Ford Motor Company v. Chicago Department of Revenue

2014 IL App (1st) 130597, 14 N.E.3d 667

• Court: Appellate Court of Illinois
• Decided: June 27, 2014
• Docket: 1-13-0597
• Status: Unpublished

Opinion

2014 IL App (1st) 130597

FIFTH DIVISION June 27, 2014

No. 1-13-0597

FORD MOTOR COMPANY, ) ) Appeal from Plaintiff-Appellee, ) the Circuit Court ) of Cook County v. ) ) No. 11 L 51361 CHICAGO DEPARTMENT OF REVENUE, BEA ) REYNA-HICKEY, in Her Capacity as Director of the Chicago ) Honorable Department of Revenue, and THE CHICAGO DEPARTMENT ) Margaret A. Brennan, OF ADMINISTRATIVE HEARINGS, ) Judge Presiding ) Defendants-Appellants. )

JUSTICE McBRIDE delivered the judgment of the court, with opinion. Presiding Justice Gordon and Justice Taylor concurred in the judgment and opinion.

OPINION

¶1 The issue on appeal is whether Ford Motor Company is liable to the City of Chicago for a

tax of $0.05 per gallon for all the fuel the car maker purchased and put into cars it made in Chicago

between 2002 and 2008. A local ordinance provides, "A tax is hereby imposed upon the privilege

of purchasing or using, in the City of Chicago, vehicle fuel purchased in a sale at retail" and

defines " '[u]se' " to include dispensing fuel into a vehicle's full tank and " '[s]ale at retail' " as "any

sale to a person for that person's use or consumption and not for resale to another." Chicago

Municipal Code §§3-52-020, 3-52-010(B)(9), (8) (added Sept. 24, 1986). The car maker contends

the tax is due on only 2% of the gasoline and diesel it purchased from a Chicago fuel distributor

because that is the amount used to test run and relocate cars at the Chicago manufacturing plant

and the other 98% was neither used nor consumed when it left Chicago in the tanks of cars 1-13-0597 transported to car dealerships that were billed for the fuel. An administrative law judge determined

that the tax applied to 100% of the fuel because "use" occurred when the fuel was dispensed into

the new vehicle tanks, but the circuit court of Cook County reversed that determination, and the

municipality now appeals from the court's ruling.

¶2 Ford Motor Company, a Delaware corporation headquartered in Dearborn, Michigan,

manufactures some of its automobiles in Chicago and ships these products to car dealers

throughout the United States. For the six-year period at issue, fuel maker BP Amoco, which is

registered with the City of Chicago (City) as a fuel distributor, delivered about 10,000 gallons of

gasoline and diesel per month to the Ford Motor Company facility and did not assess municipal

fuel taxes on the deliveries. Ford Motor Company self-assessed and reported fuel taxes to the City

only for a small percentage of the fuel it received from BP Amoco and remitted $19,658.08 to the

municipality. After an audit, the department of revenue of the City of Chicago (Department)

determined Ford Motor Company owed back taxes totaling $356,675.13, and when the car maker

declined to pay the assessment, the Department assessed interest and penalties, bringing the total

amount due to $665,539.85. Ford filed a protest and petition for hearing before the Department and

filed a separate protest and petition for a refund of the taxes it had paid.

¶3 The two protest actions were consolidated before the administrative law judge (ALJ or

hearing officer). Some of the materials submitted to the ALJ included the affidavit of Dennis

Curlew, an employee of the car maker, who stated that the company charged car dealerships for the

fuel that was put in the tanks of cars delivered to them, and the affidavit of Elaine Herman, an audit

supervisor at the Department, who stated that no Ford dealership in Chicago had collected and

remitted fuel taxes paid by car buyers or independently paid the fuel taxes to the City.

