2014 IL App (1st) 130597

FIFTH DIVISION June 27, 2014

No. 1-13-0597 FORD MOTOR COMPANY, Plaintiff-Appellee,

v. CHICAGO DEPARTMENT OF REVENUE, BEA REYNA-HICKEY, in Her Capacity as Director of the Ch icago Department of Revenue, and THE CHICAGO DEPARTMENT OF ADMINISTRATIVE HEARINGS, Defendants-Appellants. ) ) ) ) ) ) ) ) ) ) ) ) Appeal from the Circuit Court of Cook County

No. 11 L 51361

Honorable Margaret A. Brennan, Judge Presiding

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

OPINION ¶ 1 The issue on appeal is whether Ford Motor Company i s liable to the City of Chicago for a tax of $0.05 per gallon for all the fuel the car ma ker 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, veh icle 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' " a s "any sale to a person for that person's use or consumpti on and not for resale to another." Chicago Municipal Code §§3-52-020, 3-52-010(B)(9), (8) (add ed Sept. 24, 1986). The car maker contends the tax is due on only 2% of the gasoline and diese l it purchased from a Chicago fuel distributor

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

and the other 98% was neither used nor consumed whe n it left Chicago in the tanks of cars1-13-0597

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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 "u se" occurred when the fuel was dispensed into the new vehicle tanks, but the circuit court of Coo k County reversed that determination, and the municipality now appeals from the court's ruling. ¶ 2 Ford Motor Company, a Delaware corporation headquar tered 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 peri od at issue, fuel maker BP Amoco, which is registered with the City of Chicago (City) as a fue l distributor, delivered about 10,000 gallons of gasoline and diesel per month to the Ford Motor Com pany facility and did not assess municipal fuel taxes on the deliveries. Ford Motor Company se lf-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 rev enue of the City of Chicago (Department) determined Ford Motor Company owed back taxes total ing $356,675.13, and when the car maker declined to pay the assessment, the Department asse ssed 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 th e administrative law judge (ALJ or hearing officer). Some of the materials submitted t o the ALJ included the affidavit of Dennis Curlew, an employee of the car maker, who stated th at 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 Fo rd dealership in Chicago had collected and remitted fuel taxes paid by car buyers or independe ntly paid the fuel taxes to the City.1-13-0597

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¶ 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 A LJ's finding that Ford Motor Company "used" all of the fuel, within the meaning of the m unicipal 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 c ar maker was already liable for the City's tax. The ALJ rejected the company's contention that it quali fied 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 –th e sale of vehicle fuel by a distributor " to a distributor or retailer of vehicle fuel whose place of business is outside the city" (emph asis added), and "[t]he sale or use for purpose other than for p ropulsion or operation of a vehicle." Chicago Municipal Code §3-52-110(b), (c) (added Sept. 24, 1 986). 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 auth ority to declare a statute unconstitutional, or even to question its validity, but a litigant must present its constitutional argument on the record a t the administrative stage in order to preserve the i ssue 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 arg ument 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) (raisi ng a constitutional issue for the first time in the circuit court is insufficient). For all these s ame reasons, the ALJ rejected the request for a tax1-13-0597

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refund. After determining the car maker was liable for the tax, the ALJ then considered and affirmed the assessment of interest and a late pena lty and negligence penalty which roughly doubled Ford Motor Company's tax debt. When Ford Mo tor Company sought administrative review in the circuit court, the judge was persuade d by the argument that the car maker had stored

unused fuel in the tanks of cars delivered to its d ealers and that the Department's decision to the contrary must be reversed. In this appeal, the Depa rtment contends the ALJ's conclusions were

sound and should be affirmed. ¶ 5 Our role is to review the decision of the administr ative 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 co nstruing an ordinance, we follow the same rules that govern the construction of a statute. County of Montgomery v. Deer Creek, Inc. , 294 Ill. App. 3d 851, 856, 691 N.E.2d 185, 189 (1998). The o bjective of statutory construction is to ascertain and give effect to the drafter's intent. People ex rel. Sherman v. Cryns, 203 Ill. 2d 264, 279, 786 N.E.2d 139, 150 (2003); County of Knox ex rel. Masterson v. Highlands, L.L. C. , 188 Ill. 2d 546, 556, 723 N.E.2d 256, 263 (1999). We study t he language of a challenged statute, as it is usually " 'the most reliable indicator of the legis lature'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 plai n, 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 of1-13-0597

