
                              No. 2--96--0144

                                                  

________________________________________________________________

                                     

                                  IN THE



                        APPELLATE COURT OF ILLINOIS



                              SECOND DISTRICT

________________________________________________________________



BRUCE NAGEL, d/b/a                   )  Appeal from the Circuit Court

Nagel Trucking, and                  )  of Kane County.

NAGEL TRUCKING AND                   )

MATERIALS, INC.,                     )

                                     )

     Plaintiffs-Appellants,          )

                                     )  No. 95--TX--023

v.                                   )

                                     )

RAYMOND T. WAGNER, JR.,              )

Director of Revenue, and             )

THE DEPARTMENT OF REVENUE,           )  Honorable

                                     )  Melvin E. Dunn,

     Defendants-Appellees.           )  Judge, Presiding.

________________________________________________________________



     JUSTICE THOMAS delivered the opinion of the court:

     Plaintiffs, Bruce Nagel, d/b/a Nagel Trucking, and Nagel

Trucking and Materials, Inc., appeal the trial court's judgment

affirming the decision of defendant the Department of Revenue (the

Department), which determined that both the materials plaintiffs

transported and certain transportation charges plaintiffs levied

were subject to the Retailers' Occupation Tax (the ROT).  The issue

on appeal is whether the trial court erred in finding that the

transportation charges were subject to the ROT.  We affirm.

     Plaintiff Bruce Nagel, d/b/a Nagel Trucking is a sole

proprietorship whose primary business is the transportation of

materials.  Plaintiff Nagel Trucking and Materials, Inc., is the

successor in interest to that sole proprietorship.  Because the

distinction between plaintiffs is not relevant to this appeal, we

will refer to plaintiffs collectively as "plaintiff."  

     Some of plaintiff's customers requested that plaintiff locate

and sell them materials in addition to providing transportation

services.  On those occasions, plaintiff advanced the charges to

pay the supply source for the materials and then delivered the

materials to plaintiff's customers.  Plaintiff then billed the

customers an aggregate charge for the sale and transportation of

the materials.  

     The Department audited plaintiff's operations and assessed the

ROT on both the sale and transportation of the materials. 

Plaintiff requested an administrative hearing.  At the hearing,

plaintiff did not contest the portion of the assessment which

applied to the materials.  Plaintiff paid the ROT on the materials

portion of the assessment, including penalties and interest. 

Plaintiff only contested the portion of the assessment which

applied to the transportation of the materials.  

     Using plaintiff's records, the Department and plaintiff agreed

on the amount of each transaction represented by transportation

charges.  However, the Department held that, because plaintiff

failed to overcome the Department's prima facie case with

documentary evidence showing that the sale of the materials and the

transportation of the materials were separate transactions,

defendant owed the ROT on both the sale of the materials and the

transportation of the materials.  

     Plaintiff filed a complaint for administrative review.  The

trial court affirmed the Department's decision and its rationale. 

Plaintiff filed a timely notice of appeal.  

     On appeal, plaintiff argues that the Department's decision to

impose the ROT on the transportation portion of the transactions is

both contrary to law and against the manifest weight of the

evidence.  The Department concedes that, in the present case, the

facts are undisputed and the determination whether the transactions

are subject to the ROT is a question of law.  Harrisburg-Raleigh

Airport Authority v. Department of Revenue, 126 Ill. 2d 326, 331

(1989).  Although courts of review should give some deference to an

administrative agency's construction of a statute, we are not bound

to give that construction the same deference as an agency's

findings of fact.  However, statutes exempting property from

taxation should be strictly construed in favor of taxation, and the

taxpayer bears the burden of proving his entitlement to the

exemption.  Harrisburg-Raleigh Airport Authority, 126 Ill. 2d at

331.  

