IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, LAW DIVISION TAX AND MISCELLANEOUS REMEDIES SECTION SUPERVALU INC. &SUBSIDIARIES, Plaintiff, v. Case No. 12 L 051584 BRIAN A. HAMER, in his official capacity as DIRECTOR OF THE ILLINOIS DEPARTMENT OF REVENUE; and THE ILLINOIS DEPARTMENT OF REVENUE, I. OPINION Defendants. ORDER and OPINION Plaintiff Supervalu Inc. and its related subsidiaries ("Plaintiffs") filed a complaint seeking judicial review of the Illinois Department of Revenue's ("Department") decision regarding Plaintiffs' amended income tax returns and claims for refunds filed pursuant to Section 201(e) of the Illinois Income Tax Act ("IITA"), 35 ILCS 5/201. The issues before the Court are (i) whether the statutory definition of "retailing" in IITA 201(e) includes "wholesale sales" or "sales for resale" and (ii) whether Plaintiff was "primarily engaged in retailing" during the tax years at issue. FACTS The issue before the Court is based solely on the construction of IITA 201(e). Therefore, a full recitation of the undisputed facts is not necessary. Plaintiffs filed amended returns and sought refunds of Illinois replacement income tax paid for fiscal years ending February 26, 2000 through February 22, 2003 ("Tax Years at Issue").
A.R. 322. On October 29, 2009 and December 18, 2009, the Department issued Notices disallowing the replacement tax investment credit ("RTIC") claimed by Plaintiffs on their original 2002 corporate income and replacement tax return and on their amended corporate income and replacement tax returns for its 2000, 2001 and 2003 tax years. A.R. 21-23, 26-27. Plaintiffs protested the Department's Notices and the matters were submitted to the Department's Administrative Law Judge, John E. White ("ALJ"). In an opinion adopted by the Department's Director, the ALJ determined that Plaintiffs were not entitled to the investment credits, relying on the definition of retailing found in the Department's regulations at 86 Ill. Admin. Code 100.21 O l (e)(9), which defines retailing, in relevant part, as "the sale of tangible personal property for use or consumption and not for resale." Plaintiffs then filed their complaint for administrative review. The parties submitted a Joint Stipulation of Facts (A.R. 1-16) and a Joint Stipulation of Documents (A.R. 17-89) to the ALJ. The parties agreed that if the term "retailing," as defined in 201(e), does not exclude "wholesale sales" or "sales for resale," then Plaintiffs are primarily engaged in retailing and are entitled to replacement tax investment credits claimed on returns they filed for the Tax Years at Issue. STANDARD OF REVIEW The standard of review of an administrative agency's decision depends on whether the issue presented is a question of fact, a question of law, or a mixed question of law and fact. Exelon Corp. v. Dept of Revenue, 234 Ill. 2d 266, 272, 917 N.E.2d 899, 904 (2009). When reviewing an administrative agency's decision, a question of fact is overturned only where the administrative decision is against the manifest weight of the evidence. Decatur Sports Found. v. Dept of Revenue, 156 Ili. App. 3d 623, 627, 509 N.E.2d 1103, 1105 (4th Dist. 1987). An 2
administrative agency's findings and conclusions on questions of fact are prima facie true and correct and will not be disturbed unless they are against the manifest weight of the evidence. Cent. Furniture Mart, Inc. v. Johnson, 157 Ill. App. 3d 907, 910, 510 N.E.2d 937, 939 (1st Dist. 1987). A pure question of law exists where the issue is the proper interpretation of the meaning of the language of a statute. Cinkus v. Vill. of Stickney Municipal Officers ElectoNal Bd., 228 Ill. 2d 200, 210, 886 N.E.2d 1Q11, 1018 (2008). An agency's rulings on questions of law are reviewed de novo. Exelon Copp., 234 Ill. 2d at 272. DISCUSSION The issue before this Court is whether the statutory definition of "retailing" in IITA 201(e) includes "wholesale sales" or "sales for resale." The parties have agreed that if the term "retailing," as defined in 201(e), does not exclude "wholesale sales" or "sales for resale" then Plaintiffs are primarily engaged in retailing and are entitled to replacement tax investment credits claimed on the returns they filed for the Tax Years at Issue. Because the proper interpretation of a statute is a question of law, the Court applies the de novo standard of review. Id. STATUTORY INTERPRETATION "The primary rule of statutory construction is to give effect to legislative intent by first looking at the plain meaning of the language." Davis v. Toshiba Mach. Co., 186 Ill. 2d 181, 184, 710 N.E.2d 399, 401 (1999). Where statutory language is clear and unambiguous, a court must give it effect as it is written "without reading into it exceptions, limitations or conditions that the legislature did not express." Id. at 184-85, (citation and internal quotations omitted). Courts refuse to read meanings into statutory language that were not specifically included. See Van's Material Co. v. Dept of Revenue, 131 Iil. 2d 196, 545 N.E.2d 695 (1989). 3
