Case Title: Gem Electronics v. Dept. of Revenue

Citation: 

Docket Number: 83203

State: illinois

Court: Illinois Supreme Court

Date: 1998-10-22T00:00:00Z

Document:
Gem Electronics v. Dept. of Rev. (Ill. S.Ct. 10/22/98)
Docket No. 83203-Agenda 15-May 1998.
GEM ELECTRONICS OF MONMOUTH, INC., Appellant, v. THE DEPARTMENT 
OF REVENUE, Appellee.
Opinion filed October 22, 1998.
JUSTICE NICKELS delivered the opinion of the court:
At issue in this case is whether the Telecommunications Excise Tax Act (35 
ILCS 630/1 et seq. (West 1992)) applies to the operation of a community 
repeater. The Illinois Department of Revenue assessed taxes against Gem 
Electronics of Monmouth, Inc., under the Telecommunications Excise Tax Act, 
arising out of its operation of a community repeater. Gem Electronics of 
Monmouth, Inc. (Gem), sought administrative review of the tax assessment. 
Following a hearing, the Illinois Department of Revenue (Department) issued a 
decision upholding the assessment. Gem sought administrative review in the 
circuit court of Sangamon County. The circuit court set aside the Department's 
decision, and Department appealed to the appellate court. The appellate court 
reversed the circuit court, finding Gem liable for the excise taxes. We granted 
Gem's petition for leave to appeal. 166 Ill. 2d R. 315. We affirm the appellate 
court and find that operation of a community repeater under the facts in this 
case falls within the purview of the Telecommunications Excise Tax Act.
I. BACKGROUND
This case involves the application of the Telecommunication Excise Tax Act 
(the Act) in the setting of two-way FM radio communications through a repeater. 
The record indicates the following facts. Two-way FM radios are typically used 
in a combination of a base station and several mobile units. A two-way FM radio, 
whether a base station or a mobile unit, produces a relatively weak signal. A 
repeater receives such signals transmitted by a radio, amplifies the signals and 
allows the signals to be received beyond the original range of the radio. Thus, 
a repeater effectively extends the distances over which two-way FM radios can 
communicate.
For example, a taxicab company may maintain contact with its individual cabs 
via two-way FM radio. The taxicab company would have a dispatcher transmitting 
signals from a base station. The base station can only transmit over a limited 
distance and the taxicabs may cover a territory that exceeds that distance. In 
order to stay in contact with taxicabs that have travelled outside the base 
station's range, the taxicab company would use a repeater. The repeater would 
sit on a tower at some point within the range of the base station. It would 
receive the signals transmitted by the base station, amplify those signals and 
retransmit the signals to areas outside of the base station's original range. 
Similarly, the repeater would amplify transmissions from the mobile radios, 
expanding their range.
Although the Federal Communications Commission (FCC) requires a two-way radio 
operator to hold a license to operate on a particular frequency, it does not 
require a repeater operator to secure a license. 47 U.S.C. §301 (1994). Since it 
is expensive to obtain and maintain a repeater, and because repeaters can 
operate on several frequencies at once, licensees sometimes share resources. A 
community repeater is simply a repeater that is operated by a third party or one 
licensee and used by several licensees. Gem operates a community repeater. 
Pursuant to contract, customers use the community repeater within their 
individual frequency and in return pay Gem a flat monthly fee.
During the period from August 1, 1985, through June 30, 1989, Gem received 
fees from its community repeater service in the amount of $67,044.03. According 
to Gem, the fees they charged covered only the cost of construction, maintenance 
and upkeep of the repeater. Gem believed that federal law prohibited it from 
making a profit on the operation of the repeater. Gem did not register with the 
Department to collect excise tax from its customers and did not collect any 
excise tax for use of its repeater during the period at issue. In 1989, the 
Department conducted an audit of Gem covering the period from August 1, 1985, 
through June 30, 1989. Based upon the audit, the auditor issued a "Determination 
of Tax Due" on December 1, 1989. On February 23, 1990, the Department issued a 
"Notice of Tax Liability" in the amount of $6,099.13 inclusive of the tax, 
penalties and interest. Gem paid a small amount not in dispute. Later the 
Department reduced the liability period and agreed to waive late penalties and 
one half of the interest due if payment was received by July 1, 1991. Gem paid 
the revised amount of $969.20 under protest on June 19, 1991, and later made an 
interest payment of $182.67 under protest. Gem sought an administrative hearing 
from the Department. The hearing was held September 8, 1993. The administrative 
law judge recommended upholding the assessment.
