                                    2018 IL App (1st) 172802

                                                                              FIRST DIVISION
                                                                              September 24. 2018

                                          No. 1-17-2802


                                        IN THE

                              APPELLATE COURT OF ILLINOIS

                                    FIRST DISTRICT



 HORSEHEAD CORPORATION,                                        )
                                                               )
           Petitioner,                                         )   Petition for Administrative
                                                               )   Review of the Illinois
 v.                                                            )   Independent Tax Tribunal
                                                               )
 THE DEPARTMENT OF REVENUE and THE                             )   No. 14-TT-227
 ILLINOIS INDEPENDENT TAX TRIBUNAL,                            )
                                                               )
           Respondents.                                        )


       JUSTICE PIERCE delivered the judgment of the court, with opinion.
       Presiding Justice Mikva and Justice Walker concurred in the judgment and opinion.

                                            OPINION

¶1     Respondent Illinois Department of Revenue (IDOR) issued petitioner Horsehead

Corporation 1 two notices of tax liability for Horsehead’s failure to pay use taxes on its purchases

of metallurgical coke between January 2007 and June 2011. Horsehead filed a petition for review

with the Illinois Independent Tax Tribunal (tax tribunal), which affirmed the notices of tax

liability as well as the imposition of the use tax, interest, late filing penalties, and late payment

penalties totaling approximately $1,521,041. Horsehead timely filed a petition for review in this

court. For the following reasons, we affirm the tax tribunal’s final decision.

       1
        Horsehead Corporation is now known as American Zinc Recycling Corporation. We will,
however, refer to petitioner as “Horsehead.”
No. 1-17-2802


¶2                                        BACKGROUND

¶3     Illinois imposes a use tax “upon the privilege of using in this State tangible personal

property purchased at retail from a retailer.” 35 ILCS 105/3 (West 2016). Relevant to the issues

in this appeal, section 3-5(18) of the Use Tax Act contains an exemption from the use tax for the

following manufacturing and assembling machinery and equipment:

                “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, tools, dies, jigs, patterns, gauges, or other

                similar items of no commercial value on special order for a particular purchaser.”

                Id. § 3-5(18).

¶4     Section 3-50 of the Use Tax Act contains a definition of “equipment” that includes

certain “chemicals and chemicals acting as catalysts”:

                       “§ 3-50. Manufacturing and assembly exemption. The manufacturing and

                assembling machinery and equipment exemption includes machinery and

                equipment that replaces machinery and equipment in an existing manufacturing

                facility as well as machinery and equipment that are for use in an expanded or

                new manufacturing facility. *** For the purposes of this exemption, terms have

                the following meanings:

                                               ***



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No. 1-17-2802


                               (4) ‘Equipment’ includes an independent device or tool separate

                       from machinery but essential to an integrated manufacturing or assembly

                       process ***. *** Equipment includes chemicals or chemicals acting as

                       catalysts but only if the chemicals or chemicals acting as catalysts effect a

                       direct and immediate change upon a product being manufactured or

                       assembled for wholesale or retail sale or lease.” (Emphasis added.) Id.

                       § 3-50(4).

¶5     Horsehead recycles electric arc furnace dust (EAF Dust) generated by steel producers.

EAF Dust contains zinc oxide, iron oxide, and other impurities that may include chlorides, lead,

and cadmium. Horsehead reclaims zinc and metallic oxides from EAF Dust through a recycling

process that strips impurities from the zinc oxide to extract pure zinc, which is collected in

powder form and sold directly to third parties. The remaining EAF Dust is heated to a higher

temperature to separate impurities from the iron oxide to produce iron-rich material, which is

sold to third parties for their own manufacturing processes.

¶6     Horsehead operates a recycling facility in Calumet City, Illinois. It employs a “Waelzing

process,” using a rotary Waelz kiln—a long, rotating, cylindrical oven situated at a slight

angle—to “reduce” and recover the zinc as crude zinc oxide from EAF Dust. Horsehead

purchases metallurgical coke—a solid material consisting almost entirely of carbon—for use in

the Waelzing process. Horsehead combines EAF Dust with metallurgical coke “breeze” (i.e.,

metallurgical coke in fine dust form) and water to create pellets. The pellets are then fed into one

end of the kiln, and oxygen from the outside air is drawn into the kiln from the opposite side.