T~ laws are to be strictly construed in favor of the taxing body and against exemptions. Geary v. Dominick's Finer Foods, Inc., 129 Ill. 2d 389, 414, 544 N.E.2d 344, 356 (1989). A taxpayer wishing to take advantage of deductions, credits or other tay benefits allowed by statute bears the burden of proof. Balla v. Dept of Revenue, 96 Ill. App. 3d 293, 296, 421 N.E.2d 236, 238 (lst Dist. 1981). Where the language of a statute is clear and unambiguous, a court must apply it as written, without resort to extrinsic aids of statutory construction. CBS Outdoor, Inc. v. Dept of Transp., 2012 IL App (1st) 111387, ~ 29, 910 N.E.2d 509, 514 (lst Dist. 2012). It is a generally recognized principal that courts give "substantial weight and deference to an interpretation of an ambiguous statute by the agency charged with the administration and enforcement of the statute" as these interpretations express an informed source for ascertaining legislative intent. Illinois Consol. Tel. Co. v. Illinois Commerce Comm'n, 95 Ill. 2d 142, 152-53, 447 N.E.2d 295, 300 (1983)(citations omitted). Administrative regulations have the force of law and are construed under the same standards governing statutory construction. CBS Outdoor, Inc., 2012 IL App (lst) 111387 at 27. The court's objective in interpreting an agency regulation is to ascertain and give effect to the intent of the agency. Id. The most reliable indicator of an agency's intent is the language of the statute itself and, where the language is clear and unambiguous, a court must apply it as written, without resort to extrinsic aids of statutory construction. Id. When an act defines the terms to be used in it, those terms must be construed according to the definitions given them in the act. Laborer's Int'Z Union of North America, Local X280 v. Illinois State Labor Relations Bd., 154 Ill. App. 3d 1045, 1059, 507 N.E.2d 1200, 1209 (5th Dist. 1987). Courts may use a dictionary to ascertain the meaning of an otherwise undefined word or phrase. Landis v. Marc Realty, PLC, 235 Ill. 2d 1, 8, 919 N.E.2d 300, 304 (2008). However,
specific definitions of terms within a statute, when reasonable, will be sustained for purposes of the act, to the exclusion of hypothetical indulgences. County of Lake v. Zenko, 174 Ill. App. 3d 54, 60, 528 N.E.2d 414, 417-1$ (2d Dist. 1988). When interpreting a statute, an administrative agency cannot expand statutory language by implication beyond its clear import. See Van's Material Co., 131 Ill. 2d 196 (court refused to find that "manufacturing facility" was limited to manufacturing that occurred in a fixed location); Canteen Copp. v. Dept of Revenue, 123 Ill. 2d 95, 525 N.E.2d 73 (1988) (court adopted the definition of "premises" which was expressed in the Department's regulation and refused to extend or restrict it as the parties asked); Nokomis Quarry Co. v. Dept of Revenue, 295 Ill. App. 3d 264, 692 N.E.2d 855 (5th Dist. 1998) (The court refused to use dictionary definitions where the statute used the term "commonly regarded as manufacturing."). In each of those cases a term was defined by statute. In each of those cases the Department attempted to add to, or subtract from, the statute's language. The Illinois Supreme Court found each of the attempts to add or subtract language from the statute to be unduly restrictive and not within the scope of the statute. Similarly, a regulation cannot create requirements, exceptions, limitations or conditions that conflict with the express legislative intent as reflected in the statutory language. Illinois Graphics Co. v. Nickum, 159 Ill. 2d 469, 479, 639 N.E.2d 1282, 1287 (1994). Therefore, an administrative agency that promulgates regulations cannot extend its authority or impose a limitation on a statute that the legislature did not prescribe. Wesko Plating, Inc. v. Dept of Revenue, 222 Ill. App. 3d 422, 425-26, 584 N.E.2d 162, 164 (1st Dist. 1991). IITA & 201(e~ 5