On June 22, 1994, the Department entered a notice of decision adopting the 
administrative law judge's recommendation. Gem sought review of the Department's 
decision in the circuit court in Sangamon County. The circuit court reversed the 
Department's decision. The Department appealed to the appellate court and Gem 
cross-appealed claiming attorney fees. The appellate court reversed the circuit 
court and denied Gem's cross-appeal for attorney fees. We affirm the appellate 
court.
II. ANALYSIS
Section 16 of the Act sets forth the process for reviewing departmental 
decisions. 35 ILCS 630/16 (West 1992). Under section 16, the Administrative 
Review Law (735 ILCS 5/3-101 et seq. (West 1992)) applies to judicial 
review of the Department's final decisions. An agency's findings of fact are 
held prima facie true and correct. 735 ILCS 5/3-110 (West 1992). 
Determination of whether something is subject to tax is a question of law. See 
Thomas M. Madden & Co. v. Department of Revenue, 272 Ill. App. 3d 
212, 215 (1995). An agency's conclusions of law are not binding on a reviewing 
court. Envirite Corp. v. Illinois Environmental Protection Agency, 158 Ill. 2d 210, 214 (1994). However, based on an agency's experience and expertise, 
a court may give substantial weight and deference to its interpretation of an 
ambiguous statute it administers and enforces. Bonaguro v. County Officers 
Electoral Board, 158 Ill. 2d 391, 398 (1994).
This court's role in interpreting statutes is to give effect to the intention 
of the legislature and the language of the statute is the starting point of the 
court's analysis. People v. Woodard, 175 Ill. 2d 435, 443 (1997), 
citing People v. Hare, 119 Ill. 2d 441, 447 (1988). When the language 
of the statute is clear and unambiguous, it will be given effect without resort 
to other tools of construction. Woodard, 175 Ill. 2d  at 443. A court 
should not depart from the language of the statute by reading into it 
exceptions, limitations or conditions that conflict with the intent of the 
legislature. Bridgestone/Firestone, Inc. v. Aldridge, 179 Ill. 2d 141, 
149 (1997). In addition, we observe that statutes imposing a tax are strictly 
construed against the government and in favor of the taxpayer. Van's 
Material Co. v. Department of Revenue, 131 Ill. 2d 196, 202 (1989).
The Telecommunications Excise Tax Act
The appellate court found that community repeaters are taxable under section 
3 of the Act. Section 3 of the Act provides in pertinent part:
"A tax is imposed upon the act or privilege of originating or receiving 
intrastate telecommunications by a person in this State at the rate of 5% of the 
gross charge for such telecommunications purchased at retail from a retailer by 
such person." 35 ILCS 630/3 (West 1992).
The taxpayer under the Act is the person originating or receiving 
telecommunications. 35 ILCS 630/2(k) (West 1992). A retailer is required to 
collect the tax from its customers and remit the tax to the Department. 35 ILCS 
630/5 (West 1992). Gem's contested liability is for failing to collect and remit 
the tax due as a retailer under the Act.
The language of section 3 is clear and unambiguous. Three elements must be 
present for the tax to apply to the gross charge for telecommunications. First, 
there must be an act or privilege of originating or receiving 
telecommunications. Second, the telecommunications must be purchased at retail. 
Finally, the person must purchase the telecommunications from a retailer.
We note at the outset that the court in Arenson v. Department of 
Revenue, 279 Ill. App. 3d 355 (1996), found that the Act does not apply to 
the use of repeaters. We reject the reasoning of the Arenson 
court.
A. Telecommunications
First, we must determine whether Gem's customers originate or receive 
telecommunications. The Act defines telecommunications as follows:
" `Telecommunications', in addition to the meaning ordinarily and 
popularly ascribed to it, includes, without limitation, messages or information 
transmitted through use of local, toll and wide area telephone service; private 
line services; channel services; telegraph services; teletypewriter; computer 
exchange services; cellular mobile telecommunications service; specialized 
mobile radio; stationary two way radio; paging service; or any other form of 
mobile and portable one-way or two-way communications; or any other 
transmission of messages or information by electronic or similar means, between 
or among points by wire, cable, fiber-optics, laser, microwave, radio, satellite 
or similar facilities." (Emphasis added.) 35 ILCS 630/2(c) (West 1992).