The air inside the kiln is heated by external gas burners to between 600 and 700 degrees

centigrade to dry the pellets. At this temperature, a chemical reaction starts to occur.



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No. 1-17-2802


¶7     When the pellets reach the desired temperature, the metallurgical coke reacts with the

carbon dioxide, creating carbon monoxide. 2 As the carbon monoxide seeps into the heated

pellets on the kiln bed, the carbon monoxide acts as a reducing agent to strip away oxygen from

the zinc oxide and iron oxide in the EAF Dust, resulting in metallic zinc vapor and metallic iron.

The process results in additional carbon dioxide, which then reacts with the heated pellets to

produce additional carbon monoxide, which then seeps into the heated pellets on the kiln bed,

stripping away more oxygen from the zinc oxide and iron oxide in the EAF Dust, resulting in a

continuous, self-sustaining cycle of reactions. The metallic zinc vapor rises from the kiln bed and

reacts with oxygen inside the kiln, producing fine particles of crude zinc oxide. The metallic iron

also reacts with the oxygen inside the kiln, producing iron oxide rich material. These reoxidation

processes generate heat within the kiln, making the Waelzing process self-sustaining.

¶8     After the Waelzing process is completed, Horsehead either sells the crude zinc oxide

directly to third parties (as “Waelz oxide”) or sends it to another Horsehead facility for further

refining, where it is then sold to third parties. The iron oxide rich material is also sold to third

parties. Virtually all of the metallurgical coke is consumed during the Waelzing process.

¶9     On October 3, 2014, IDOR issued Horsehead two “Notices of Tax Liability” for the

period of January 1, 2007, through June 30, 2011. 3 IDOR’s notices informed Horsehead that it

was liable for approximately $1,521,041 in use taxes, interest, late payment penalties, and late

filing penalties under the Use Tax Act (35 ILCS 105/1 et seq. (West 2012)) for Horsehead’s out­

of-state purchases of metallurgical coke used in the Waelzing processes, for which it had not

paid any use tax. Horsehead filed a petition for hearing with the tax tribunal, contending that the


       2
          Expressed as a chemical formula, C+CO2=2CO. In other words, the reaction between carbon and
the carbon dioxide in an oxygen-poor environment such as the kiln produces carbon monoxide.
        3
          The first notice covered the period of January 1, 2007, through June 30, 2009, and the second
notice covered the period of July 1, 2009, through June 30, 2011.
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No. 1-17-2802


purchases of metallurgical coke were exempt from the use tax under section 3-50(4) of the Use

Tax Act because the metallurgical coke, as part of the Waelzing processes, met the definition of

a chemical or a chemical acting as a catalyst to effect a direct and immediate change upon the

zinc and iron in the EAF Dust. IDOR answered the petition, and the parties engaged in

discovery. The tax tribunal conducted a hearing, where it heard testimony from numerous

witnesses, and considered posthearing briefs from the parties.

¶ 10   The tax tribunal considered the plain meaning of the terms “direct” and “immediate,” as

used in section 3-50(4) of the Use Tax Act, and found those terms to be clear and unambiguous.

The tax tribunal also considered IDOR’s administrative regulations in section 130.330(c)(6) of

Title 86 of the Illinois Administrative Code (Title 86) (86 Ill. Adm. Code 130.330(c)(6) (2016)),

which provides two examples of reactions that are direct and immediate. The tax tribunal’s

written decision concluded that the carbon monoxide acts as the reducing agent and causes a

direct and immediate change on the zinc oxide and iron oxide, the product being sold by

Horsehead. The tax tribunal concluded that in the Waelzing process, metallurgical coke does not

directly and immediately cause a change to the zinc and iron in the EAF Dust because “[s]imply

placing [metallurgical] coke next to zinc oxide or zinc does not create any chemical reaction

whatsoever, a point conceded by Horsehead’s own witnesses.” The tax tribunal found that

Horsehead was attempting to condense all of the separate chemical reactions in the Waelzing

process into a continuous and single chemical reaction and that Horsehead’s position “renders

the language ‘direct and immediate’ void.” The tax tribunal observed that it was the carbon

monoxide—not the carbon in the metallurgical coke alone—that reacts with the zinc oxide and

iron oxide. The tax tribunal further observed that none of Horsehead’s witnesses were asked to

define the term “catalyst” or testified that the metallurgical coke acted as a catalyst. Therefore,



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No. 1-17-2802


the tax tribunal concluded that Horsehead’s out-of-state purchases of metallurgical coke did not

qualify for the exemption set forth in section 3-50(4) of the Use Tax Act and that Horsehead was

liable for the tax.

