v. Department of Revenue, 73 Ill. 2d 243, 247-48 (1978).
Furthermore, [e]ven if the regulations were not determined to be
unduly restrictive, we are not bound by the Department s
interpretations of the statute. Van s Material, 131 Ill. 2d at
209-10.
We decline to look to the Department s administrative rules and
regulations to determine whether plaintiff s business is a service
or a retail occupation. Rather, we are guided by our supreme court,
which, in Velten & Pulver, Inc. v. Department of Revenue, 29 Ill. 2d 524 (1963), first synthesized into a rule the standards for
determining whether a business is a service or a retail occupation:
[I]f the article sold is the substance of the transaction and
the service rendered is merely incidental thereto and an
inseparable part of the transfer to the purchaser of the
article sold, then the vendor is engaged in retail selling.
Velten & Pulver, 29 Ill. 2d at 529-30.
This standard is well established in Illinois jurisprudence. See,
e.g., Colorcraft Corp., Inc. v. Department of Revenue, 112 Ill. 2d 473, 481-82 (1986); Rodman v. Department of Revenue, 51 Ill. 2d 314,
317-18 (1972); Spagat v. Mahin, 50 Ill. 2d 183, 189 (1971); New
Yorker Magazine, Inc. v. Department of Revenue, 187 Ill. App. 3d
931, 937-38 (1989).
Defendants argue that the exemption should not apply because
putting new tread on a tire brought in by a customer constitutes the
provision of a service. They contend that plaintiff s machinery was
used to provide a repair service, rather than to manufacture
tangible personal property for wholesale or retail sale or lease.
They argue that, because plaintiff s customers supplied the tire
casing, the provision of materials by plaintiff, such as new tread
and cushion gum, was merely incidental to this purpose. Plaintiff
counters that the substance of the transaction is the purchase of
a retread tire. The retread tire is composed of a casing, cushion
gum, bonding agents, and tread rubber with a unique tread pattern.
Both parties agree that the service rendered is merely incidental
thereto, and clearly it is an inseparable part of the transfer to
the purchaser of the retread tire. We agree with plaintiff and hold
that plaintiff is engaged in retail selling.
We believe that the source of the tire casing is irrelevant in
our determination that plaintiff s machinery is exempt from taxation
under the Use Tax Act. See 35 ILCS 105/3 -5(18)(West
1996)(providing that the exemption may apply whether the materials
used in the process are owned by the manufacturer or some other
person ). Our analysis is not affected simply because some
customers provide tire casings. Indeed, it cannot be, because then
the alternative would also have to be considered, that is, whether
plaintiff would be entitled to the benefit of the exemption if
plaintiff supplied all of its own tire casings. We decline to adopt
such a limited view in interpreting the statute at issue.
Based on our review of the record, we conclude that defendants
interpretation of the manufacturing and assembling machinery and
equipment exemption was against the manifest weight of the evidence.
We hold that plaintiff met the burden of proving that its machinery
was exempt from taxation under the Use Tax Act (35 ILCS 105/1 et
seq. (West 1996)) as machinery used primarily in the manufacturing
or assembling of tangible personal property.
Our determination that defendants final administrative
decision was against the manifest weight of the evidence obviates
the need to address defendants other arguments on appeal.
For the foregoing reasons, the judgment of the circuit court
of Kane County is affirmed.
Affirmed.
McLAREN and BOWMAN, JJ., concur.
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