2 1-13-0597 ¶4 The ALJ determined the tax applied to all the fuel placed in the new vehicles and entered

summary judgment for the Department, based on the ALJ's finding that Ford Motor Company

"used" all of the fuel, within the meaning of the municipal tax ordinance, when it dispensed fuel

into the tanks of its vehicles. Thus, even if Ford Motor Company purported to resell the fuel when

it delivered the new cars to its dealerships, the car maker was already liable for the City's tax. The

ALJ rejected the company's contention that it qualified for at least one of the seven exemptions

listed in the municipal tax ordinance. See Chicago Municipal Code §3-52-110 (added Sept. 24,

1986). Two of these were rejected on the merits –the sale of vehicle fuel by a distributor "to a

distributor or retailer of vehicle fuel whose place of business is outside the city" (emphasis added),

and "[t]he sale or use for purpose other than for propulsion or operation of a vehicle." Chicago

Municipal Code §3-52-110(b), (c) (added Sept. 24, 1986). The third exemption–that taxation

would violate the United States Constitution–was an argument that the ALJ properly declined to

address because an administrative agency lacks authority to declare a statute unconstitutional, or

even to question its validity, but a litigant must present its constitutional argument on the record at

the administrative stage in order to preserve the issue for subsequent proceedings. Chicago

Municipal Code §3-52-110(e) (added Sept. 24, 1986); Cinkus v. Village of Stickney Municipal

Officers Electoral Board, 228 Ill. 2d 200, 214, 886 N.E.2d 1011, 1020 (2008) (an administrative

agency lacks authority to resolve a constitutional argument, but procedural default occurs when a

party does not first present its constitutional argument in that forum and develop the issue fully for

the purposes of administrative review); Smith v. Department of Professional Regulation, 202 Ill.

App. 3d 279, 287, 559 N.E.2d 884, 889 (1990) (raising a constitutional issue for the first time in

the circuit court is insufficient). For all these same reasons, the ALJ rejected the request for a tax

3 1-13-0597 refund. After determining the car maker was liable for the tax, the ALJ then considered and

affirmed the assessment of interest and a late penalty and negligence penalty which roughly

doubled Ford Motor Company's tax debt. When Ford Motor Company sought administrative

review in the circuit court, the judge was persuaded by the argument that the car maker had stored

unused fuel in the tanks of cars delivered to its dealers and that the Department's decision to the

contrary must be reversed. In this appeal, the Department contends the ALJ's conclusions were

sound and should be affirmed.

¶5 Our role is to review the decision of the administrative agency rather than the decision of

the circuit court (West Belmont, L.L.C. v. City of Chicago, 349 Ill. App. 3d 46, 49, 811 N.E.2d 220,

224 (2004)) and we address the interpretation of a municipal ordinance de novo (West Belmont,

349 Ill. App. 3d at 49, 811 N.E.2d at 224). When construing an ordinance, we follow the same

rules that govern the construction of a statute. County of Montgomery v. Deer Creek, Inc., 294 Ill.

App. 3d 851, 856, 691 N.E.2d 185, 189 (1998). The objective of statutory construction is to

ascertain and give effect to the drafter's intent. People ex rel. Sherman v. Cryns, 203 Ill. 2d 264,

279, 786 N.E.2d 139, 150 (2003); County of Knox ex rel. Masterson v. Highlands, L.L.C., 188 Ill.

2d 546, 556, 723 N.E.2d 256, 263 (1999). We study the language of a challenged statute, as it is

usually " 'the most reliable indicator of the legislature's objectives in enacting a particular law.' "

Cryns, 203 Ill. 2d at 279, 786 N.E.2d at 151 (quoting Michigan Avenue National Bank v. County of

Cook, 191 Ill. 2d 493, 504, 732 N.E.2d 528, 535 (2000)); County of Knox, 188 Ill. 2d at 556, 723

N.E.2d at 263. If the language of a statute is plain, clear and unambiguous, it becomes our sole

basis for discerning the intent of the legislative body and we do not need to resort to other

principles of statutory construction. Gem Electronics of Monmouth, Inc. v. Department of