Webster's provides the meaning ordinarily and popularly ascribed to 
telecommunications, defining it as "communication at a distance (as by cable, 
radio, telegraph, telephone, or television)." Webster's Third New International 
Dictionary 2349 (1993).
The parties agree that when Gem's customers transmit directly from one radio 
to another radio without using the repeater, it is considered telecommunications 
for purposes of the Act. Although it is clear that Gem's customers engage in 
telecommunication when they transmit and receive information and messages over 
two-way radios, the telecommunications pertinent to the instant case are only 
those that are processed by the repeater. Those messages are transmitted by 
Gem's customers over two-way radios. After being processed by the repeater, 
Gem's customers receive the messages over other two-way radios. Transmitting 
messages on one radio and receiving those messages on another radio clearly 
falls within the definition of telecommunications for purposes of the Act.
Gem argues that the repeater does not fall within the Act's definition of 
telecommunication. Gem maintains that the legislature excluded community 
repeaters from the Act by not specifically making reference to them. Although 
the statute does not list community repeaters, the definition does include 
"stationary two way radio; *** or any other form of mobile and portable one-way 
or two-way communications." At issue here is not whether the repeater itself is 
telecommunication, but whether Gem's customers originate or receive 
telecommunications. We find that Gem's customers originate and receive 
telecommunications.
B. Purchase at Retail
The second element of section 3 requires us to determine if Gem's customers 
purchase telecommunications from Gem at retail. Section 2(j) of the Act defines 
purchase at retail as: "the acquisition, consumption or use of telecommunication 
through a sale at retail." 35 ILCS 630/2(j) (West 1992). Section 2(k) defines 
" `[s]ale at retail' " in pertinent part as: "the transmitting, 
supplying or furnishing of telecommunications and all services and equipment 
provided in connection therewith for a consideration ***." 35 ILCS 630/2(K) West 
1992).
Gem argues that it does not transmit telecommunications because it is 
prohibited from doing so by federal law. 47 U.S.C. §301 (1994). We look instead 
to whether Gem supplies or furnishes telecommunications. Neither "supply" nor 
"furnish" is defined in the Act. Undefined terms in a statute must be ascribed 
their ordinary and popularly understood meaning. Texaco-Cities Service 
Pipeline Co. v. McGaw, 182 Ill. 2d 262, 270 (1998). Webster's defines 
supply as "to satisfy a need or desire for: provide or furnish with." Webster's 
Third New International Dictionary 2297 (1993). Furnish is defined as "provide 
or supply with what is needed, useful, or desirable." Webster's Third New 
International Dictionary 923 (1993).
Gem sets forth several arguments that it is not making a sale at retail of 
telecommunications. First Gem asserts that the arrangements it enters into with 
its customers are leases of space on the repeater and not a sales of service. 
Our review of the record gives us no reason to disturb the Department's implicit 
finding that Gem is providing a service and not leasing space on equipment. Gem 
also argues that a repeater only enhances the strength of signals in the air and 
therefore Gem does not supply telecommunications. Gem also contends that since 
its customer owns the radio, controls the facilities and frequencies over which 
signals are transmitted, and is licensed by the FCC, Gem is not providing the 
privilege of originating or receiving telecommunications. We find that Gem does 
supply telecommunications.
It is uncontrovertible that telecommunication that takes place outside the 
original range of the radios would not be possible absent Gem's provision of 
repeater services. In fact, Gem's repeater is not only necessary, but is an 
integral part of long-range radio telecommunications. Therefore, we find that 
Gem supplies or furnishes telecommunications. Gem charges its customers a fee 
for the telecommunications it supplies. Consequently, Gem's activities fall 
within the definition of sale at retail. Accordingly, Gem's customers are 
purchasing telecommunications at retail.
C. From a Retailer
The third element of section 3 is that a person must purchase 
telecommunications from a retailer. Section 2(l) defines retailer in pertinent 
part as follows:
" `Retailer' means and includes every person engaged in the business of 
making sales at retail as defined in this Article." 35 ILCS 630/2(l) (West 
1992).
Gem asserts that it is not "engaged in the business of making sales at 
retail," and is therefore not a retailer. Gem cites Valier Coal Co. v. 
