Shared Imaging, LLC v. Hamer

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Appellate Court Date: 2017.10.16

09:08:33 -05'00'

Shared Imaging, LLC v. Hamer, 2017 IL App (1st) 152817

Appellate Court SHARED IMAGING, LLC, Plaintiff-Appellant, v. BRIAN HAMER,

Caption in His Official Capacity as Director of Revenue; THE

DEPARTMENT OF REVENUE; DAN RUTHERFORD, in His

Official Capacity as Treasurer of the State of Illinois, Defendants-

Appellees.

District & No. First District, Third Division

Docket No. 1-15-2817

Filed June 28, 2017

Decision Under Appeal from the Circuit Court of Cook County, No. 12-L-51135; the

Review Hon. James M. McGing, Judge, presiding.

Judgment Affirmed in part, reversed in part, and remanded.

Counsel on Horwood Marcus & Berk Chtrd., of Chicago (David A. Hughes,

Appeal David S. Ruskin, and Samantha K. Breslow, of counsel), for appellant.

Lisa Madigan, Attorney General, of Chicago (David L. Franklin,

Solicitor General, and Evan Siegel, Assistant Attorney General, of

counsel), for appellees.

Panel JUSTICE PUCINSKI delivered the judgment of the court, with

opinion.

Justices Lavin and Cobbs concurred in the judgment and opinion.

OPINION

¶1 Plaintiff, Shared Imaging, LLC (Shared Imaging), instituted this action pursuant to the

State Officers and Employees Money Disposition Act (30 ILCS 230/1 et seq. (West 2012)),

seeking review of the Department of Revenue’s (Department) determination that Shared

Imaging owed $807,544 in back taxes, interest, and penalties under the Use Tax Act (Act)

(35 ILCS 105/3-10 (West 2008)) for the period of January 1, 2008, through April 30, 2009

(the Period). The parties filed cross-motions for partial summary judgment, and after a

hearing, the trial court entered judgment against Shared Imaging and in favor of the

Department.

¶2 On appeal, Shared Imaging argues that (1) some of its units were not subject to the use

tax, because they were subject to the temporary storage exemption under the Act (35 ILCS

105/3-55(e) (West 2008)), (2) other units were not subject to the use tax, because they were

subject to the expanded temporary storage exemption under the Act (35 ILCS 105/3-55(j)

(West 2008)), (3) the Department’s assessment of taxes was unconstitutional because it is not

fairly apportioned under the commerce clause of the United States Constitution (U.S. Const.,

art. I, § 8, cl. 3), (4) if Shared Imaging does owe use tax, it is entitled to a credit for taxes

paid to other states, (5) if Shared Imaging does owe use tax, the tax base must be reduced for

depreciation, and (6) all late filing and late payment penalties should be abated because

Shared Imaging had good cause for not paying its use tax. For the reasons that follow, we

affirm in part, reverse in part, and remand for further proceedings.

¶3 BACKGROUND

¶4 The record reveals the following. Shared Imaging is a limited liability company with its

principal place of business in Streamwood, Illinois, and engages in the business of leasing

trailers and other mobile equipment outfitted with medical devices and instruments, such as

MRI machines. Shared Imaging leases its equipment to customers both within and outside of

Illinois. The length of the leases varies greatly and can be as short as a few days to as long as

a few years.

¶5 In June 2012, following an audit, the Department issued notices of liability to Shared

Imaging, stating that on 11 of its units purchased during the Period (Units 52, 55, 229, 231,

553, 579, 582, 585, 587, 588, and 591), Shared Imaging owed $305,873 in use tax, $433,4471

in penalties (for fraud, late payment, and late filing), and $68,224 in interest. Shared Imaging

paid the total assessed—$807,544—under protest.

1

Throughout its filings in the trial court and its briefs on appeal, Shared Imaging states that the total

amount of penalties assessed was $443,447. Review of the notices of liability, however, reveals this to

be error, as the total amount penalties assessed was actually $433,447. This is consistent with Shared

Imaging’s claim that it paid a total of $807,544 to the Department under protest.

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¶6 Shared Imaging then filed suit against the Department, its then-director Brian Hamer, and

then-Illinois treasurer, Dan Rutherford, seeking review of the Department’s assessment of the

use tax against the units at issue. Shared Imaging’s first amended verified complaint

contained ten counts, alleging the following: Shared Imaging was entitled to a preliminary

injunction enjoining the defendants from transferring Shared Imaging’s protest payment out

of the state protest fund or otherwise continuing collection of the assessed taxes (count I); the

units at issue were not subject to the use tax because they were not used in Illinois (count II);

the units at issue qualified for the temporary storage exemption (and expanded temporary

storage exemption) under the Act (count III); Shared Imaging was entitled to a credit against

the assessed taxes for taxes paid to other states (count IV); Shared Imaging was entitled to a

deduction in the tax base for depreciation (count V); the Department’s tax assessment was

not fairly apportioned (count VI); Shared Imaging should not have to pay any penalties

because it had reasonable cause for not timely paying the use taxes (count VII); the

Department’s assessment of double interest and penalties under the Tax Delinquency

Amnesty Act (Amnesty Act) (35 ILCS 745/1 et seq. (West 2008)) violated due process

(count VIII); the Department’s assessment of double interest and penalties under the

Amnesty Act was unlawful because the Amnesty Act violates the federal excessive fines

clause (U.S. Const., amend. VIII) (count IX); and the double interest should be abated

because it was, in essence, a penalty and Shared Imaging had reasonable cause for its failure

to pay the assessed taxes (count X).

¶7 Shared Imaging moved for partial summary judgment on the issues of whether the units

at issue were subject to the temporary storage exemption and the expanded temporary storage

exemption (count III); the Department’s assessment was fairly apportioned (count VI);

Shared Imaging was entitled to a credit for taxes paid to other states (count IV); Shared

Imaging was entitled to a tax-base deduction for depreciation (count V); and late payment,

late filing, and fraud penalties should be abated (count VII). The defendants filed a response

and cross-motion for summary judgment on the same grounds.

¶8 After taking a reply from Shared Imaging and hearing the oral arguments of both sides,

the trial court granted summary judgment in favor of the defendants on counts III, IV, V, and

VI. The trial court also granted the defendants summary judgment on count VII with respect

to the late filing and late payment penalties but granted summary judgment to Shared

Imaging on the issue of the fraud penalties. Thereafter, Shared Imaging filed a motion to

correct the record on the basis that the copies of the trial court’s decision issued to Shared

Imaging and the defendants was not the same. Shared Imaging also filed a motion requesting

that the trial court enter an Illinois Supreme Court Rule 304(a) (eff. Feb. 26, 2010) finding.

¶9 On September 29, 2015, the trial court entered its “Corrected Opinion and Order,” which

corrected the discrepancy in the original decision and also contained the statement that “[t]his

Opinion and Order is Final and Appealable.” On the same date, the trial court issued a

handwritten order, stating that Shared Imaging’s motions to correct the record and for a Rule

304(a) finding were granted. In that order, the trial court stated that there was “no just cause

for delay of enforcement or appeal of the final order entered separately on this day.”

