Ford Motor Co. v. Chicago Department of Revenue

Illinois Official Reports

Appellate Court

Ford Motor Co. v. Chicago Department of Revenue,

2014 IL App (1st) 130597

Appellate Court FORD MOTOR COMPANY, Plaintiff-Appellee, v. CHICAGO

Caption DEPARTMENT OF REVENUE, BEA REYNA-HICKEY, in Her

Capacity as Director of the Chicago Department of Revenue, and THE

CHICAGO DEPARTMENT OF ADMINISTRATIVE HEARINGS,

Defendants-Appellants.

District & No. First District, Fifth Division

Docket No. 1-13-0597

Filed June 27, 2014

Held The trial court’s decision that plaintiff car maker was not liable for

(Note: This syllabus defendant city’s municipal tax on all of the motor vehicle fuel,

constitutes no part of the including gasoline and diesel it purchased for its newly manufactured

opinion of the court but cars, was reversed by the appellate court, notwithstanding plaintiff’s

has been prepared by the contention that it only used a small percentage of the fuel in testing its

Reporter of Decisions new cars and then charged its dealers for the balance of the fuel, since

for the convenience of under the terms of the tax ordinance, plaintiff was making “use” of the

the reader.) fuel and was liable for the tax when it was placed in the tanks of the

individual cars coming off the assembly lines, regardless of where or

when the fuel was ultimately used in the cars or when the cars were

sold to dealers; furthermore, plaintiff did not qualify for any of the

exemptions in the ordinance.

Decision Under Appeal from the Circuit Court of Cook County, No. 11-L-51361; the

Review Hon. Margaret A. Brennan, Judge, presiding.

Judgment Circuit court reversed; administrative agency affirmed.

Counsel on Stephen R. Patton, Corporation Counsel, of Chicago (Benna Ruth

Appeal Solomon, Myriam Zreczny Kasper, and Stephen G. Collins, Assistant

Corporation Counsel, of counsel), for appellants.

Fred O. Marcus and David S. Ruskin, both of Horwood Marcus &

Berk Chtrd., of Chicago, for appellee.

Panel 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 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

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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.

¶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 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

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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. The 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 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 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.

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¶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 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; 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

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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 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.” (Emphases in

original.) This concern is 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

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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 taxpayer, we would rule against Ford Motor Company.

¶ 15 Its first and third exemption claims require us to disregard city council’s unequivocal

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.

¶ 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

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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 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.

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