     Section 130.415 of Title 86 of the Illinois Administrative

Code (Administrative Code) provides in relevant part:

          "b)  The answer to the question of whether or not a

     seller, in computing his Retailers' Occupation Tax liability,

     may deduct, from his gross receipts from sales of tangible

     personal property at retail, amounts charged by him to his

     customers on account of his payment of transportation or

     delivery charges in order to secure delivery of the property

     to such customers, or on account of his incurrence of expense

     in making such delivery himself, depends not upon the separate

     billing of such transportation or delivery charges or expense,

     but upon whether the transportation or delivery charges are

     included in the selling price of the property which is sold or

     whether the seller and the buyer contract separately for such

     transportation or delivery charges by not including such

     charges in such selling price.

          c)  If such transportation or delivery charges are

     included in the selling price of the tangible personal

     property which is sold, the transportation or delivery expense

     is an element of cost to the seller within the meaning of

     Section 1 of the Retailers' Occupation Tax Act, and may not be

     deducted by the seller in computing his Retailers' Occupation

     Tax liability.

          d)  On the other hand, where the seller and the buyer

     agree upon the transportation or delivery charges separately

     from the selling price of the tangible personal property which

     is sold, then the cost of the transportation or delivery

     service is not a part of the "selling price" of the tangible

     personal property which is sold, but instead is a service

     charge, separately contracted for, and need not be included in

     the figure upon which the seller computes his Retailers'

     Occupation Tax liability.  ***  The best evidence that

     transportation or delivery charges were agreed to separately

     and apart from the selling price, is a separate and distinct

     contract for transportation or delivery.  However,

     documentation which demonstrates that the purchaser had the

     option of taking delivery of the property, at the seller's

     location, for the agree[d] purchase price, or having delivery

     made by the seller for the agree[d] purchase price, plus an

     ascertained or ascertainable delivery charge, will suffice." 

     86 Ill. Adm. Code §130.415 (1996).

     In determining that the transportation part of the

transactions is subject to the ROT, the Department relied on

Sprague v. Johnson, 195 Ill. App. 3d 798 (1990).  In Sprague,

plaintiff owned a trucking service that transported primarily

gravel.  Sprague, 195 Ill. App. 3d at 799.  Plaintiff never

advertised that he had rock for sale.  However, some of plaintiff's

customers requested that he acquire and haul the gravel for them. 

The transportation charges plaintiff levied were the tariffs he

filed with the Commerce Commission.  After the hauling was

completed, plaintiff billed the customers one charge for both the

materials and the transportation.  Sprague, 195 Ill. App. 3d at

800.

     The court concluded that plaintiff presented no evidence at

trial to indicate that the sale of the gravel and the

transportation of the gravel were two separate transactions. 

Sprague, 195 Ill. App. 3d at 804.  The court held that, because

plaintiff failed to present such evidence, he failed to overcome

the Department's prima facie case established by the corrected tax

returns.  Sprague, 195 Ill. App. 3d at 804.

     In the present case, plaintiff contends that the tariffs he

filed are sufficient to demonstrate that the sale of the gravel and

the transportation of the gravel were two separate transactions. 

We disagree.  

     The tariffs plaintiff filed allowed the Department to

determine the amount attributable to the sale of the materials and

the amount attributable to the transportation of the materials. 

However, it is not whether the Department is able to determine the

amount attributable to each part of the transaction that determines

whether the transportation charges may be subtracted from

plaintiff's gross receipts in computing his ROT liability.  Rather,

section 130.415(b) of the Administrative Code provides that whether

plaintiff may deduct the transportation charges depends upon

whether the transportation charges were included in the selling

price of the property which is sold or whether plaintiff and his

customers contracted separately for the transportation charges by

not including them in the selling price.  86 Ill. Adm. Code

§130.415(b) (1996).  

     In the present case, plaintiff did not present any evidence to

demonstrate that he and his customers contracted separately for the

transportation charges.  The tariffs plaintiff filed are merely a

public document that he is required to file with the Commerce

Commission.  That document establishes the rates plaintiff must

charge in a contract for transportation only.  It does not

demonstrate the existence of a separate and distinct agreement as

to the rates for transportation and materials where, as here,

plaintiff's own testimony demonstrates that plaintiff billed an

aggregate charge for transportation and materials.  We note that

the court in Sprague also held that, although plaintiff had filed

tariffs which represented the portion of the charges attributable

to transportation, plaintiff had not demonstrated that the sale and

transportation of the gravel were two separate transactions. 

Sprague, 195 Ill. App. 3d at 803-04.

     Plaintiff argues that our recent decision in Arenson v.