4 1-13-0597 Revenue, 183 Ill. 2d 470, 475, 702 N.E.2d 529, 532 (1998); County of Knox, 188 Ill. 2d at 556, 723

N.E.2d at 263. We are never at liberty to depart from the plain language and meaning of a statute

by reading into the law an unstated exception, limitation, or condition. Gem Electronics, 183 Ill. 2d

at 475, 702 N.E.2d at 532; County of Knox, 188 Ill. 2d at 556, 723 N.E.2d at 263. Furthermore, we

should not adopt a construction that renders words or phrases superfluous. County of Montgomery,

294 Ill. App. 3d at 856, 691 N.E.2d at 189. While on the one hand, a taxing law will be strictly

construed against the taxing body and in favor of the taxpayer, on the other hand, language that

provides an exemption is strictly construed in favor of the taxing body and against the taxpayer and

the taxpayer bears the burden of proving entitlement to the exemption. Gem Electronics, 183 Ill.

2d at 475, 702 N.E.2d at 532. These principles lead us to affirm the Department's decision in favor

of taxation of 100% of the fuel at issue.

¶6 The ordinance, in plain and clear language, unambiguously provides, "A tax is hereby

imposed upon the privilege of purchasing or using, in the City of Chicago, vehicle fuel purchased

in a sale at retail." Chicago Municipal Code §3-52-020 (added Sept. 24, 1986). The facts before us

indicate Ford Motor Company purchased and used in the City of Chicago all of the fuel that it

received from BP Amoco at the Chicago car assembly plant, as the ordinance defines those terms,

and thus subjected itself to taxation. According to the ordinance adopted by City Council,

" 'purchase ' means any transfer of ownership or title or both, any exchange or any barter, whether

conditional or otherwise, in any manner or by any means whatsoever for consideration." Chicago

Municipal Code §3-52-010(B)(7) (added Sept. 24, 1986) (definition of sale, resale, and purchase).

According to the ordinance, " 'Use ' means the exercise of any right to or power over vehicle fuel

incident to the ownership thereof, including but not limited to, the receipt of vehicle fuel by any

5 1-13-0597 person into a fuel supply tank of a vehicle." Chicago Municipal Code §3-52-010(B)(9) (added

Sept. 24, 1986). And, according to the ordinance, " 'Sale at retail' means any sale to a person for

that person's use or consumption and not for resale to another." Chicago Municipal Code

§3-52-010(B)(8) (added Sept. 24, 1986). The ordinance also specifies that taxable " '[u]se in the

city' shall be deemed to occur only at the place in the city where the vehicle fuel is transferred into

the vehicle by which it is to be consumed." Chicago Municipal Code §3-52-030 (added Sept. 24,

1986). We find the meaning of this ordinance to be clear and certain, rather than ambiguous and

susceptible to two or more reasonable interpretations.

¶7 The record indicates that BP Amoco made monthly deliveries of gasoline and diesel fuel to

large storage tanks at Ford Motor Company's Chicago assembly plant and gave up ownership of its

product. Because both BP Amoco and Ford Motor Company were registered with the City as fuel

distributors, the monthly deliveries could have been transfers of product from one distributor to

another, which are transactions that are not addressed by the ordinance at issue. According to the

ordinance, a distributor is:

"any person who produces, refines, blends, compounds or manufactures vehicle

fuel in the city; *** or has transported vehicle fuel to any location in the city, or

receives in the city vehicle fuel, on which the Chicago Vehicle Fuel Tax has not

been paid; or sells vehicle fuel to a retail dealer for resale in the city. 'Distributor'

shall not include any person who transports vehicle fuel into the city or receives

vehicle fuel in the city for his own use and consumption, and not for sale or resale."

Chicago Municipal Code §3-52-010(B)(4) (added Sept. 24, 1986).