¶ 10 Shared Imaging filed its notice of appeal on October 1, 2015.

¶ 11 On appeal, Shared Imaging cited only the “Corrected Opinion and Order” in its

jurisdictional statement. Accordingly, we initially dismissed Shared Imaging’s appeal for

lack of jurisdiction on the basis that the “Corrected Opinion and Order” did not contain a

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sufficient Rule 304(a) finding. Thereafter, Shared Imaging filed a petition for rehearing in

which it cited, for the first time, the second September 29, 2015, order, which did contain a

sufficient Rule 304(a) finding. We granted that petition for rehearing.

¶ 12 STANDARD OF REVIEW

¶ 13 Summary judgment is appropriate only where “the pleadings, depositions, and

admissions on file, together with the affidavits, if any, show that there is no genuine issue as

to any material fact and that the moving party is entitled to a judgment as a matter of law.”

735 ILCS 5/2-1005(c) (West 2016). Although the filing of cross-motions for summary

judgment does not necessarily establish the lack of an issue of material fact or obligate a

court to render summary judgment, it does indicate that the parties agree that the case

involves a question of law and that they invite the court to decide the issues based on the

record. Pielet v. Pielet, 2012 IL 112064, ¶ 28. Our review of a trial court’s summary

judgment determination is de novo. Id. ¶ 30. “[T]his court may affirm a trial court’s grant of

summary judgment on any basis apparent in the record, regardless of whether the trial court

relied on that basis or whether the court’s reasoning was correct.” Harlin v. Sears Roebuck &

Co., 369 Ill. App. 3d 27, 31-32 (2006).

¶ 14 The issues presented in this case require us to interpret various provisions of the Act.

Matters of statutory interpretation are also reviewed de novo. People ex rel. Madigan v.

Illinois Commerce Comm’n, 231 Ill. 2d 370, 377 (2008).

¶ 15 ANALYSIS

¶ 16 On appeal, Shared Imaging argues that (1) Units 229, 231, and 588 were not subject to

the use tax, because they were subject to the temporary storage exemption under the Act (35

ILCS 105/3-55(e) (West 2008)); (2) Units 52, 55, 553, 579, 582, 585, and 591 were not

subject to the use tax, because they were subject to the expanded temporary storage

exemption under the Act (35 ILCS 105/3-55(j) (West 2008)); (3) the Department’s

assessment of taxes was unconstitutional because it was not fairly apportioned under the

federal commerce clause; (4) if Shared Imaging did owe use tax, it was entitled to a credit for

taxes paid to other states; (5) if Shared Imaging did owe use tax, the tax base must be

reduced for depreciation; and (6) all late filing and late payment penalties should be abated

because Shared Imaging had good cause for not paying its use tax.

¶ 17 Jurisdiction

¶ 18 We will address all of these contentions in turn. Before doing so, however, we address

the issue that has led to our granting of Shared Imaging’s petition for rehearing: our

jurisdiction. We initially dismissed this appeal for lack of jurisdiction based on our belief that

the trial court had not entered a sufficient finding pursuant to Rule 304(a), because the

September 29, 2015, “Corrected Order and Opinion” simply stated that the order was “final

and appealable.” This mistaken belief was a result of Shared Imaging’s blatant failure to

comply with Illinois Supreme Court Rule 341(h)(4)(ii) (eff. Jan. 1, 2016).

¶ 19 Appellants have the burden of establishing appellate jurisdiction. U.S. Bank National

Ass’n v. IN Retail Fund Algonquin Commons, LLC, 2013 IL App (2d) 130213, ¶ 24.

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Accordingly, Rule 341(h)(4)(ii) requires that all appellants include the following in their

opening briefs:

“a brief, but precise statement or explanation under the heading ‘Jurisdiction’ of the

basis for appeal including the supreme court rule or other law which confers

jurisdiction upon the reviewing court; the facts of the case which bring it within this

rule or other law; and the date that the order being appealed was entered and any

other facts which are necessary to demonstrate that the appeal is timely. In appeals

from a judgment as to all the claims and all the parties, the statement shall

demonstrate the disposition of all claims and all parties. All facts recited in this

statement shall be supported by page references to the record on appeal.” (Emphases

added.) Ill. S. Ct. R. 341(h)(4)(ii) (eff. Jan. 1, 2016).

Shared Imaging’s jurisdictional statement failed to comply with the emphasized language: it

failed to state the facts of the case that brought it within Rule 304(a), and it failed to support

its statements with page references to the record on appeal.

¶ 20 It would seem to us to be readily apparent that an appellant claiming jurisdiction under

Rule 304(a) should clearly reference the order (including record citation) in which the trial

court made its Rule 304(a) finding, especially when specifically directed by Rule

341(h)(4)(ii) to include in its jurisdictional statement all facts that bring the case within the

ambit of Rule 304(a). It appears that Shared Imaging did not share our opinion. Although

claiming jurisdiction in this court pursuant to Rule 304(a), the only order referenced in

Shared Imaging’s jurisdictional statement is the September 29, 2015, “Corrected Opinion and

Order.” Shared Imaging failed to include any reference to a second order of September 29,

2015, containing a Rule 304(a) finding, nor does the jurisdictional statement include any

record citation to the second September 29, 2015, order (in fact, the jurisdictional statement

contains no record citations whatsoever).

¶ 21 This failure is especially problematic in situations such as these, where the “Corrected

Opinion and Order” contained a statement by the trial court that the order was “final and

appealable”—language often used by trial courts and parties in failed attempts to make a

Rule 304(a) finding. See Palmolive Tower Condominiums, LLC v. Simon, 409 Ill. App. 3d

539, 544 (2011) (citing numerous cases holding that the phrase “final and appealable” does

not qualify as a Rule 304(a) finding). In addition, there is no reference to the second

September 29, 2015, order in Shared Imaging’s statement of facts; it is not included in the

appendix, and it is not referenced in or attached to Shared Imaging’s notice of appeal.

Anyone reading Shared Imaging’s brief would never even know such an order existed.

Instead, one would be led to believe that the “final and appealable” language found in the

“Corrected Opinion and Order”—the only order ever referenced by Shared Imaging in

support of jurisdiction—was the intended Rule 304(a) finding that formed the basis for

Shared Imaging’s claim of jurisdiction based on that rule.

