NO. 4-00-0729

	IN THE APPELLATE COURT

	OF ILLINOIS

	FOURTH DISTRICT

SUBWAY RESTAURANTS OF 

BLOOMINGTON-NORMAL, INC., an Illinois

Corporation,

		Plaintiff-Appellee,

		v.

JUDITH BAAR TOPINKA, as State

Treasurer of the State of Illinois;

THE ILLINOIS DEPARTMENT OF REVENUE;

and KENNETH H. ZEHNDER, Director of

the Illinois Department of Revenue,

		Defendants-Appellants.	)

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)	Appeal from

Circuit Court of

McLean County

No. 97TX3

Honorable

John P. Freese,

Judge Presiding.

_________________________________________________________________

		PRESIDING JUSTICE STEIGMANN delivered the opinion of

the court:

		In June 1997, plaintiff, Subway Restaurants of

Bloomington-Normal, Inc. (Subway), filed a complaint against

defendants, Judith Baar Topinka, the State Treasurer, Kenneth H.

Zehnder, the Director of the Illinois Department of Revenue, and

the Illinois Department of Revenue (collectively Department),

seeking the return of $64,851 under the Retailers' Occupation Tax

(ROT) Act (35 ILCS 120/1 through 14 (West 1996)) and interest

thereon, which Subway had previously paid under protest.  The

parties later filed cross-motions for summary judgment, and in

July 2000, the trial court granted Subway's motion for summary

judgment.  The Department appeals, and we reverse and remand with

directions.

	I. BACKGROUND

		The following facts appear in the parties' jointly

filed stipulation of facts.  In July 1995, Subway agreed to lease

space from Illinois State University (University), an exclusively

educational institution, in four of its on-campus student resi

dence halls and operate a Subway restaurant in each of those

locations.  (Shortly after entering into the leases with the

University, Subway entered into contracts with Douglas and

Cynthia Barch to operate and manage the four restaurants.  The

Barches are not parties to this appeal.)  

		Through the lease agreements, the University sought to

provide its students, faculty, and staff members with a dining

option in addition to the University-run cafeterias.  The four

leases, which were identical, provided that the relationship

between the University and Subway was that of lessor and lessee. 

The University did not assist Subway in operating or managing the

four on-campus restaurants, and Subway did not produce any food

products for distribution by the University.  The prices charged

at the on-campus restaurants were consistent with the prices

charged at seven other Subway restaurants located near the

University.  However, pursuant to the leases, the University

reserved the right to review Subway's prices and menu format.  

		Subway purchased its products and supplies for all of

its local restaurants from the same supplier, and Subway did not

purchase any supplies in conjunction with, or in the name of, the

University.  Subway used its own equipment and personal property to make its food products, and Subway was responsible for main

taining its equipment and furniture.  

		Subway hired its own employees to work at the on-campus

restaurants and provided them with uniforms and training in the

same way it did at its other restaurants.  However, under the

leases, Subway was required to give hiring preference to the

University's students. 

		As lessor of the property, the University was obligated

to provide Subway with utilities and garbage removal.  Pursuant

to the leases, Subway operated the on-campus restaurants only

when the University's students were present in the residence

halls--that is, during the academic term and during move-in days

immediately preceding the start of classes.  During such times,

the on-campus restaurants were open to members of the general

public as well as the University's students, faculty, and staff

members. 

		Subway was responsible for paying all taxes on its

sales and operations.  As lessee, Subway also was responsible for

maintaining insurance on all its furniture, fixtures, equipment,

and inventory.  It also had to pay for and carry general public

liability insurance.       

		The leases also contained the following provisions: 

(1) Subway was prohibited from acting as an agent of the Univer

sity; (2) Subway functioned as a lessee and independent contrac

tor for the University; (3) "no employee of [Subway could] be

deemed an employee of [the University] for any purpose"; (4) Subway was required to conform to all rules and regulations of

the University; (5) Subway would allow the University to inspect

the premises at any time; and (6) Subway was required to submit

all disputes and questions to the University's residence hall

food service director for resolution.

		In August 1995, Subway opened a restaurant in each of

the four residence halls.  Any patron of the on-campus Subway

restaurants could pay cash for his or her food and beverages. 

(Between August 1, 1995, and March 31, 1996, Subway collected and

remitted $258,223 in ROT based on cash sales at the on-campus

restaurants.  That ROT is not at issue in this case.)  

		Each student who entered into a room and board contract

with the University was issued a computerized declining balance

debit card (debit card) with an initial balance ranging from $759

to $1,030 per semester (depending upon which residence hall the

student lived in).  Those students could use their debit cards to

purchase food and beverages, which the University was obligated

to provide them under the room and board contracts.  They could

use their debit cards at the on-campus Subway restaurants, the

University-run cafeterias, or a combination of both.  Each time a

student purchased food and beverages with his debit card, the

total purchase amount was automatically deducted from the debit

card's account balance.  

		In addition, students, faculty, and staff members who

did not reside in the residence halls could establish debit card

accounts by depositing funds with the University.  The deposited amount would then appear as a balance on the individual's debit

card.  These debit-card holders, like students with room and

board contracts, could purchase food and beverages from either

the on-campus Subway restaurants or the University-run cafeterias

by using their debit cards. 