¶8 The ordinance puts the burden on Ford Motor Company to show that the tax does not apply

6 1-13-0597 to the fuel it bought from BP Amoco. The ordinance specifies, "It shall be presumed that all sales

and uses of vehicle fuel in the city are subject to tax under this chapter until the contrary is

established. The burden of proving that a sale or use is not taxable hereunder shall be upon the

distributor, retail dealer, purchaser, or user so claiming." Chicago Municipal Code §3-52-100

(added Sept. 24, 1986).

¶9 The question is whether after BP Amoco delivered the fuel, the car maker subsequently

"exercise[d] *** any right to or power over [the] vehicle fuel incident to the ownership thereof,"

such as by dispensing it "into a fuel supply tank of a vehicle" (Chicago Municipal Code

§3-52-010(B)(9) (added Sept. 24, 1986)) in the City of Chicago or otherwise making "use or

consumption" of it in the City of Chicago before transporting it offsite in the tanks of new cars

destined for dealerships (Chicago Municipal Code §3-52-010(B)(9) (added Sept. 24, 1986)). If the

answer to this question is affirmative, then Ford Motor Company is liable for the City's fuel tax.

¶ 10 The answer to this question is definitely "yes," because, according to the plain terms of the

ordinance, when Ford Motor Company transferred the fuel from its large holding tanks into the

individual tanks of new vehicles rolling off its assembly line, Ford Motor Company was making

"use" of the fuel, regardless of where or when the fuel was ultimately burned to operate the new

vehicles, or where or when the vehicles were delivered or sold to a dealership. The ordinance

plainly and clearly specifies that the tax is triggered by dispensing fuel into a vehicle's fuel tank,

which Ford Motor Company routinely and repeatedly did. Ford Motor Company is like the

individual consumer who fills his or her car's tank at a Chicago gas station and pays the local fuel

tax at that time, regardless of whether he or she burns some of the dispensed fuel by driving outside

of Chicago. The ordinance does not impose the tax based on where a vehicle consumes the fuel;

7 1-13-0597 rather, the ordinance taxes the "use" of fuel and specifies that "use" includes dispensing fuel into a

vehicle's tank. As a car maker, Ford Motor Company handled many more vehicles and many more

gallons of fuel than any individual consumer, but the car maker and our hypothetical consumer

have done the same thing with the gasoline and diesel fuel they received –they used it. And,

because a " '[s]ale at retail' " is defined as "any sale to a person for that person's use or consumption

and not for resale to another" (Chicago Municipal Code §3-52-010 (B)(8) (added Sept. 24, 1986)),

the record indicates Ford Motor Company participated in a series of " 'sale[s] at retail' " and

became liable for the municipal tax. That is the conclusion drawn by the ALJ and it was the correct

one.

¶ 11 Ford Motor Company contends this conclusion is incorrect, however, because 98% of the

fuel delivered by BP Amoco was purchased for "resale to another," namely, its new car

dealerships, and, therefore, could not be treated as a taxable "sale at retail." Chicago Municipal

Code §3-52-01)(B)(8) (added Sept. 24, 1986). This conclusion, however, is unsound. It would

require us to ignore the ordinance's plain statement that dispensing fuel into a vehicle's tank is a

taxable use of the fuel. See Chicago Municipal Code §3-52-010(B)(9) (added Sept. 24, 1986)

(indicating taxable use of fuel "means the exercise of any right to or power over vehicle fuel

incident to the ownership thereof, including but not limited to, the receipt of vehicle fuel by any

person into a fuel supply tank of a vehicle"). It is not appropriate for us to disregard any part of this

concise and clear ordinance. County of Montgomery, 294 Ill. App. 3d at 856, 691 N.E.2d at 189

(indicating words and phrases should not be rendered superfluous).