Department of Revenue, 11 Ill. 2d 402 (1957), and Phillips v. Illinois 
Bell Telephone Co., 34 Ill. 2d 234 (1966). In Valier, this court 
held, under the limited facts in that case, that the Valier Coal Company was not 
engaged in the business of selling tangible personal property for purposes of 
the Retailers' Occupation Tax Act. Valier, 11 Ill. 2d  at 404. In that 
case, Valier Coal required the permission of the Illinois Public Utilities 
Commission to complete a sale of coal to its parent company. The commission 
allowed the sale, but imposed several conditions. Among the conditions were a 
limitation on the price that Valier could charge and a restriction preventing 
Valier from selling to the general public.
Gem contends that since Gem's customers must be licensed to transmit signals 
over a particular frequency, therefore Gem may not sell repeater services to the 
general public and under Valier, it cannot be "engaged in the business 
of." Unlike the restrictions in Valier, however, the FCC's licensing 
scheme is a limitation on Gem's customers, not upon Gem. Gem further argues that 
its community repeater is a "private system" because the repeater is not 
available to the public at large. We are not convinced. An automobile dealer is 
no less engaged in the business of selling automobiles because his purchasers 
require a license to operate them.
Gem next argues that the appellate court misapplied the test set forth in 
Phillips, a Message Tax Act case. Gem's argument rests on its belief 
that the factors considered in Phillips constitute a test. On the 
contrary, the Phillips court simply noted that there were several 
factors that distinguished the factual situation at issue in that case from that 
in Liberty National Bank v. Collins, 388 Ill. 549 (1944), a case that 
found a landlord engaged "in the business of selling electricity." 
Phillips, 34 Ill. 2d  at 238. Since Gem raises the argument that it does 
not meet these factors, we address each of them here. (1) Ownership: Gem does 
not own the two-way radios but owns the repeater without which the 
telecommunications at issue would not be possible. (2) Freedom to resell: Gem 
may sell the service to whomever it desires so long as they are licensed by the 
FCC. (3) Duty to repair, inspect and maintain: under federal regulations, the 
ultimate responsibility is on the FCC licensee, not Gem, to insure that the 
tower to which the repeater is attached meets the FCC's lighting an painting 
requirements. 47 C.F.R. §90.441 (1995). This factor would weigh in Gem's favor, 
however the practical effects of that regulation have been questioned by the FCC 
itself. In re Land Mobile Radio Systems, 71 F.C.C.2d 1391, 1399 (1979). 
In addition, Gem has a direct relationship with its customers and all of the 
consideration paid for repeater services belongs to Gem. Based on the evidence 
before us, we will not overturn the Department's finding that Gem is engaged in 
the business of making sales at retail.
Vagueness
Gem argues that the Act is unconstitutionally vague. All statutes are 
presumed valid and the challenger has the burden of clearly establishing the 
unconstitutional nature of the statute. Opyt's Amoco, Inc. v. Village of 
South Holland, 149 Ill. 2d 265, 277 (1992).
Gem argues, using a protracted hypothetical, that a building lessor may be 
found to be engaged in the business of making sales at retail because he 
supplies telephone wires within the building he leases. An act is not 
unconstitutionally vague merely because one can conjure up a hypothetical which 
brings the meaning of some terms into question. Granite City Division of 
National Steel Co. v. Illinois Pollution Control Board, 155 Ill. 2d 149, 
164 (1993).
Gem also argues that the statute is vague because people of ordinary 
intelligence cannot know that repeaters are covered by the Act and because the 
courts below have disagreed as to the meaning of the statute. Gem is not raising 
a vagueness issue, but merely rephrasing its original contention, that repeaters 
are not covered by the Act. We find that the Act is not unconstitutionally 
vague.
Attorney fees
Gem sought attorney fees in the appellate court under the Illinois 
Administrative Procedure Act. See 5 ILCS 100/10-55(c) (West 1992). Section 55(c) 
provides that attorney fees may be recovered by a party who causes an 
administrative rule to be invalidated. Gem argues that the Department exceeded 
its statutory authority when it promulgated a rule specifically including 
retailers who operate or provide radio repeater services in the definition of 
retailer. 86 Ill. Adm. Code §495.110 (1996). We find the Department did not 
exceed its statutory authority and therefore we do not invalidate the 
Department's rule. Accordingly, Gem has not established that it is entitled to 
attorney fees. We affirm the appellate court's denial of attorney fees.
III. CONCLUSION
For the foregoing reasons, we find that the Act applies to the community 
repeater services provided by Gem. We affirm the judgment of the appellate 
court.
Appellate court judgment affirmed.