First National Leasing & Financial Corp. v. Zagel

Mr. JUSTICE CRAVEN delivered the opinion of the court: In an administrative review action, the circuit court of Macoupin County reduced the Illinois Department of Revenue’s (Department) assessment of use tax liability against the taxpayer, First National Leasing and Financial Corporation. The court allowed the taxpayer to take a rolling stock exemption for the period of July 1,1973, through August 11, 1974. The Department has appealed the grant of that exemption. The taxpayer purchased tractors and trailers which it leased for periods in excess of one year to Hulcher Emergency Services, Inc. Hulcher used this equipment to remove or rerail railroad cars after derailments and train accidents and to haul goods taken from incapacitated rail cars to their destinations or to alternate transportation. The Department’s audit for the period of July 1,1973, through May 1976 resulted in a notice of use tax liability being issued against the taxpayer. The taxpayer’s claim to the rolling stock exemption under section 3 of the Use Tax Act (Ill. Rev. Stat. 1977, ch. 120, par. 439.3(b)) was denied because the taxpayer had no records showing that each vehicle had been used as an interstate carrier for hire. At an administrative hearing held by the Department in 1977, employees of Hulcher Emergency Services, Inc., testified that their crews usually transfer goods from derelict to usable railroad cars. Sometimes the goods are hauled to their destination, which, infrequently, is across State lines. The goods hauled are almost always in interstate commerce. Again, the taxpayer could provide no documentation of specific instances when its equipment was used to haul goods for hire. The taxpayer claimed the rolling stock exemption only for the period wherein it possessed a certificate of temporary authority from the Interstate Commerce Commission to haul goods in interstate commerce. The hearing officer upheld the Department and denied the rolling stock exemption. He found that the taxpayer did not present any evidence showing that the tractors and trailers were used to haul goods for hire. The trial court reversed the decision of the hearing officer for the period of July 1, 1973, through August 11, 1974 (the period when the taxpayer possessed the certificate of temporary authority). The court indicated that oral testimony was sufficient competent evidence and that the taxpayer was not required to keep written records in order to qualify for the rolling stock exemption. The issue on appeal is whether the trial court’s decision was against the manifest weight of the evidence. We conclude that the trial court’s decision was erroneous since the taxpayer did not present sufficient evidence to rebut the Department’s prima facie case of tax liability. The taxpayer presented as evidence its certificate of temporary authority for interstate carrying and the oral testimony of Hulcher’s workers. We do not find the general accounts of these witnesses, who said that goods were infrequently carried across the State lines by the taxpayer’s vehicles, to be a sufficient indication of interstate commerce. We are left with the certificate of temporary authority. The hearing officer determined the taxpayer to be engaged in interstate commerce during the time it held the certificate. However, the nature of the taxpayer’s business remained unchanged after the certificate expired. Thus, the certificate of temporary authority, by itself, is insufficient evidence of interstate activity. The taxpayer relies on Burlington Northern, Inc. v. Department of Revenue (1975), 32 Ill. App. 3d 166, 336 N.E.2d 170, as authority. In Burlington, the first district found that intrastate activities of railroad equipment were so intertwined with interstate travel or goods and people involved in interstate transportation that the equipment assumed an interstate character. The United States Supreme Court in Department of Revenue of Washington v. Association of Washington Stevedoring Companies (1978), 435 U.S. 734, 55 L. Ed. 2d 682, 98 S. Ct. 1388, has provided an alternative to Burlington by holding that a State can properly tax a wholly intrastate activity even though that activity is part of interstate commerce. This decision allows a State to narrow the scope of the use tax rolling stock exemption. Thus, the taxpayer’s vehicles are properly subject to the use tax even though they are used in connection with goods moving in interstate commerce. The Department argues that the taxpayer failed to comply with the record-keeping requirements of section 7 of the Retailers Occupation Tax Act (Ill. Rev. Stat. 1977, ch. 120, par. 446). This section is expressly incorporated by reference in section 12 of the Use Tax Act (Ill. Rev. Stat. 1977, ch. 120, par. 439.12), which adopts certain provisions of the Retailers Occupation Tax Act insofar as they are consistent with the Use Tax Act. We find that the document requirements of the Retailers Occupation Tax Act do not apply because they conflict with section 11 of the Use Tax Act (Ill. Rev. Stat. 1977, ch. 120, par. 439.11), which, in pertinent part, directs every person in Illinois using property purchased at retail to keep «o o e such records, receipts, invoices, and other pertinent books, documents, memoranda and papers as the Department shall require, in such form as the Department shall require.” We interpret section 11 of the Use Tax Act as requiring the Department to promulgate document requirements specifically for the Use Tax Act. If the requirements of the Retailers Occupation Tax Act are to apply here, the Department must specifically state this in a regulation or rule. We find the Department of Revenue’s assessment of use tax liability was improperly modified by the trial court. Accordingly, we reverse the decision of the trial court which granted the rolling stock exemption. Reversed. MILLS, P. J., concurs.