Department of Revenue, 279 Ill. App. 3d 355 (1996), prohibits the

Department from imposing the ROT on the transportation charges in

the present case.  In Arenson, the Department assessed taxes

against charges on both taxable communications charges and on

nontaxable equipment rental charges.  The Department based its

assessment on plaintiff's failure to disaggregate the charges on

the customer invoices.  On appeal, we held that the applicable

statute did not specify where the disaggregation should occur and

that plaintiff had sufficiently rebutted the Department's case by

showing that it had disaggregated the rental charges in its own

records.  Arenson, 279 Ill. App. 3d at 360.  

     In the present case, unlike Arenson, plaintiff has not shown

that he disaggregated the transportation charges in his own

records.  The tariffs plaintiff filed with the Commerce Commission

do not separate sales from transportation charges in individual

transactions.  The tariffs are a generic price list for

transportation charges.  Moreover, the regulations in the present

case do not require disaggregation in plaintiff's records; they

require that the price of the materials and the charge for the

transportation of the materials be negotiated separately.  86 Ill.

Adm. Code §130.415(b) (1996).

     Plaintiff argues that the decisions in Liquid Air Corp. v.

Johnson, 240 Ill. App. 3d 722 (1992), and Airco Industrial Gas

Division, The BOC Group, Inc. v. Department of Revenue, 223 Ill.

App. 3d 386 (1991), prohibit the Department from imposing the ROT

on the transportation charges in the present case.  We disagree.

     In Liquid Air Corp. and Airco, plaintiffs sold industrial

gases in liquid form to their customers.  Liquid Air Corp., 240

Ill. App. 3d at 724; Airco, 223 Ill. App. 3d at 387.  The liquid

gases could only be stored in large cryogenic tanks that were able

to sustain the low temperature and high pressure of the gases. 

Plaintiffs' customers could lease the appropriate cryogenic tanks

from plaintiffs or obtain the tanks from other sources.  The sale

of the gases and the lease of the tanks were negotiated and billed

separately.  Liquid Air Corp., 240 Ill. App. 3d at 724; Airco, 223

Ill. App. 3d at 388.  The Department imposed the ROT on the rental

fees plaintiffs charged their customers for the use of the storage

equipment.  Liquid Air Corp., 240 Ill. App. 3d at 725; Airco, 223

Ill. App. 3d at 388.  

     The courts in Liquid Air Corp. and Airco held that the

Department could not impose the ROT on the rental fees for the

storage facilities.  Liquid Air Corp., 240 Ill. App. 3d at 730;

Airco, 223 Ill. App. 3d at 392-93.  In finding that plaintiffs did

not owe the ROT on the rental fees, the court in Liquid Air Corp.

noted that the Department's regulations specifically excluded

rental fees and lease payments from the ROT.  240 Ill. App. 3d at

726.  The courts in Liquid Air Corp. and Airco noted that the

appropriate inquiry is whether the product can be sold to the

customer without rendering the service.  Liquid Air Corp., 240 Ill.

App. 3d at 730; Airco, 223 Ill. App. 3d at 392-93.  If it can, then

the service charge should not be subject to the ROT.  

     In the present case, the materials plaintiff sold could be

sold to the customers without rendering the transportation service. 

However, unlike the situations in Liquid Air Corp. and Airco,

plaintiff in the present case presented no evidence that the sales

portions and the service portions of the transactions were

negotiated or billed separately.  

     Moreover, in Liquid Air Corp. and Airco, a regulation

specifically excluded the rental fees.  See 86 Ill. Adm. Code

§130.2010 (1996).  In the present case, the regulations provide

that the transportation fees may be subtracted from the gross

receipts in computing the ROT only if plaintiff and the customers

contract separately for the transportation charges.  86 Ill. Adm.

Code §130.415(b) (1996).  Plaintiff failed to present such

evidence.  Accordingly, we conclude that Liquid Air Corp. and Airco

do not prohibit the imposition of the ROT on the transportation

charges in the present case.  

     We hold, as did the court in Sprague, that, because plaintiff

failed to demonstrate that the sale of the materials and the

transportation of the materials were separate transactions,

plaintiff failed to overcome the Department's prima facie case

established by the corrected tax returns.

     Therefore, we affirm the judgment of the circuit court of Kane

County.

     Affirmed.

     McLAREN, P.J., and BOWMAN, J., concur.    