¶ 22 The brief contents required by Rule 341(h) are not intended as academic exercises or

meaningless busywork for appellants. They serve a purpose, and when appellants fail to

comply with the Rules, that purpose is thwarted. Were this not an issue of jurisdiction, the

dismissal of Shared Imaging’s appeal could be considered invited error. See In re Detention

of Swope, 213 Ill. 2d 210, 217 (2004) (“[A] party cannot complain of error which that party

induced the court to make or to which that party consented. The rationale behind this

well-established rule is that it would be manifestly unfair to allow a party a second trial upon

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the basis of error which that party injected into the proceedings.”). Moreover, appellants who

have failed to comply with Rule 341 have seen their contentions waived, briefs stricken, and

appeals dismissed. See Rosestone Investments, LLC v. Garner, 2013 IL App (1st) 123422,

¶ 18 (“Where an appellant’s brief contains numerous Rule 341 violations and, in particular,

impedes our review of the case at hand because of them, it is our right to strike that brief and

dismiss the appeal.”); First National Bank of LaGrange v. Lowrey, 375 Ill. App. 3d 181,

208-09 (2007) (failure to comply with Rule 341(h)(7) results in waiver of contentions). To

avoid these consequences in the future, we strongly urge that Shared Imaging take greater

effort to comply with Supreme Court 341(h) in the future. “[T]he rules of this court neither

are aspirational nor are they mere suggestions; ‘[t]hey have the force of law, and the

presumption must be that they will be obeyed and enforced as written.’ ” Robidoux v.

Oliphant, 201 Ill. 2d 324, 340 (2002) (quoting Bright v. Dicke, 166 Ill. 2d 204, 210 (1995)).

¶ 23 Use Tax Act

¶ 24 The Act imposes a tax “upon the privilege of using in this State tangible personal

property purchased at retail from a retailer.” 35 ILCS 105/3 (West 2008). This use tax

intended to serve as a complement to the Retailers’ Occupation Tax Act (35 ILCS 120/1

et seq. (West 2008)), which is the primary means by which Illinois taxes retail sales of

tangible goods. The purpose of the use tax is to preclude buyers from avoiding the retailers’

occupation tax by making purchases from out-of-state vendors and to protect Illinois vendors

from lost sales to those out-of-state vendors. Irwin Industrial Tool Co. v. Department of

Revenue, 238 Ill. 2d 332, 340 (2010).

¶ 25 The resolution of the issues in this matter requires us to interpret various provisions of the

Act. The most basic of rules governing the interpretation of statutes is that our role is to

ascertain and effectuate the legislature’s intent. Hamilton v. Industrial Comm’n, 203 Ill. 2d

250, 255 (2003). The best indicator of that intent is the language of the statute when given its

plain and ordinary meaning. Id. In the process of interpreting a statute, “[n]o sentence,

clause, or word should be interpreted in a way that renders it superfluous or meaningless.”

McTigue v. Personnel Board of the City of Chicago, 299 Ill. App. 3d 579, 589 (1998).

“[S]tatutes exempting property from taxation must be strictly construed.” Nutrition

Headquarters, Inc. v. Department of Revenue, 123 Ill. App. 3d 997, 999 (1984).

¶ 26 Units 553, 582, and 587

¶ 27 In its response brief, the Department concedes that Units 553, 582, and 587 were never

stored or otherwise used in Illinois and, thus, Shared Imaging was improperly assessed a use

tax with respect to those units. Although Shared Imaging agrees that Units 553 and 582 were

never used in Illinois, it contends that Unit 587 was leased in Illinois. 2 Accordingly,

2

We note that in support of its contention that Unit 587 was leased inside Illinois, Shared Imaging

cited a span of 113 pages of the record, i.e., all of the leases pertaining to Unit 587, rather than the

specific lease or leases demonstrating that the unit was leased inside Illinois. Again, we direct Shared

Imaging to Illinois Supreme Court Rule 341(h) (eff. Jan. 1, 2016), specifically Rule 341(h)(7)’s

requirement that appellants are to cite to the pages of the record where evidence supporting the

appellant’s argument may be found. Citation to a large swath of the record is no more helpful in our

review than failing to cite any part of the record at all.

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although the Department was willing to concede $170,539 in taxes, penalties, and interest,

that amount should be reduced to $79,567, which represents the use tax, interest, and late

payment and late filing penalties imposed for Units 553 and 582 (fraud penalties are not at

issue in this appeal and, therefore, are not considered).

¶ 28 With respect to Unit 587, Shared Imaging admits that it was leased in Illinois and makes

no argument on appeal that it was subject to any exemption from the Act. Shared Imaging

does argue with respect to Unit 587, however, that it was entitled to a credit for out-of-state

taxes paid on the unit and a deduction for depreciation. We will address these contentions

when we address Shared Imaging’s arguments regarding its entitlement to credit and

depreciation deductions with respect to all of the units.

¶ 29 Temporary Storage Exemption

¶ 30 We move now to Shared Imaging’s first substantive contention on appeal, which is that

Units 229, 231, and 588 were exempt from the use tax under the temporary storage

exemption. Under that exemption, the Act provides that the use tax does not apply under the

following circumstances:

“The temporary storage, in this State, of tangible personal property that is acquired

outside this State and that, after being brought into this State and stored here

temporarily, is used solely outside this State or is physically attached to or

incorporated into other tangible personal property that is used solely outside this

State, or is altered by converting, fabricating, manufacturing, printing, processing, or

shaping, and, as altered, is used solely outside this State.” 35 ILCS 105/3-55(e) (West

2008).

As it applies to the units in this case, the temporary storage exemption has three

requirements: they must be (1) purchased outside of Illinois, (2) stored temporarily in

Illinois, and (3) then used solely outside of Illinois.

¶ 31 Shared Imaging argues that Units 229, 231, and 588 qualify for this exemption because

they were purchased outside of Illinois and were each stored in Illinois for less than two

months before being leased exclusively outside of Illinois during the Period. There is no

dispute that Units 229, 231, and 588 meet the first requirement, as the record demonstrates

that all three were purchased outside of Illinois. Rather, the parties spend much of their time

arguing over whether the storage of the units in Illinois immediately following their purchase

was “temporary” under the Act. The Department contends that Units 229, 231, and 588 were

not temporarily stored in Illinois because their initial post-purchase storages lasted 28 days,

18 days, and 47 days, respectively, and those time frames do not qualify as temporary.

Shared Imaging argues, on the other hand, that they were only temporarily stored because

they were stored for a limited time and then were leased outside of Illinois.

¶ 32 The Act does not define temporary storage and there is a dearth of case law on the topic.

“In the absence of a statutory definition indicating a different legislative intent, words are to

be given their ordinary and commonly understood meaning.” Cojeunaze Nursing Center v.

Lumpkin, 260 Ill. App. 3d 1024, 1029 (1994). Dictionaries may be used to ascertain the

ordinary and commonly understood meaning of a word. Id. The New College Edition of the

American Heritage Dictionary defines the word temporary as “Lasting, used, or enjoyed for a

limited time; impermanent; transient.” American Heritage Dictionary 1325 (1981). Under

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this definition, we conclude that the storage of Units 229, 231, and 588 immediately

following their purchases was temporary in nature.