¶ 11    Before the tax tribunal, Horsehead argued that, if it were liable for the use tax, it should

not have to pay the late filing and late payment penalties. Horsehead did not challenge the

amount of the penalties, but instead argued that the penalties should be abated under section

700.400 of Title 86 (86 Ill. Adm. Code 700.400(b), (c) (2001)). It contended that section 3-50(4)

of the Use Tax Act lacks a specific definition of the term “direct and immediate change” and that

it had a history of complying with its other state tax obligations. The tax tribunal agreed that

Horsehead had shown compliance with its other tax obligations but observed that Horsehead

failed to present any evidence of good faith with respect to the position it took toward the

chemical exemption. Thus, there was no evidence as to “what or who [Horsehead] relied upon in

choosing to claim its [metallurgical] coke purchases as catalysts when it chose not to pay the use

tax in question, other than [Horsehead’s] claim that the term ‘direct and immediate’ is undefined,

leaving the chemical exemption statute unclear.” The tax tribunal upheld IDOR’s imposition of

late filing penalties and late payment penalties under section 12 of Use Tax Act (35 ILCS 105/12

(West 2016)), which incorporates portions of the Uniform Penalty and Interest Act (35 ILCS

735/3-1 et seq. (West 2016)).

¶ 12    Horsehead timely filed a petition for review in this court from the tax tribunal’s final

decision. 35 ILCS 1010/1-75 (West 2016); 735 ILCS 5/3-113 (West 2016); Ill. S. Ct. R. 335 (eff.

July 1, 2017).




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No. 1-17-2802


¶ 13                                       ANALYSIS

¶ 14   On appeal, Horsehead raises the same two principal arguments that it advanced before the

tax tribunal. First, it argues that its purchases of metallurgical coke were exempt under section 3­

50(4) of the Use Tax Act because the metallurgical coke effects a direct and immediate change

on the zinc oxide and iron oxide sold by Horsehead and that the tax tribunal’s decision elevates

form over substance. Second, Horsehead argues that, even if it is liable for the use tax, it had

reasonable cause to take the position that these purchases were exempt and the tax tribunal’s

decision to uphold the late payment and late filing penalties was against the manifest weight of

the evidence.

¶ 15   The parties disagree on the appropriate standard of review for Horsehead’s challenge to

the tax tribunal’s order finding that the chemical exemption does not apply. Horsehead contends

that there are no factual challenges at issue and therefore the tax tribunal’s determination of

whether the exemption applies is a question of law reviewed de novo. See Zenith Electronics

Corp. v. Department of Revenue, 293 Ill. App. 3d 651, 654 (1997) (“Where no factual dispute

exists, and the question raised on review is purely legal, such as statutory construction, our

review is de novo.”). IDOR argues that the clearly erroneous standard applies because the

historical facts are not in dispute, and the question is whether those facts meet a statutory

definition. See Goodman v. Ward, 241 Ill. 2d 398, 406 (2011). We agree with IDOR that the

clearly erroneous standard applies, as this case involves a mixed question of law and fact. See

AFM Messenger Service, Inc. v. Department of Employment Security, 198 Ill. 2d 380, 391 (2001)

(stating that a mixed question of law and fact is one involving an examination of the legal effect

of a given set of facts). An administrative agency’s decision “will be deemed ‘clearly erroneous’

only where the reviewing court, on the entire record, is ‘left with the definite and firm conviction



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No. 1-17-2802


that a mistake has been committed.’ ” Id. at 395 (quoting United States v. United States Gypsum

Co., 333 U.S. 364, 395 (1948)).

¶ 16   Horsehead insists, however, that the tax tribunal’s decision should be afforded no

deference at all because it “is not charged with either enforcing the Use Tax Act or promulgating

the regulations thereunder, but rather is an independent State agency charged with resolving

disputes between taxpayers and [IDOR].” Horsehead relies on Salt Creek Rural Park District v.