¶ 12 Furthermore, if Ford Motor Company was truly buying fuel for resale, then we would

expect it to charge its customers for the amount of fuel that it delivered to them, but the record does

8 1-13-0597 not bear this out. The record contains one sample invoice for a new car that Ford Motor Company

delivered to a dealership in Auburn, Washington, in 2003. The invoice includes a line item charge

for exactly 10 gallons of fuel. Curlew, the Ford Motor Company employee, stated in his affidavit

that "all Dealers were required to pay the full charge for vehicle fuel placed in motor vehicles

referenced on the Dealer Invoices," but he did not say that the amounts referenced on the invoices

corresponded with the amount actually in the tanks at the time of delivery. This leads to the

inference that the amount of fuel stated on the invoice corresponded with the amount of fuel that

Ford Motor Company initially dispensed into its cars, before consuming some of the fuel by test

running and driving the cars onto trucks for delivery. In other words, the amount invoiced was to

reimburse Ford Motor Company for fuel that it purchased and used to produce and prepare its new

cars for delivery, and the invoice does not reflect a sale from a fuel distributor to a fuel retailer.

Ford Motor Company did not meet its burden of showing that it acted as a fuel distributor. The

record indicates Ford Motor Company is a car maker that invoices its retail dealers for the

production and preparation of cars. Ford Motor Company is not a fuel seller. It did not obtain the

fuel at issue in order to resell the fuel to its retail car dealers. For the purposes of the local

ordinance, the Chicago car maker had already "used" the fuel at issue by dispensing it into vehicles

before shipping them to dealerships. Thus, Ford Motor Company is liable for the municipal tax at

issue.

¶ 13 In addition, the Department has also pointed out the fallacy in the circuit court's remark that

reading the ordinance as we do makes "any transfer of fuel *** become a taxable transaction as

long as the fuel was placed in a storage tank under the buyer's control, regardless if the fuel was

ultimately resold to another party for their use." (Emphasis in original.) This concern is

9 1-13-0597 unfounded, as the ordinance does not apply to exercising control over fuel in a storage tank. As set

out above, the ordinance taxes the "purchasing or using [of vehicle fuel], in the City of Chicago"

(Chicago Municipal Code §3-52-020 (added Sept. 24, 1986)) and plainly states that "use in the

city" occurs where fuel is put "into the vehicle by which it is to be consumed" (Chicago Municipal

Code §3-52-030 (added Sept. 24, 1986)). Ford Motor Company subjected itself to the local tax

when it put fuel into the tanks of its vehicles in Chicago–vehicles which would consume the fuel

rather than simply act as storage containers. The circuit court's reading would improperly broaden

the scope of the ordinance beyond the drafter's intent.

¶ 14 Also, none of the claimed exemptions is applicable to Ford Motor Company's use of the

fuel. A statute providing for exemption is strictly construed in favor of taxation and against

exemption. West Belmont, 349 Ill. App. 3d at 49, 811 N.E.2d at 224 (regarding whether townhome

developer's purchase of land which had been used by furniture retailer and rental company was

exempt from municipal transfer tax on commercial or industrial property); Quad Cities Open, Inc.

v. City of Silvis, 208 Ill. 2d 498, 507, 804 N.E.2d 499, 505 (2004) (regarding whether charitable

golf tournament was exempt from municipality's amusement tax). Ford Motor Company has the

burden of proving it is entitled to an exemption (West Belmont, 349 Ill. App. 3d at 49, 811 N.E.2d

at 224, Quad Cities Open, 208 Ill. 2d at 507, 804 N.E.2d at 505), and its burden is a challenging

one because "all debatable questions are resolved in favor of taxation" (Yale Club of Chicago v.

Department of Revenue, 214 Ill. App. 3d 468, 472, 574 N.E.2d 31, 33 (1991). Even if the standard

for establishing an exemption was lenient and favorable to the tax payer, we would rule against

Ford Motor Company.

¶ 15 Its first and third exemption claims require us to disregard City Council's unequivocal

10 1-13-0597 indication that dispensing fuel into a vehicle's tank is a taxable "use" of the fuel. See Chicago

Municipal Code §3-52-010(B)(9) (added Sept. 24, 1986).

¶ 16 In order to qualify for the first exemption, Ford Motor Company could not "use" the fuel

and instead would have to be a fuel distributor and its car dealerships would have to be either fuel

distributors or fuel retailers. The municipal ordinance exempts from taxation any "[s]ale by a

distributor to a distributor or retailer of vehicle fuel whose place of business is outside the city."