¶ 33 Units 229, 231, and 588 were stored in Illinois following their purchase for no more than

47 days before they were leased to customers outside of Illinois. The uncontested affidavit of

Brady Goetz, Controller of Shared Imaging, states that Shared Imaging purchased the units

“for the purpose of transporting them to other states for lease solely outside Illinois during

the Periods in Issue.” Although we decline to set any bright-line rule regarding what span of

time constitutes “temporary storage,” we believe that the storage of Units 229, 231, and 588

for no more than 47 days while awaiting transport to out-of-state lessees falls within the

scope of a “limited time,” “impermanent,” and “transient.”

¶ 34 The Department relies on Nutrition Headquarters, Inc. v. Department of Revenue, 106 Ill.

2d 58 (1985), for its contention that the amount of time that Units 229, 231, and 588 were

stored in Illinois immediately following their purchase was too long to be considered

temporary. In Nutrition Headquarters, the taxpayer operated a mail-order vitamin and health

food business headquartered in Illinois. Its catalogs were printed and stamped for mailing in

states outside of Illinois but then were labeled with customers’ names and addresses, sorted,

and mailed from Illinois. The Department contended that these activities constituted use

under the Act and attempted to impose a use tax on the catalogs. Id. at 59-60. The Illinois

Supreme Court disagreed, finding that the temporary storage exemption applied. Id. at 63. In

so holding, the court noted that the catalogs made only a “brief stop” in Illinois. Id. at 61.

¶ 35 It is this “brief stop” language on which the Department relies in arguing that the 18 to 47

days spent in Illinois by Units 229, 231, and 588 did not fall within the definition of

temporary. The fault in the Department’s argument, however, is that the court in Nutrition

Headquarters did not define “brief stop.” Accordingly, we have no way of knowing whether

the catalogs were in Illinois for a longer or shorter period of time than Units 229, 231, and

588 were. Therefore, Nutrition Headquarters does not dictate, as the Department contends, a

finding that Units 229, 231, and 588 were not temporarily stored in Illinois.

¶ 36 The Department also argues that the units were more than just temporarily stored while in

Streamwood; according to the Department, Units 229, 231, and 588 also underwent

“inspection” there. In support of this assertion, the Department cites to a sentence in the

statement of facts in Shared Imaging’s opening brief on appeal. That sentence reads, “Before

a long-term lease, the asset may or may not be shipped to Shared Imaging’s Streamwood

location for inspection or temporary storage before lease outside of the state.” That statement

in no way demonstrates that Units 229, 231, and 588 were, in fact, inspected while in

Streamwood. Although it is a theoretical possibility that they were, the Department has

offered no evidence to counter Shared Imaging’s evidence that Units 229, 231, and 588 were

simply stored in Streamwood prior to being transported out of state to fulfill leases.

Accordingly, this contention has no merit.

¶ 37 With respect to the third requirement of the temporary storage exemption—that the units

be used solely outside of Illinois following their temporary storage in Illinois—Shared

Imaging argues that Units 229, 231, and 588 were used solely outside of Illinois because they

were leased solely outside of Illinois during the Period, did not return to Illinois during the

Period, and when they did return, were only passively stored at the Streamwood location

until they were again leased outside of Illinois. Although each of these contentions might be

true, none of them satisfy the third requirement of the temporary storage exemption, because

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the return of Units 229, 231, and 588 to Illinois, even just for storage, defeats the requirement

that they be solely used outside of Illinois.

¶ 38 The term “use” is defined by the Act in relevant part as “the exercise by any person of

any right or power over tangible personal property incident to the ownership of that

property.” 35 ILCS 105/2 (West 2008). Storage of tangible personal property qualifies as a

use of that property, because placing property in storage and maintaining the storage of that

property represents an exercise of rights and power over the property that belongs only to the

owner of the property. It goes without saying that a person who has no ownership interest in

a piece of property cannot choose to put the property into storage or dictate how long said

property will remain in storage; that power belongs uniquely to the owner of the property.

¶ 39 Moreover, the fact that the Act includes specific exemptions for circumstances involving

storage indicates that the term “use” was intended to generally include storage. After all, if

storage does not constitute use in the first place, then there is no need for specific exemptions

for temporary storage. To read the Act in such a manner as to exclude storage from the

definition of use would be to read out the temporary storage and expanded temporary storage

exemptions and render them meaningless. See McTigue, 299 Ill. App. 3d at 589 (“No

sentence, clause, or word should be interpreted in a way that renders it superfluous or

meaningless.”); First National Bank of Marengo v. Loffelmacher, 236 Ill. App. 3d 690, 695

(1992) (declining to interpret a statutory provision in a manner that would render exceptions

to the general rule meaningless).

¶ 40 The record on appeal demonstrates that, although Units 229, 231, and 588 remained

outside of Illinois during the Period following their initial post-purchase storage in Illinois,

they did eventually return to the Streamwood location. More specifically, Unit 229 returned

to Illinois from Wyoming in November 2009, Unit 231 was picked up from Georgia for

delivery to Illinois in February 2011, and Unit 588 returned from Oklahoma in September

2009. Although Shared Imaging contends that these units would have been stored in Illinois

until they were next leased to an out-of-state customer, there is nothing in the record that

demonstrates whether these units were subsequently leased following their return to Illinois

and, if they were, whether they were leased to Illinois or out-of-state lessees. To this extent,

the return of Units 229, 231, and 588 for storage until their next lease appears to be no more

than the return of the units to Shared Imaging’s rental inventory. See 86 Ill. Adm. Code

150.310(a)(6)(A)(iii), amended at 32 Ill. Reg. 17554 (eff. Oct. 24, 2008) (“[I]n Illinois,

lessors are deemed to be the users of items purchased for rental inventories and placing an

item in a rental inventory does not constitute storage [subject to exemption].”). Accordingly,

whether later leased in or outside Illinois, the return of the units to Illinois for storage

demonstrates that they were not solely used outside of Illinois following their initial

post-purchase storage, because, as discussed, storage constitutes use under the Act.

¶ 41 Shared Imaging makes a number of arguments against our interpretation of the term

“use” and our determination that Units 229, 231, and 588 were not used solely outside of

Illinois. First, Shared Imaging contends that mere storage does not constitute use under the

Act. In support, Shared Imaging points out that the Act does not specifically include storage

in the definition of use like other states’ statutes have done. We fail to see what relevance the

phraseology of other states’ statutes has to do with the interpretation of the plain language of

the Illinois statute. As explained above, storage is clearly the exercise of a right and power

incident to ownership, and to interpret the term “use” as excluding storage would be to render

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several exemptions in the Act meaningless. Shared Imaging does not provide any other

support for this contention, except for its own belief that the term “use” does not include

storage. For this reason and for those discussed above, we find no merit in this contention.