Department of Revenue, 334 Ill. App. 3d 67, 70-71 (2002), for the proposition that the de novo

standard applies where an administrative agency’s decision does not implicate that agency’s

unique expertise. We disagree with Horsehead’s conclusion. In enacting the Illinois Independent

Tax Tribunal Act of 2012, the legislature declared the purpose of the tax tribunal:

                “To increase public confidence in the fairness of the State tax system, the State

                shall provide an independent administrative tribunal with tax expertise to resolve

                tax disputes between the Department of Revenue and taxpayers prior to requiring

                the taxpayer to pay the amounts in issue. By establishing an independent tax

                tribunal, this Act provides taxpayers with a means of resolving controversies that

                ensures both the appearance and the reality of due process and fundamental

                fairness.” (Emphasis added.) 35 ILCS 1010/1-5(a) (West 2016).

The statutory language reflects an express legislative mandate that the tax tribunal possess and

employ tax expertise in resolving tax disputes. Horsehead offers no argument that the tax

tribunal in this case did not possess the requisite tax expertise to interpret the Use Tax Act or that

it failed to meaningfully employ that expertise when determining whether Horsehead’s out-of­

state metallurgical coke purchases qualify for an exemption under Use Tax Act. That stated, our

supreme court “has frequently acknowledged the wisdom of judicial deference to an agency’s



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No. 1-17-2802


experience and expertise.” AFM Messenger, 198 Ill. 2d at 394-95 (collecting cases). We

therefore reject Horsehead’s contention that the tax tribunal lacks expertise in interpreting the

Use Tax Act such that we must apply a de novo standard of review. This does not mean,

however, that we must blindly defer to the tax tribunal’s decision. Id. at 395.

¶ 17   We now turn to Horsehead’s arguments and the tax tribunal’s decision. Horsehead’s first

argument on appeal is that its purchases of metallurgical coke were exempt under section 3-50(4)

of the Use Tax Act because, in its recycling process, metallurgical coke effects a direct and

immediate change on the zinc oxide and iron oxide. Horsehead attempts to frame the issue on

appeal as “whether the [metallurgical] coke is somehow ineligible for the chemical exemption

because in order to effect [a] direct and immediate change[ ], the [metallurgical] coke must first

be heated to its reactive temperature.” We observe, however, that the tax tribunal did not find the

process of heating metallurgical coke to be a determinative factor in assessing whether the

chemical exemption applied but, instead, considered whether it was the metallurgical coke or the

carbon monoxide that effected a direct and immediate change on the zinc oxide and iron oxide.

¶ 18   Horsehead contends that the phrase “direct and immediate” as used in section 3-50(4) of

the Use Tax Act must be afforded its “plain, everyday meaning” but that the tax tribunal gave the

term an “overly literal interpretation [that] precludes both activating forces (such as heat) and the

concurrent involvement of other chemicals or agents (such as oxygen).” In other words,

Horsehead argues that the plain and ordinary meaning of express statutory terms should be given

“common-sense” meanings rather than overly literal meanings to avoid excluding too many

chemicals from the exemption. Horsehead does not, however, advance any argument on appeal

as to what, in the context of the Use Tax Act, the phrase “direct and immediate” means.




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No. 1-17-2802


¶ 19   It is a fundamental rule of statutory interpretation to determine and give effect to the

intent of the legislature, and the best indicator of that intent is the statutory language, which is to

be given its plain and ordinary meaning. Shared Imaging, LLC v. Hamer, 2017 IL App (1st)

152817, ¶ 25. Horsehead did not argue before the tax tribunal, and does not argue on appeal, that

the term “direct and immediate” is ambiguous, nor does it quarrel with the tax tribunal’s decision

to consult a dictionary for the definitions of “direct” and “immediate.” The tax tribunal stated

that the plain and ordinary meaning of “direct” includes “[e]xtending or moving from one place

to another without changing direction or stopping” and “[w]ithout intervening factors or

intermediaries.”   English    Oxford     Living   Dictionaries,    https://en.oxforddictionaries.com/

definition/direct (last visited Sept. 19, 2018) [https://perma.cc/8CEN-V8AG]; see also Black’s