For the Tax Years at Issue, IITA 201(e) stated, in relevant part: (e) Investment credit. A taxpayer shall be allowed a credit against the Personal Property Tax Replacement Income Tax for investment in qualified property. (1) A taxpayer shall be allowed a credit equal to 0.5% of the basis of qualified property placed in service on or after July 1, 1984... (2) The term "qualified property" means property which: (A) is tangible, whether new or used,... (B) is depreciable pursuant to 167 of the Internal Revenue Code... (C) is acquired by purchase as defined in 1 ~9(d) of the Internal Revenue Code... (D) is used in Illinois by a taxpayer who is primarily engaged in... retailing; and (E} has not previously been used in Illinois in such a manner and by such a person as would qualify for the credit provided by this subsection (e) or (~. (3)... For purposes of this subsection (e), the term "retailing" means the sale of tangible personal property or services rendered in conjunction with the sale of tangible consumer goods or commodities. 35 ILCS 5/201(e) (effective until~july 30, 2009). Therefore, for a taxpayer to be allowed a credit against the Personal Property Tax Replacement Income Tax, the taxpayer must invest in property which:. is tangible; depreciable pursuant to 167 of the Internal Revenue Code; acquired by purchase; used in Illinois by a taxpayer who is primarily engaged in the sale of tangible personal property or services rendered in conjunction with the sale of tangible consumer goods or commodities; and has not previously used in Illinois in such a manner. IITA 201(e)(3}, as it existed during the Tax Years at Issue, clearly and unambiguously defines "retailing" for purposes of 201(e). Therefore, the Court need not resort to extrinsic aids ' The amendment of the statute to include the word "primarily" is the State's basis for a wholesale change in the definition of resale. For the reasons that follow, the State's argument is rejected.
of statutory construction such as dictionary definitions and legislative history. Pursuant to Section 201(e), "retailing" is "the sale of tangible personal property or services rendered in conjunction with the sale of tangible consumer goods or commodities." It is clear that any sale of tangible personal property, whether through wholesale sales or retail sales, constitutes "retailing" for purposes of 201(e). The Department argues that the statute does not specifically or concisely define the term "retailing" and, therefore, the Court should resort to the plain and ordinary meaning of "retailing." This argument is disingenuous. According to the Department, that the statute makes no distinction between "retailing" and "wholesaling" does not mean that the legislature intended to include wholesaling in the definition of "retailing." This argument ignores the precepts of statutory construction. The language of the statute is the surest and most reliable indicator of legislative intent. People v. Pullen, 192 Ill. 2d 36, 42, 733 N.E.2d 1235, 1238 (2000). "The statutory language must be given its plain and ordinary meaning, and where the language is clear and unambiguous, it must be applied without resort to other aids of construction." People v.?'aylor, 353 Ill. App. 3d 462, 472, 818 N.E.2d 728, 735 (lst Dist. 2004). Section 201(e) is clear and unambiguous and must be given its plain and ordinary meaning without resort to other aids of statutory construction. That the definition does not distinguish between "retailing" and "wholesaling" as they are commonly known does not create ambiguity as the Department argues. Had the legislature intended otherwise, it would have made the distinction in the statute, which it did with the 2009 Amendment. The Department argues that the word "wholesaling" does not appear anywhere in 201(e) and to include it would require the court to expand the statutory language to include taxpayers that are not primarily engaged in "retailing" within the plain and ordinary meaning of the statute. 7
The Court is not expanding anything by giving 201(e) its plain and ordinary meaning. It is the Department that attempts to narrow the application of 201(e). The Court will not read exceptions, limitations or conditions into 201(e) that the legislature did not express. See Davis, 186 Ill. 2d at 184-85. IITR ~ 100.2101 The Department promulgated IITR 100.21 O 1 to interpret 201(e). IITR 100.21 O1 states, in relevant part: (e) Qualified property. In order to qualify for the investment credit, property must be tangible;... In addition to the above requirements, property must be used in Illinois by the taxpayer who is engaged primarily in... retailing... (9) Retailing. Retailing is defined as the sale of tangible personal property or services rendered in conjunction with the sale of tangible consumer goods or commodities... It is required that such tangible property be finished consumer goods, and the property be sold to its ultimate consumer. For example, sales of tangible personal property for resale are not included in the definition of retailing... Ill. Admin. Code 100.2101(e)(9) (effective Dec. 20, 2001 through Aug. 24, 2011). The Department argues that IITR 100.21 Q 1 is a valid interpretation of 201(e). For