¶ 42 Shared Imaging also argues that Units 229, 231, and 588 were used solely outside of

Illinois because they did not return to Illinois within the Period. We agree that the record

demonstrates that the return of the units at issue did not occur until after April 30, 2009, but

we fail to see the relevance of this position. Shared Imaging cites no authority in support of

its position, and nothing in the exemption suggests that the application of the exemption is

analyzed on a tax-period-by-tax-period basis. Rather, the plain language of the exemption

states that the property must be used solely outside of Illinois—period—suggesting that the

property must always be used outside of Illinois, without limitation. This is consistent with

the nature of a use tax, which is a “one-time tax imposed upon a discrete event (the purchase

of the tangible property) for the privilege of unlimited use of that property in state.” Irwin

Industrial Tool Co. v. Department of Revenue, 394 Ill. App. 3d 1002, 1021 (2009); see also

Philco Corp. v. Department of Revenue, 40 Ill. 2d 312, 319-20 (1968) (“[The use tax] is a

nonrecurrent tax; once the tax is paid, the owner of the property may use it in Illinois,

continuously or intermittently, without incurring a further use tax.”). The use tax is triggered

by the purchase of the property (Units 229, 231, and 588 were purchased within the Period),

and the temporary storage exemption either applies or does not apply, depending on the use

of the property. Although the exemption might apply for a period of time, a change in the use

of the property, even if it takes place outside of the initial tax period, can render an

exemption inapplicable. See, e.g., 86 Ill. Adm. Code 150.310(a)(6)(F), amended at 32 Ill.

Reg. 17554 (eff. Oct. 24, 2008) (stating that property initially believed to be subject to the

expanded temporary storage exemption will be subject to the use tax if it subsequently

returns to and is used in Illinois).

¶ 43 Next, Shared Imaging contends that even if Units 229, 231, and 588 did return to Illinois,

they were returned only for temporary storage, which is exempted under the temporary

storage exemption and nothing in the Act indicates that a taxpayer can temporarily store

property in Illinois only once. First, we note that Shared Imaging’s choice to phrase this

argument in the context of “even if” the units returned to Illinois is a bit disingenuous, as it is

Shared Imaging’s own exhibits in support of summary judgment that clearly demonstrate that

Units 229, 231, and 588 returned to Illinois. More importantly, however, Shared Imaging’s

argument that there is no limit on the number of times a taxpayer may temporarily store

property in Illinois is incorrect: the temporary storage exemption clearly places that limit on

the taxpayer by providing that after the initial post-purchase temporary storage of property,

that property must be used “solely” outside of Illinois. Given that the term “use” includes

storage, the return of property to Illinois—even if only for storage—constitutes use occurring

inside Illinois. Therefore, although the temporary storage exemption permits the initial

post-purchase storage of property, it prohibits the further storage (i.e., use) of property in

Illinois absent the payment of the use tax.

¶ 44 Shared Imaging also points out that the temporary storage exemption permits taxpayers,

without forfeiting the exemption, to physically attach or incorporate the property into other

property that is solely used outside of Illinois or to alter the property by converting,

fabricating, manufacturing, printing, processing, or shaping for use solely outside of Illinois.

According to Shared Imaging, because passive storage is much less active and invasive than

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such activities, it should not be held to have forfeited the temporary storage exemption by the

return of Units 229, 231, and 588 for further storage. We find this contention unavailing

because, regardless of whether Shared Imaging chooses to store, attach, alter, or shape the

units, the exemption permits it to do so only once, tax free, prior to sending the property out

of state for use. If Shared Imaging returns the property to Illinois and engages in the same

activity again, the exemption no longer applies. In addition, Shared Imaging fails to explain

why it is that, just because it engages in a more passive use of its property than is permitted,

it should be excused from the requirement that the property must thereafter be used solely

outside of Illinois. We certainly see no relationship between the two.

¶ 45 Finally, Shared Imaging argues that under the Department’s regulations and our

interpretation of the Act, if Shared Imaging were to lease its units to exempt hospitals (86 Ill.

Adm. Code 150.331(b) (2002)), it would not be subject to the use tax, but if it merely stores

the units, it is subject to the use tax. According to Shared Imaging, this distinction

“underscores the dubiousness of the Department’s position.” We see nothing dubious about

the Department using tax incentives to encourage the leasing of medical equipment to tax

exempt hospitals for the treatment of sick and injured Illinois citizens and visitors, while

taxing the use of property that benefits from Illinois services (police, fire, roads, and other

infrastructure) but is not actively contributing to the well-being of the State.

¶ 46 In sum, because storage qualifies as a use of tangible personal property under the Act and

because the return of Units 229, 231, and 588 to Illinois for additional storage defeats the

temporary storage exemption requirement that the property be used solely outside of Illinois

after its initial post-purchase storage in Illinois, we conclude that the temporary storage

exemption did not apply to Units 229, 231, and 588. Accordingly, the Department properly

assessed a use tax on the purchase of these units.

¶ 47 Expanded Temporary Storage Exemption

¶ 48 Next, Shared Imaging argues that Units 52, 55, 579, 585, and 5913 were exempt from the

use tax under the expanded temporary storage exemption found in section 3-55(j) of the Act

(35 ILCS 105/3-55(j) (West 2008)). That exemption provides as follows:

“Beginning on January 1, 2002 and through June 30, 2011, the use of tangible

personal property purchased from an Illinois retailer by a taxpayer engaged in

centralized purchasing activities in Illinois who will, upon receipt of the property in

Illinois, temporarily store the property in Illinois (i) for the purpose of subsequently

transporting it outside this State for use or consumption thereafter solely outside this

State or (ii) for the purpose of being processed, fabricated, or manufactured into,

attached to, or incorporated into other tangible personal property to be transported

outside this State and thereafter used or consumed solely outside this State. The

Director of Revenue shall, pursuant to rules adopted in accordance with the Illinois

Administrative Procedure Act, issue a permit to any taxpayer in good standing with

the Department who is eligible for the exemption under this subsection (j). The permit

3

In its opening brief, Shared Imaging also included Units 553 and 582 in this contention.

Subsequently, however, the Department conceded that it had improperly taxed those units and agreed

that Shared Imaging was entitled to a refund of the taxes, interest, and late filing and late payment

penalties paid on those units.

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issued under this subsection (j) shall authorize the holder, to the extent and in the

manner specified in the rules adopted under this Act, to purchase tangible personal

property from a retailer exempt from the taxes imposed by this Act. Taxpayers shall

maintain all necessary books and records to substantiate the use and consumption of

all such tangible personal property outside of the State of Illinois.” 35 ILCS

105/3-55(j) (West 2008).

¶ 49 With respect to Unit 579, Shared Imaging argues that the expanded temporary storage

exemption applies because once transferred out of Illinois, Unit 579 never returned. As for

the remaining Units, Shared Imaging argues that even though they eventually returned to

Illinois for storage, they were only temporarily stored in Illinois. There is no need to

distinguish between the various units with respect to the application of this exemption,

because Shared Imaging’s claim to the expanded temporary storage exemption fails because

Shared Imaging did not possess the required permit at the time it purchased the units.