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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 fr om the plain language and meaning of a statute by reading into the law an unstated exception, limi tation, 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. Furthermor e, 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 o n the one hand, a taxing law will be strictly construed against the taxing body and in favor of t he taxpayer, on the other hand, language that provides an exemption is strictly construed in favo r of the taxing body and against the taxpayer and the taxpayer bears the burden of proving entitlemen t 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, unambig uously 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 t he 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 ti tle or both, any exchange or any barter, whether conditional or otherwise, in any manner or by any m eans whatsoever for consideration." Chicago Municipal Code §3-52-010(B)(7) (added Sept. 24, 198 6) (definition of sale, resale, and purchase). According to the ordinance, " 'Use ' means the exer cise of any right to or power over vehicle fuel incident to the ownership thereof, including but no t limited to, the receipt of vehicle fuel by any1-13-0597

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person into a fuel supply tank of a vehicle." Chica go 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 ordinan ce 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 int o 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 interpretatio ns. ¶ 7 The record indicates that BP Amoco made monthly del iveries 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 Compa ny were registered with the City as fuel distributors, the monthly deliveries could have bee n transfers of product from one distributor to another, which are transactions that are not addres sed by the ordinance at issue. According to the ordinance, a distributor is:

"any person who produces, refines, blends, compound s or manufactures vehicle fuel in the city; *** or has transported vehicle fu el to any location in the city, or receives in the city vehicle fuel, on which the Chi cago 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 consum ption, 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 apply1-13-0597

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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 u se is not taxable hereunder shall be upon the distributor, retail dealer, purchaser, or user so c laiming." Chicago Municipal Code §3-52-100 (added Sept. 24, 1986). ¶ 9 The question is whether after BP Amoco delivered th e fuel, the car maker subsequently "exercise[d] *** any right to or power over [the] v ehicle fuel incident to the ownership thereof," such as by dispensing it "into a fuel supply tank o f 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 tr ansporting 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 M otor Company is liable for the City's fuel tax. ¶ 10 The answer to this question is definitely "yes," be cause, 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 as sembly 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 delive red or sold to a dealership. The ordinance plainly and clearly specifies that the tax is trigg ered by dispensing fuel into a vehicle's fuel tank, which Ford Motor Company routinely and repeatedly d id. 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 b urns some of the dispensed fuel by driving outside of Chicago. The ordinance does not impose the tax b ased on where a vehicle consumes the fuel;1-13-0597

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rather, the ordinance taxes the "use" of fuel and s pecifies 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 t he car maker and our hypothetical consumer have done the same thing with the gasoline and dies el 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 consumpt ion and not for resale to another" (Chicago Municipal C ode §3-52-010 (B)(8) (added Sept. 24, 1986)), the record indicates Ford Motor Company participate d in a series of " 'sale[s] at retail' " and became liable for the municipal tax. That is the co nclusion drawn by the ALJ and it was the correct

one. ¶ 11 Ford Motor Company contends this conclusion is inco rrect, however, because 98% of the fuel delivered by BP Amoco was purchased for "resal e to another," namely, its new car dealerships, and, therefore, could not be treated a s a taxable "sale at retail." Chicago Municipal Code §3-52-01)(B)(8) (added Sept. 24, 1986). This c onclusion, however, is unsound. It would require us to ignore the ordinance's plain statemen t 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 no t limited to, the receipt of vehicle fuel by any person into a fuel supply tank of a vehicle"). It i s not appropriate for us to disregard any part of t his