Law Dictionary 471 (7th ed. 1999) (defining “direct” as “straight; undeviating,” and “[f]ree from

extraneous influence; immediate”). The tax tribunal defined “immediate” as “[o]ccurring or done

at once; instant.” English Oxford Living Dictionaries, https://en.oxforddictionaries.com/

definition/immediate (last visited Sept. 19, 2018) [https://perma.cc/338T-GSYF]; see also

Black’s Law Dictionary 751 (7th ed. 1999) (defining “immediate” as “[o]ccurring without delay;

instant” and “[h]aving a direct impact; without an intervening agency”). Taken together, a direct

and immediate change on a product being manufactured for sale is one that occurs at once

without any intervening factors or intermediate steps. As noted above, the chemical exemption

provides, “Equipment includes chemicals or chemicals acting as catalysts but only if the

chemicals or chemicals acting as catalysts effect a direct and immediate change upon a product

being manufactured or assembled for wholesale or retail sale or lease.” 35 ILCS 105/3-50(4)

(West 2016). The plain language of the exemption, therefore, means exactly what it says: to be




                                                  10 

No. 1-17-2802


eligible under the chemical exemption, the metallurgical coke must effect a change on the zinc

and iron in the EAF Dust that occurs at once without an intermediate step.

¶ 20   Here, the tax tribunal concluded that the metallurgical coke did not effect a direct and

immediate change on the zinc and iron in the EAF Dust. During the Waelzing processes, the

metallurgical coke combines with the carbon dioxide in the kiln to create carbon monoxide. The

created carbon monoxide then strips oxygen from the zinc oxide and iron oxide in the EAF Dust,

resulting in metallic zinc vapor and metallic iron, which in turn reacts with oxygen, resulting in

crude zinc oxide and iron oxide rich material. While the metallurgical coke is an integral part of

achieving the desired chemical reactions, the metallurgical coke itself does not effect a direct and

immediate change on the products being manufactured: zinc and iron. Before the tax tribunal,

one of Horsehead’s witnesses acknowledged that “the [metallurgical] coke or carbon [does] not

react directly with either the zinc oxide or the iron oxide to reduce them to zinc and iron.” As the

tax tribunal observed in its final order, “the lack of a direct and immediate reaction dooms

[Horsehead’s] argument to the contrary.”

¶ 21   Furthermore, IDOR’s administrative rules provide two examples of chemicals effecting a

direct and immediate change.

                       “A) Example 1. A chemical acid is used to etch copper off the surface of a

                printed circuit board during the manufacturing process. The acid causes a direct

                and immediate change upon the product. The acid qualifies for the exemption.

                       B) Example 2. An aluminum oxide catalyst is used in a catalytic cracking

                process to refine heavy gas oil into gasoline. In this process, large molecules of

                gas oil or feed are broken up into smaller molecules. After the catalyst is injected

                into the feed and used in the cracking process, it is drawn off and reused in



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No. 1-17-2802


                subsequent manufacturing processes. The catalyst qualifies for the exemption.” 86

                Ill. Adm. Code 130.330(c)(6)(A), (B) (2016).

¶ 22   In the first example, the acid, without first going through any intermediate chemical

changes, directly and immediately etches copper from the circuit board. In the second example,

the aluminum oxide is introduced to heavy gas oil and, without going through any intermediate

chemical changes, cracks the large molecules of gas oil and feeds into smaller molecules. Here,

the carbon from the metallurgical coke combines with carbon dioxide to create carbon monoxide,

which then strips away oxygen from the zinc oxide and iron oxide in the EAF Dust. Horsehead’s

use of metallurgical coke, therefore, is part of a series of intermediate steps in the Waelzing

process to create the carbon monoxide gas that causes a direct and immediate change to the zinc

and iron in the EAF Dust, and it bears little resemblance to the acid and aluminum oxide

described in IDOR’s two examples. With respect to IDOR’s second example, Horsehead argues

that cracking heavy gas oil through the use of aluminum oxide requires the introduction of heat,

just like Horsehead’s metallurgical coke being heated. But even accepting that aluminum oxide

is heated during the cracking process, IDOR’s second example contemplates that the heated

aluminum oxide causes the cracking of heavy gas oil, as opposed to the heated aluminum oxide

causing an intermediate chemical change that in turn causes the cracking. It is clear from IDOR’s

second example that the mere introduction of heat to a chemical would not cause that chemical to

become ineligible for the exemption in section 3-50(4) of the Use Tax Act.