¶ 50 As the language of the exemption makes clear, the Director of Revenue is to issue

permits to any taxpayer who is in good standing and qualifies for the exemption. It is this

permit that authorizes a taxpayer to purchase property without being subject to the use tax.

Id. In addition, the Department’s regulations promulgated under this section make clear that

the permit is a necessity before the expanded temporary storage exemption may be claimed

by a taxpayer: “Persons who wish to take advantage of this expanded temporary storage

exemption must apply in writing to the Department to obtain an Expanded Temporary

Storage Permit.” (Emphasis added.) 86 Ill. Adm. Code 150.310(a)(6)(C), amended at 32 Ill.

Reg. 17554 (eff. Oct. 24, 2008). “Persons holding a valid Expanded Temporary Storage

Permit may claim the expanded temporary storage exemption ***.” (Emphasis added.) 86 Ill.

Adm. Code 150.310(a)(6)(D), amended at 32 Ill. Reg. 17754 (eff. Oct. 24, 2008).

¶ 51 Despite these clear directives, Shared Imaging did not obtain a permit until February 1,

2014, years after all of the units at issue were purchased. Nevertheless, Shared Imaging

argues that we should overlook its failure to timely obtain a permit, because the fact that it

was issued a permit at all—even years later—confirms that it was engaged in “centralized

purchasing activities.” In addition, Shared Imaging contends that to require a permit would

be to elevate form over substance, ignores the fact that Shared Imaging otherwise met all the

requirements of the expanded temporary storage exemption, and defeats the purpose of

avoiding taxation where property is merely stored in Illinois.

¶ 52 We find no merit to any of Shared Imaging’s contentions in this respect. First, to the

extent that the issuance of the permit confirms Shared Imaging’s status as a centralized

purchaser, it only did so as of the time the permit was issued—February 2014. All of the

units that Shared Imaging contends are subject to the expanded temporary storage exemption

were purchased in 2008 or 2009. Thus, the fact that Shared Imaging might have been

considered a centralized purchaser in 2014 has no bearing on whether it was engaged in

centralized purchasing activities in 2008 and 2009. Second, with respect to the contentions

that requiring a permit elevates form over substance and ignores the fact that Shared Imaging

met all of the other requirements for the exemption, Shared Imaging has cited no authority

for the position that substantial—and not full—compliance with the requirements of the

exemption is acceptable. Such a position is akin to arguing that requiring a valid license to

drive a motor vehicle elevates form over substance and that a person who has not been issued

a valid driver’s license should not be cited, so long as that person can demonstrate that they

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would have passed the driving test had they taken it. Finally, we disagree that requiring a

permit defeats the purpose of the exemption. Like every other exemption to the Act, the

expanded temporary storage exemption excuses a taxpayer from liability under the Act if and

when the taxpayer meets the specific requirements of the exemption. Shared Imaging failed

to meet those requirements and, thus, fails to fall within the scope of taxpayers intended to be

excused from liability, much the same way a taxpayer who did not engage in centralized

purchasing activities would not fall within the scope of taxpayers intended to be excused

from liability under the Act.

¶ 53 Accordingly, because Shared Imaging failed to comply with the requirements of the

expanded temporary storage exemption, the exemption does not apply to Units 52, 55, 579,

585, and 591.

¶ 54 Fair Apportionment

¶ 55 Shared Imaging next contends that the Department’s assessment of taxes is

unconstitutional because it is not fairly apportioned under the federal commerce clause (U.S.

Const., art. I, § 8, cl. 3). The commerce clause gives Congress the power to regulate interstate

commerce but has also been interpreted as prohibiting states from taxing interstate commerce

in an unduly restrictive or discriminatory manner, even when Congress has failed to legislate

on the topic. Irwin, 238 Ill. 2d at 341. In assessing whether a state tax offends the strictures of

the commerce clause, we apply the four-part test set forth in Complete Auto Transit, Inc. v.

Brady, 430 U.S. 274, 279 (1977): (1) the activity taxed has a substantial nexus with the

taxing state, (2) the tax is fairly apportioned, (3) the tax does not discriminate against

interstate commerce, and (4) the tax is fairly related to the services provided by the state. See

Oklahoma Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175, 183 (1995).

¶ 56 Shared Imaging argues that the use tax in this case fails the fair apportionment factor of

the Complete Auto test. Under that factor, a tax is fairly apportioned if it is both internally

and externally consistent. Internal consistency exists when the tax is structured in such a way

that if all states were to impose an identical tax, no multiple taxation would result. Irwin, 238

Ill. 2d at 346. External consistency, on the other hand, examines whether the tax applies only

to the portion of revenue that reasonably reflects the in-state portion of the activity being

taxed. Id. According to Shared Imaging, the use tax here is not fairly apportioned because the

units were only temporarily stored in Illinois, did not generate any Illinois revenue, and were

not involved in any economic activity in Illinois, yet the use tax taxes the entire value of the

units.

¶ 57 Our supreme court in Irwin has already addressed this issue and clearly held, consistent

with a long line of Illinois and other states’ case law, that because the Act provides a credit

for sales and use taxes paid to other states, the danger of multistate taxation is averted and the

fair apportionment requirement is satisfied. Id. at 347-51. Nevertheless, Shared Imaging

attempts to distinguish Irwin on two grounds. First, Shared Imaging argues that the Irwin

court reached its decision based on the fact that the taxpayer in that case had not paid taxes

on the airplane at issue in any other state, while Shared Imaging did pay taxes to other states

on the units at issue. This is a misleading contention, as it fails to accurately state the basis

for the court’s holding: “[W]e conclude that Illinois’ use tax based on the full purchase price

of the airplane is externally consistent and thus fairly apportioned because no tax has been

paid on the airplane to any other state, and even if it had been, the Use Tax Act provides an

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exemption for sales or use taxes paid to other states.” (Emphasis added.) Id. at 351. Although

the Irwin court did note that the taxpayer had not paid any other states’ taxes, that was not a

necessary factor in its decision, because even if the taxpayer had not, the fair apportionment

argument was defeated by the presence of a credit provision in the Act.

¶ 58 Second, Shared Imaging argues that, unlike the units at issue in this case, the airplane in

Irwin served its corporate purpose in Illinois by providing transportation services, at least

part of the time in Illinois. The units at issue here, however, did not, because they were,

according to Shared Imaging, “merely temporarily stored” in Illinois. Even without

addressing the merit of Shared Imaging’s contention that the units at issue in this case were

“merely temporarily stored” in Illinois, this distinction is one without a difference. Whether

the airplane in Irwin did or did not fulfill its purpose in Illinois was not a consideration in the

court’s analysis of whether the tax was fairly apportioned. Rather, the court focused on the

existence of the credit provision in the Act, and Shared Imaging’s argument regarding where

an object’s corporate purpose is fulfilled does nothing to alter the fact that the Act contains a

credit provision.

¶ 59 In accordance with Irwin and the cases cited therein, we conclude that the existence of

the credit provision in the Act satisfies the fair apportionment requirement of the Complete

Auto test and, thus, that Shared Imaging’s contention in this respect fails.