Chicago Municipal Code §3-52-110(b) (added Sept. 24, 1986). The ordinance specifies that the

term " '[d]istributor' shall not include any person who transports vehicle fuel into the city or

receives vehicle fuel in the city for his own use and consumption, and not for sale or resale."

Chicago Municipal Code §3-52-010(B)(4) (added Sept. 24, 1986). The record indicates that

although Ford Motor Company is registered as a fuel distributor of vehicle fuel in Chicago, Ford

Motor Company was not acting like a distributor with respect to the vehicle fuel at issue. Ford

Motor Company made "use" of the fuel it received from BP Amoco and it cannot claim the benefit

of this exemption. Furthermore, treating Ford Motor Company as a distributor of vehicle fuel and

its dealerships in Chicago as retailers of vehicle fuel would mean that the car maker should have

collected the tax from its dealerships or that the dealerships should have "collect[ed] the tax from

the purchaser[s] of the vehicle fuel," which would be the car buyers. Chicago Municipal Code

§3-52-040(A) (added Sept. 24, 1986). However, Ford Motor Company presented no evidence that

the tax was collected and did not attempt to rebut the sworn statement of Elaine Herman, an audit

supervisor at the Department, that no Ford dealership in Chicago had collected and remitted fuel

taxes paid by car buyers or independently paid the fuel taxes to the city for the six-year period at

issue. Ford Motor Company was not entitled to the first exemption it claimed.

11 1-13-0597 ¶ 17 Similarly, in order to qualify for the third exemption, Ford Motor Company would have to

establish that (1) it did not "use" the vehicle fuel within the meaning of the ordinance, (2) it instead

purchased the fuel for nonretail sales to its dealers, and (3) 98% of the fuel it bought was then sold

to dealers outside of Chicago. After establishing all these facts, Ford Motor Company would have

to prove its contention that it could be taxed in another jurisdiction on the non-Chicago sales,

which could result in multiple taxation in violation of the Interstate Commerce Clause of the

United States Constitution (see Allied-Signal, Inc. v. Director, Division of Taxation, 504 U.S. 768,

777-78 (1992)) or its contention that the lack of minimum connection this jurisdiction has over

those non-Chicago sales results in taxation that is contrary to the Due Process Clause of the United

States Constitution (see Allied-Signal, 504 U.S. at 777-78). Proving either of these theories would

bring Ford Motor Company's purchases from BP Amoco within the ordinance's exemption for

"[s]ale or use to the extent the tax imposed by this chapter would violate the Illinois or United

States Constitution." Chicago Municipal Code §3-52-110(e) (added Sept 24, 1986). However, the

conclusion that we reached above that Ford Motor Company "used" the fuel when it dispensed the

fuel into individual vehicle tanks leads us to also conclude that Ford Motor Company cannot prove

that enforcement of the tax ordinance is unconstitutional.

¶ 18 The exemption for "[s]ale or use [of vehicle fuel] for purposes other than for propulsion or

operation of a vehicle," (Chicago Municipal Code §3-52-110(c) (added Sept 24, 1986)), is not

available to Ford Motor Company because the obvious and undeniable reason the car maker

dispensed the fuel into the individual vehicle tanks was for "propulsion or operation" of its

vehicles. Ford Motor Company argues that its purpose was for the subsequent resale of the fuel to

vehicle dealerships located inside or outside of Chicago, but we rejected this argument above. The

12 1-13-0597 fuel was not placed into storage tanks for resale.

¶ 19 For all these reasons, we find that the municipal tax ordinance applies to Ford Motor

Company and that this taxpayer does not qualify for exemption. Accordingly, we reverse the

decision of the circuit court in favor of Ford Motor Company and affirm the decision of the

administrative law judge in favor of the Department.

¶ 20 Circuit court reversed; administrative agency affirmed.