¶ 23   Horsehead argues that construing section 3-50(4) in a manner that does not exempt

Horsehead’s metallurgical coke purchases defeats the purpose of the exemption, which is “to

attract new manufacturing facilities to our State and to discourage existing ones from relocating

outside Illinois.” Chicago Tribune Co. v. Johnson, 106 Ill. 2d 63, 72 (1985). It contends that



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No. 1-17-2802


giving the term “direct and immediate effect” an overly literal interpretation “would virtually gut

the chemical exemption by excluding any chemicals that must first undergo any process before

reacting with the products being manufactured.” That is simply not true; as long as the chemical

itself, whether heated or diluted, effects the direct and immediate change on the product being

manufactured or assembled for sale, it qualifies for the chemical use tax exemption. Furthermore,

we are not in a position to extend the chemical exemption in a manner that would be inconsistent

with the plain and ordinary meaning of the terms employed by our legislature in crafting this

exemption. It is clear from the plain language of section 3-50(4) of the Use Tax Act that the

legislature intended to provide a use tax exemption limited to chemicals or chemicals acting as

catalysts that effect a direct and immediate change on the products being manufactured or

assembled for sale or lease, and not for all chemicals or chemical catalysts used during the

manufacturing process. The legislature is, of course, free to amend or revise the chemical

exemption to include chemicals that are used to create other chemicals that effect direct and

immediate changes on the products being manufactured. Until it does so, however, we must give

the legislature’s words their plain and ordinary meaning.

¶ 24   In sum, we cannot say that the tax tribunal committed clear error in determining that

Horsehead’s purchases of metallurgical coke for use during the Waelzing process did not qualify

for an exemption under section 3-50(4) of the Use Tax Act. Therefore, we affirm the tax

tribunal’s order affirming IDOR’s determination of use tax liability for Horsehead’s out-of-state

purchases of metallurgical coke.

¶ 25   Next, Horsehead argues that, should we affirm the tax tribunal’s decision on Horsehead’s

use tax liability, the late payment penalties and late filing penalties should be abated because it

satisfies the “reasonable cause” exception in section 3-8 of the Uniform Penalty and Interest Act



                                                13 

No. 1-17-2802


(35 ILCS 735/3-8 (West 2016)) and section 700.400 of Title 86 (86 Ill. Adm. Code 700.400(b),

(c) (2016)). It argues that the tax tribunal, in upholding the penalties, failed to account for the

lack of controlling authority regarding the “unclear” chemical exemption, and instead relied on

“its own novel interpretation of the statutory language.”

¶ 26   The parties agree that our review of the tax tribunal’s determination that Horsehead was

not entitled to abatement of penalties is governed by the manifest weight of the evidence

standard. It is well settled that an agency’s determination of whether reasonable cause exists

“will be reversed only if the agency’s decision was against the manifest weight of the evidence

and only if the opposite conclusion was clearly evident.” Hollinger International, Inc. v. Bower,

363 Ill. App. 3d 313, 315 (2005). “The existence of reasonable cause justifying abatement of a

tax penalty is a factual determination that is to be decided only on a case-by-case basis.” Id. at

315-16. Horsehead argues, however, that must review de novo the tax tribunal’s finding that the

chemical exemption is clear because the tax tribunal’s determination as to the clarity of the

chemical exemption is entitled to no deference where the tax tribunal does not enforce the Use

Tax Act or promulgate any regulations under that act. We have already rejected this argument.

See supra ¶ 16.

¶ 27   Under the Uniform Penalty and Interest Act, a taxpayer is not subject to penalties if the

“failure to file a return or pay tax at the required time was due to reasonable cause.” 35 ILCS

735/3-8 (West 2016). Section 700.400 of Title 86 provides:

                       “b) The determination of whether a taxpayer acted with reasonable cause

                shall be made on a case by case basis taking into account all pertinent facts and

                circumstances. The most important factor to be considered in making a

                determination to abate a penalty will be the extent to which the taxpayer made a



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                good faith effort to determine his proper tax liability and to file and pay his proper

                liability in a timely fashion.

                        (c) A taxpayer will be considered to have made a good faith effort to

                determine and file and pay his proper tax liability if he exercised ordinary

                business care and prudence in doing so. A determination of whether a taxpayer

                exercised ordinary business care and prudence is dependent upon the clarity of the

                law or its interpretation and the taxpayer’s experience, knowledge, and education.