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 rendere d 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 doe s1-13-0597

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not bear this out. The record contains one sample i nvoice 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 Mo tor Company employee, stated in his affidavit that "all Dealers were required to pay the full cha rge 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 inv oice corresponded with the amount of fuel that Ford Motor Company initially dispensed into its car s, before consuming some of the fuel by test running and driving the cars onto trucks for delive ry. In other words, the amount invoiced was to reimburse Ford Motor Company for fuel that it purch ased 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 showi ng 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 Comp any is not a fuel seller. It did not obtain the

fuel at issue in order to resell the fuel to its re tail 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 Mot or Company is liable for the municipal tax at

issue. ¶ 13 In addition, the Department has also pointed out th e fallacy in the circuit court's remark that reading the ordinance as we do makes " any transfer of fuel *** become a taxable transaction as long as the fuel was placed in a storage tank under the buyer's control, regardless if the fuel was ultimately resold to another party for their use." (Emphasis in original.) This concern is1-13-0597

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unfounded, as the ordinance does not apply to exerc ising control over fuel in a storage tank. As set out above, the ordinance taxes the "purchasing or u sing [of vehicle fuel], in the City of Chicago" (Chicago Municipal Code §3-52-020 (added Sept. 24, 1986)) and plainly states that "use in the city" occurs where fuel is put "into the vehicle by which it is to be consumed" (Chicago Municipal Code §3-52-030 (added Sept. 24, 1986)). Ford Motor Company subjected itself to the local tax when it put fuel into the tanks of its vehicles in Chicago–vehicles which would consume the fuel rather than simply act as storage containers. The c ircuit court's reading would improperly broaden the scope of the ordinance beyond the drafter's int ent. ¶ 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 (regard ing 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 amus ement 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 b urden is a challenging one because "all debatable questions are resolved i n favor of taxation" ( Yale Club of Chicago v. Department of Revenue , 214 Ill. App. 3d 468, 472, 574 N.E.2d 31, 33 (199 1). Even if the standard for establishing an exemption was lenient and favor able to the tax payer, we would rule against Ford Motor Company. ¶ 15 Its first and third exemption claims require us to disregard City Council's unequivocal1-13-0597

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indication that dispensing fuel into a vehicle's ta nk is a taxable "use" of the fuel. See Chicago Municipal Code §3-52-010(B)(9) (added Sept. 24, 198 6). ¶ 16 In order to qualify for the first exemption, Ford M otor 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 ordin ance 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 a nd 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 wit h respect to the vehicle fuel at issue. Ford Motor Company made "use" of the fuel it received fr om 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 dealersh ip 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 f irst exemption it claimed.1-13-0597

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¶ 17 Similarly, in order to qualify for the third exempt ion, Ford Motor Company would have to establish that (1) it did not "use" the vehicle fue l within the meaning of the ordinance, (2) it inste ad purchased the fuel for nonretail sales to its deale rs, and (3) 98% of the fuel it bought was then sold to dealers outside of Chicago. After establishing a ll these facts, Ford Motor Company would have to prove its contention that it could be taxed in a nother jurisdiction on the non-Chicago sales, which could result in multiple taxation in violatio n of the Interstate Commerce Clause of the United States Constitution (see Allied-Signal, Inc. v. Director, Division of Taxati on , 504 U.S. 768, 777-78 (1992)) or its contention that the lack of m inimum 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 theor ies 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 thi s 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 Co mpany "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 unconstitu tional. ¶ 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 tank s was for "propulsion or operation" of its vehicles. Ford Motor Company argues that its purpos e was for the subsequent resale of the fuel to vehicle dealerships located inside or outside of Ch icago, but we rejected this argument above. The1-13-0597

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fuel was not placed into storage tanks for resale. ¶ 19 For all these reasons, we find that the municipal t ax 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 Moto r Company and affirm the decision of the administrative law judge in favor of the Department

. ¶ 20 Circuit court reversed; administrative agency affir med.