¶ 60 Credit

¶ 61 Shared Imaging next contends that if it is subject to a use tax on the units, it is entitled to

credit for the taxes paid to other states. Under the Act, the use tax does not apply to the

following:

“The use, in this State, of tangible personal property that is acquired outside this State

and caused to be brought into this State by a person who has already paid a tax in

another State in respect to the sale, purchase, or use of that property, to the extent of

the amount of the tax properly due and paid in the other State.” 35 ILCS 105/3-55(d)

(West 2008).

In Philco Corp., 40 Ill. 2d at 327, our supreme court indicated that this provision should not

be interpreted too literally so as to defeat its purpose of avoiding multistate taxation.

Accordingly, in Philco, the court held that the taxpayer was entitled to credit for sales taxes

previously paid in Missouri, even though they were paid by the taxpayer’s lessees and not the

taxpayer itself. Id.

¶ 62 With respect to Units 229, 231, and 588, when they were returned to Illinois for further

storage they ceased to be used solely outside of Illinois, and thus, the temporary storage

exemption ceased to apply. Up until that point, it could not be determined with certainty

whether the units would ever return to Illinois and, thus, be subject to the Illinois use tax.

Once they did return, however, and the exemption ceased to apply, their further storage

constituted their first taxable use under the Act. Accordingly, to the extent that Shared

Imaging paid taxes to other states on the sale or use of the units prior to their return to

Illinois, they are analogous to taxes paid to other states on property prior to that property

being brought into Illinois for the first time. It is our conclusion, therefore, that with respect

to Units 229, 231, and 588, Shared Imaging is entitled to credit for taxes paid to other states

on the units for the time preceding the units’ return to Illinois following their initial

temporary storage in Illinois. Shared Imaging is not, however, entitled to credit for taxes paid

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to other states on the units for any periods following the units’ return to Illinois after their

initial temporary storage, as those taxes were incurred after the Illinois use tax became

applicable, and the credit applies only to taxes “already paid.”

¶ 63 Because the record is not clear on what, if any, out-of-state taxes were paid on Units 229,

231, and 588 for the periods preceding their return to Illinois after their initial temporary

storage in Illinois, we conclude there is a genuine issue of material fact on this issue that

must be determined by the trier of fact.

¶ 64 As for Units 52, 55, 579, 585, and 591, as explained above, the expanded temporary

storage exemption never applied because Shared Imaging failed to obtain the required permit

prior to purchasing the units. Thus, the Illinois use tax became immediately applicable upon

the purchase of those units, and at that time, no out-of-state taxes had already been paid.

Accordingly, Shared Imaging is not entitled to a credit for any out-of-state taxes paid on

Units 52, 55, 579, 585, and 591.4

¶ 65 Finally, with respect to Unit 587, we find that there is a genuine issue of material fact

regarding the first use of Unit 587 that precludes us from making a determination as to

whether Shared Imaging is entitled to a credit for out-of-state taxes paid on the unit. More

specifically, the Goetz’s affidavit states that Unit 587 was purchased in October 2008 in

Waukesha, Wisconsin. According to the affidavit, Unit 587 was then leased to facilities in

Tennessee, Florida, Alabama, and Georgia. Some of the leases submitted as exhibits in

support of this contention, however, predate Shared Imaging’s claimed purchase of Unit 587

in 2008, one of the earliest of which is a 2004 lease with an Illinois hospital. Neither Shared

Imaging nor the documents in the record offer an explanation for this discrepancy. Because

of this, we are unable to say as a matter of law that Unit 587 was only brought into Illinois

after Shared Imaging had used it outside of Illinois and had paid out-of-state taxes on it.

¶ 66 Depreciation

¶ 67 In addition to claiming that it is entitled to a credit for out-of-state taxes paid on the units,

Shared Imaging contends that it is entitled to a deduction to the tax base for depreciation on

the units. The Act provides that “[i]f the property that is purchased at retail from a retailer is

acquired outside Illinois and used outside Illinois before being brought to Illinois for use here

and is taxable under this Act, the ‘selling price’ on which the tax is computed shall be

reduced by an amount that represents a reasonable allowance for depreciation for the period

of prior out-of-state use.” 35 ILCS 105/3-10 (West 2008).

4

The Department contends that Shared Imaging is not entitled to a credit for out-of-state taxes paid

on these units for the additional reason that they were acquired in Illinois and the credit provision

applies only to property acquired outside Illinois. While we do not disagree with the Department that

the language of the credit provision does, in fact, reference only property acquired outside Illinois, we

note that the Department’s own regulations suggest that the credit can, in some instances, be applied in

situations where the expanded temporary storage exemption is claimed and, thus, where the units were

acquired in Illinois (a requirement of the expanded temporary storage exemption). See 86 Ill. Adm.

Code 150.310(a)(6)(F), amended at 32 Ill. Reg. 17554 (eff. Oct. 24, 2008) (stating that where the

expanded temporary storage exemption is claimed but the property is later returned to Illinois for use, it

is subject to the use tax but is also entitled to a credit for taxes paid out of state).

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¶ 68 As to Units 229, 231, and 588, we conclude that Shared Imaging is entitled to a

depreciation deduction on the selling price of those units. The Department argues that

because storage is use under the Act, Shared Imaging used the units in Illinois prior to using

them outside of Illinois, making depreciation inapplicable. The Department’s regulations,

however, indicate that the initial temporary storage of property before use outside of Illinois

is not considered in assessing the applicability of depreciation, where the property was

originally believed to be subject to the temporary storage exemption but is then later

determined not to be due to the property’s return to Illinois:

“In the event that tangible personal property for which the expanded temporary

storage exemption has been claimed is temporarily stored in Illinois and transported

outside this State for use or consumption, but subsequently returned to Illinois and

used here, the purchaser shall pay the tax that would have been due, in the same form

that the retailer would have paid the tax ***, at the rate applicable at the location of

the retailer from which the tangible personal property was purchased. ***

Depreciation will be allowed as provided in Section 150.105(a). Also, credit shall be

given for tax paid in another state in respect to the sale, purchase or use of the

property, to the extent of the amount of the tax properly due and paid in the other

state, as provided in subsection (a)(3).” 86 Ill. Adm. Code 150.310(a)(6)(F), amended

at 32 Ill. Reg. 17554 (eff. Oct. 24, 2008).