                Accordingly, reliance on the advice of a professional does not necessarily

                establish that a taxpayer exercised ordinary business care and prudence, nor does

                reliance on incorrect facts such as an erroneous information return.” 86 Ill. Adm.

                Code 700.400(b), (c) (2001).

¶ 28   We conclude that the tax tribunal’s decision to uphold the penalties is not against the

manifest weight of the evidence. To determine whether Horsehead acted with reasonable cause,

the tax tribunal considered whether Horsehead exercised ordinary business care and prudence,

which is in part guided by the clarity of the law or interpretations of that law. The tax tribunal

acknowledged that the term “direct and immediate change” in the chemical exemption had no

statutory or regulatory definition and that there was no controlling case law as to how the

chemical exemption should be interpreted. But the tax tribunal correctly found that “the terms

‘direct’ and ‘immediate’ have their simple every day meaning as used in the statute, and those

meanings provide clarity to the statute, as opposed to a lack of clarity as argued by [Horsehead].”

It is well settled that the best indicator of legislative intent is the language of the statute when

given its plain and ordinary meaning. Shared Imaging, 2017 IL App (1st) 152817, ¶ 25. While it

is true that there was no controlling case law on how those terms should be interpreted within the



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context of the chemical exemption, the plain language of the exemption is clear and

unambiguous that only those chemicals that have a direct and immediate effect on the product

being manufactured are exempt from the use tax. See id. ¶ 78 (upholding the imposition of late

filing and late payment penalties where the taxpayer’s obligations “should have been

clear *** from the language of the [Use Tax Act] and [IDOR’s] regulations”). As we explained

above, Horsehead does not argue that the statutory language was ambiguous and does not

challenge the tax tribunal’s definitions of the terms “direct” and “immediate.” The language of

the chemical exemption was clear, and Horsehead cannot rely on its own erroneous interpretation

of the statute to argue that it exercised ordinary business care and prudence in failing to file and

pay the use tax.

¶ 29   Also relevant to the inquiry as to whether Horsehead made a good-faith effort to

determine its tax liability is its experience and knowledge. Horsehead does not make any express

argument on this point but does insist that its prior history of tax compliance is evidence of a

good-faith effort. The tax tribunal considered this argument and gave it “some, but not a great

deal of, weight.” The tax tribunal noted that Horsehead presented no evidence “to support its

claim of good faith in taking the position it did on the chemical exemption issue, although it had

the opportunity to do so.” Horsehead presented no evidence at the hearing as to any previous

audits by IDOR where its out-of-state purchases of metallurgical coke were identified or

discussed or that the chemical exemption had ever been raised in a prior audit. Nor was there any

evidence that Horsehead sought any professional guidance on its potential use tax liability,

which, while not determinative, may have persuaded the tax tribunal of Horsehead’s good-faith

efforts to comply with the Use Tax Act. In sum, Horsehead’s argument that it made a good-faith

effort to comply with its use tax obligations because the law surrounding the chemical exemption



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was unclear, that there was no controlling authority available, and that it had paid all of its other

taxes is unavailing. Had Horsehead reasonably believed it was exempt from paying a use tax on

its out-of-state purchases of metallurgical coke, it would have presented testimony evidencing a

business decision that acknowledged a good-faith effort to determine its appropriate tax liability

and the reasons why it failed to pay. The absence of any testimony at the hearing in this vein,

coupled with its own witness conceding that “the [metallurgical] coke or carbon [does] not react

directly with either the zinc oxide or the iron oxide to reduce them to zinc and iron,” supports the

tax tribunal’s finding that “reasonable cause” to abate statutory penalties did not exist.

Horsehead’s unilateral interpretation of the chemical exemption did not comport with the plain

language of the exemption, and it presented no evidence of any other reliance to support its

decision to not pay the use tax. Based on the record before the tax tribunal and this court, we

cannot say that the tax tribunal’s decision to uphold the imposition of the late payment penalties

and late filing penalties was against the manifest weight of the evidence.

¶ 30                                      CONCLUSION

¶ 31   For the foregoing reasons, the final order of the tax tribunal is affirmed.

¶ 32   Tax tribunal decision affirmed.




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