the Tax Years at Issue, the Court disagrees. While 100.2101 may be a valid interpretation of 201(e) as it exists today, it is not a valid interpretation of 201(e) as it existed during the T~ Years at Issue. The law is clear that an administrative agency's interpretation of a statute "cannot create requirements, exceptions, limitations or conditions that conflict with the express legislative intent as reflected in the statutory language." Illinois Graphics, 159 Ill. 2d at 479. Under 201(e), as it existed during the Tax Years at Issue, "wholesale sales" fell within the definition of "retailing" as they constitute the sale of tangible goods. IITR 100.2101 imposes a limitation on the definition of "retailing" that conflicts with the express language of 201(e). This 8
imposition of exceptions and limitations conflicts with the clear and unambiguous language of 201(e). While the Court reviews the ALJ's decision under the de novo standard, the Court notes that the ALJ went to great lengths discussing the effect of the 1994 Amendment to 35 ILCS 5/201(e)(2)(D). The 1994 Amendment changed the definition of "qualified property" to "property which:... is used in Illinois by a taxpayer who is primarily engaged in manufacturing, or in mining coal or fluorite, or in retailing" by adding the language "primarily engaged." 35 ILCS 5/201(e)(2)(D). A taxpayer is said to be "primarily engaged in retailing" if it derives more than 50% of its gross receipts from "retailing" in the ordinary course of business. See 86 Ill. Admin. Code 100.2101(f}. The ALJ states that the 1994 Amendment did not provide a specific method for determining whether a taxpayer was "primarily engaged" in one of the three qualifying occupations and is therefore ambiguous. The Court agrees that "primarily" could be construed as ambiguous and therefore in need of an administrative regulation to assist in the interpretation of that word. However, the addition of the words "primarily engaged in" does not render the defined term "retailing" ambiguous. The addition of the words "primarily engaged in" limits is entitled to the replacement tax investment credits. It requires that a taxpayer derive more than 50% of its gross receipts from "retailing," as it was unambiguously defined in 201(e) during the Tax Years at Issue. The 1994 Amendment does not affect the meaning of "retailing." Additionally, this issue is obviated as the parties have agreed that if the term "retailing," as defined in 201(e), does not exclude "wholesale sales" or "sales for resale," Plaintiff is primarily engaged in retailing and is entitled to replacement tax investment credits claimed on returns it filed for the Tax Years at Issue. D
The Department argues that the 2009 Amendment to IITA 201(e) clarifies the statutory definition of "retailing." The Court disagrees. The 2009 Amendment serves to change the language of 201(e) so much so that a whole class of merchant, wholesalers, is excluded which was not excluded under the statute's plain and ordinary meaning prior to the Amendment. See Rock RiveN Times v. Rockford Pub. Sch. Dist. 205, 2012 IL App (2d) 110879, ~j 38, 977 N.E.2d 1216, 1226 (2d Dist. 2012) ("[T]he normal presumption is that an amendment is intended to change the law as it formerly existed, rather than to reaffirm it.") (internal citation omitted). The legislature amended the statute to specifically exclude wholesalers from the statute. It cannot be said that this was a mere clarification when wholesalers fell within the definition of "retailing" prior to the Amendment. The Court holds that, during the Tax Years at Issue, "wholesale sales" or "sales for resale" were not excluded from the definition of retailing found in 35 ILCS 51201(e). The parties have agreed that if the term "retailing," as defined in 201(e), does not exclude "wholesale sales" or "sales for resale," Plaintiff is primarily engaged in retailing and is entitled to replacement tax investment credits claimed on returns it filed for the Tax Years at Issue. Therefore, the Court concludes that, during the Tax Years at Issue, Plaintiff was primarily engaged in retailing and is entitled to replacement tax investment credits. 10
II. ORDER This matter having been fully briefed, and the Court being fully apprised of the facts, law and premises contained herein, it is ordered as follows: A. Plaintiffs Supervalu Inc. and its related subsidiaries fall within the definition of "retailing," pursuant to 35 ILCS 5/201(e), for the Tax Years at Issue and were therefore primarily engaged in retailing and entitled to replacement tax investment credits; and B. The ruling of the Illinois Department of Revenue is reversed. Judge Pai~ck J. Sherlock CT 1 201, ENTERED: ~` Judge Patrick er ock 11