¶ 69 We recognize that this regulation speaks in terms of the expanded temporary storage

exemption and not the temporary storage exemption. We cannot conceive, however, of any

reason why a taxpayer who defeats the application of the expanded temporary exemption by

returning its property to Illinois should be entitled to a depreciation deduction, but a taxpayer

who defeats the application of the temporary storage exemption in the same manner should

not. Rather, we believe that this regulation illustrates that although storage might generally

be included in the definition of use, the initial temporary storage of property prior to

out-of-state use of the property is not counted as the first use of the property for purposes of

determining whether the depreciation deduction applies. Based on this, we conclude that

there is no genuine issue of material fact that Units 229, 231, and 588, aside from their initial

temporary storage in Illinois, were first used outside of Illinois. It was only when the units

were subsequently returned to Illinois for further storage that they were considered to have

been brought into Illinois for use here. Accordingly, Shared Imaging is entitled to a

deduction on the selling price of Units 229, 231, and 588 for depreciation that occurred

during the period prior to the units’ return to Illinois following their initial temporary storage

in Illinois.

¶ 70 According to Department regulations, depreciation under these circumstances is to be

calculated by use of the straight line method of depreciation. 86 Ill. Adm. Code 150.110(c)

(1969). Because the parties have not offered any evidence or argument on the proper

calculation of depreciation, we find that there is a genuine issue of material fact on this

matter and leave it to the trier of fact to make the determination of the appropriate amount of

the depreciation deduction.

¶ 71 On Unit 587, the same genuine issue of material fact that precluded us from determining

whether Shared Imaging was entitled to a credit for out-of-state taxes paid on the unit also

precludes us from determining whether Shared Imaging is entitled to a depreciation

deduction on the unit. In particular, due to the conflicting evidence, we are unable to

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determine, as a matter of law, whether Unit 587 was used outside of Illinois before being

brought here. Accordingly, neither party is entitled to summary judgment on this issue.

¶ 72 Finally, with respect to Units 52, 55, 579, 585, and 591, we conclude that Shared Imaging

is not entitled to depreciation deductions on the selling prices of these units. As discussed

above, despite the fact that the language of the Act provides depreciation deductions only for

property purchased outside of Illinois, the Department’s regulations indicate that where

property is initially claimed to be subject to the expanded temporary storage exemption but

then is subsequently returned to and used in Illinois, not only is it to be taxed under the Act,

but the taxpayer is also entitled to a depreciation deduction on the selling price of the

property for the period it was used outside of Illinois prior to its return. 86 Ill. Adm. Code

150.310(a)(6)(F), amended at 32 Ill. Reg. 17554 (eff. Oct. 24, 2008). Here, however, Units

52, 55, 579, 585, and 591, could never be claimed as subject to the expanded temporary

storage exemption, because they were purchased without the required permit. Accordingly,

Shared Imaging is not entitled to a depreciation deduction on these units.

¶ 73 Late Filing and Payment Penalties

¶ 74 Finally, Shared Imaging argues that all late filing and late payment penalties assessed

against it by the Department should be abated because it had reasonable cause not to pay the

use taxes on the various units. We agree in part.

¶ 75 Pursuant to section 3-8 of the Uniform Penalty and Interest Act (35 ILCS 735/3-8 (West

2008)), penalties for the failure to file or pay taxes on or before their due date will not apply

if the failure was due to “reasonable cause.” Under the Department’s regulations, the

determination of whether the taxpayer acted with reasonable cause is to be made on a

case-by-case basis, taking into account all of the relevant facts and circumstances. The most

important factor to consider is whether the taxpayer “made a good faith effort to determine

his proper tax liability and to file and pay his proper liability in a timely fashion.” 86 Ill.

Adm. Code 700.400(b) (2001). Where a taxpayer exercises ordinary business care and

prudence in determining his tax liability and to file and pay that liability, he will be

considered to have made a good faith effort. “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.” 86 Ill. Adm. Code

700.400(c) (2001).

¶ 76 With respect to Units 229, 231, and 588, we conclude that a taxpayer exercising ordinary

business care and prudence could have concluded that the temporary storage exemption

applied. Even after the return of Units 229, 231, and 588 to Illinois, we do not think it

unreasonable for Shared Imaging to conclude that the temporary storage exemption

continued to apply, so long as it stored the units in Illinois only for short periods of time

between out-of-state leases and did not lease the units in Illinois. Although we ultimately

concluded that the temporary storage exemption did not, in fact, continue to apply following

the units’ return to Illinois, we can understand why Shared Imaging, in the absence of

guiding case law, could have thought otherwise. After all, even though the Act defines use

broadly enough to encompass storage, one typically understands use to involve some sort of

active implementation or manipulation of the property. Accordingly, the late filing and

payment penalties on Units 229, 231, and 588 should be abated.

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¶ 77 As for Unit 587, Shared Imaging admits that it was leased in Illinois and makes no

argument that it was subject to any exemption from the use tax. Accordingly, we see no

reasonable cause for Shared Imaging’s failure to file and pay the Illinois use tax on Unit 587;

the penalties assessed on that unit were therefore appropriate.

¶ 78 Finally, as to Units 52, 55, 579, 585, and 591, we do not believe that Shared Imaging had

reasonable cause for its failure to file for and pay the Illinois use tax on these units, because it

should have been clear to Shared Imaging from the language of the Act and the Department’s

regulations that an expanded temporary storage permit was required to be issued before the

expanded temporary storage exemption would apply. We have yet to see any explanation for

Shared Imaging’s failure to secure such a permit until years after the purchases of these units.

Accordingly, we conclude that the assessment of late filing and payment penalties against

Shared Imaging on Units 52, 55, 579, 585, and 591 was appropriate.

¶ 79 To summarize our holdings, the trial court’s grant of summary judgment in favor of the

Department with respect to Units 52, 55, 579, 585, and 591 is affirmed. The trial court’s

grant of summary judgment in favor of the Department with respect to Unit 587 is affirmed

on the trial court’s finding that Unit 587 is not exempt from the use tax and that the failure to

timely pay the use taxes subjects Shared Imaging to late filing and late payment penalties; the

trial court’s judgment on Unit 587 is reversed, however, on the issues of credit for taxes paid

to other states and the depreciation deduction because there exist genuine issues of material

fact in these respects, which need to be determined by a trier of fact. On Units 553 and 582,

the trial court’s grant of summary judgment in favor of the Department is reversed in all

respects at issue on appeal because the Department concedes that the use of these units

should never have been taxed in the first place. Finally, with respect to Units 229, 231, and

588, the trial court’s judgment on the issue of whether these units are exempted from the use

tax is affirmed. Shared Imaging is entitled, however, on each of these units, to a credit for

taxes paid to other states for the periods before the units were returned to Illinois following

their initial post-purchase storage in Illinois. In addition, Shared Imaging is entitled to a

deduction on the selling price of these units for depreciation that occurred prior to their return

to Illinois. There exist genuine issues of material fact as to the amount of the credit and

depreciation deductions on each of these units, which must be determined by the trier of fact.

Finally, the late filing and late payment penalties assessed with respect to Units 229, 231, and

588 should be abated.

¶ 80 CONCLUSION

¶ 81 For the foregoing reasons, the judgment of the circuit court of Cook County is affirmed in

part, reversed in part, and remanded for further proceedings consistent with this opinion.

¶ 82 Affirmed in part, reversed in part, and remanded.

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