		Pursuant to the leases, Subway reported the monthly

gross transactions from the on-campus restaurants to the Univer

sity.  After totaling all debit-card sales, the University kept a

2 1/2% transaction fee and remitted the balance to Subway.

		Sometime during 1997, the Department conducted an audit

of Subway's sales tax records for the period January 1994 through

October 1996.  The Department later issued a notice of tax

liability based upon Subway's failure to pay ROT for the period

August 1995 through March 1996 for food purchased with

University-issued debit cards.  According to the Department,

Subway owed $58,088 in ROT, plus $6,763 in interest, totaling

$64,851.  In May 1997, Subway paid that amount to the State

Treasurer under protest.  30 ILCS 230/2a (West 1996).  

		In June 1997, Subway filed a complaint against the

Department, seeking the return of $64,851 in ROT and interest. 

In the complaint, Subway alleged that it did not owe ROT for

student purchases with a debit card because Subway served as the

University's agent.  The trial court later enjoined the State

Treasurer from transferring the money into the treasury's general

fund.  In October 1998, the parties jointly filed a stipulation

of facts.  

		In November 1998, Subway filed a motion for summary

judgment, and in March 1999, the Department filed a motion for

summary judgment.  In November 1999, the trial court conducted a

hearing on the cross-motions for summary judgment and took the

matter under advisement.  In July 2000, the court granted Sub

way's motion and denied the Department's motion, finding that

"[t]he obligation to pay for the food is [the University's] and

[Subway] is exempt from [ROT]."  This appeal followed.  

	II. ANALYSIS

	A. Standard of Review

		A motion for summary judgment is properly granted when

the pleadings, depositions, admissions, and affidavits establish

that no genuine issue of material fact exists and that the moving

party is entitled to judgment as a matter of law.  See 735 ILCS

5/2-1005(c) (West 1998); Rotzoll v. Overhead Door Corp., 289 Ill. App. 3d 410, 413, 681 N.E.2d 156, 158 (1997).  When parties file

cross-motions for summary judgment, they agree that (1) no

material issue of fact exists; and (2) only a question of law is

involved.  In such a case, we review de novo the trial court's decision.  Andrews v. Cramer, 256 Ill. App. 3d 766, 769, 629 N.E.2d 133, 135 (1993).

	B. Retailers' Occupation Tax

		In Illinois, any person or company, including an

exclusively educational institution, that regularly sells prod

ucts for consumption is required to pay ROT.  See 35 ILCS 120/2

(West 1996) (ROT is "imposed upon persons engaged in the business of selling at retail tangible personal property"); 35 ILCS 120/1

(West 1996) ("'Sale at retail' means any transfer of the owner

ship of or title to tangible personal property to a purchaser,

for the purpose of use or consumption ***"); see also 86 Ill.

Adm. Code §130.310 (West CD-ROM April 1997) (the sale of food for

consumption is subject to ROT).  Although the amount of the tax

is based on the value of products sold, the tax is on the seller

and the seller's business, not on the product or the consumer. 

See Soho Club, Inc. v. Department of Revenue, 269 Ill. App. 3d 220, 228-29, 645 N.E.2d 1060, 1066 (1995). 

		Sections 130.2005(a)(2) through (a)(4) of the Illinois

Administrative Code (Code) (86 Ill. Adm. Code §§130.2005(a)(2)

through (a)(4) (West CD-ROM April 1997)) provide that an exclu

sively educational institution, or its agent, is exempt from ROT

under the following circumstances: (1) when the sale of products

for consumption is primarily for the purposes of the educational

institution; (2) where the sales do not compete with area busi

nesses; and (3) where the sale constitutes an occasional dinner

or social event.  See also 86 Ill. Adm. Code §130.2005(a)(1)(A)

(West CD-ROM April 1997) (there are "very limited exemptions from

[ROT] for sales by exclusively charitable, religious[,] and

educational organizations and institutions"); 86 Ill. Adm. Code

§130.1915(a)(2) (West CD-ROM April 1997) (sales made by an agent

acting for a disclosed principal are taxable to the principal). 

In the context of a university-run dining facility, an educa

tional institution can maintain its exempt status only if it confines the sale of food to its students, faculty, and staff

members.  See 86 Ill. Adm. Code §130.2005(b)(4)(A) (West CD-ROM

April 1997) ("In any instance in which the dining facility is

opened up for the use of other persons, all sales that are made

at such facility while that condition continues to prevail are

taxable").  

		In addition, a company that sells food products to an

exclusively educational institution is exempt from ROT.  See 35

ILCS 120/2-5(11) (West 1996) (personal property sold to an

institution "operated exclusively for *** educational purposes"

is exempt from ROT); 86 Ill. Adm. Code §130.120(h) (West CD-ROM

April 1997). 

	C. Subway's Exempt Status

		The Department first argues that the trial court erred

by granting Subway's motion for summary judgment because Subway

was not exempt from ROT.  Specifically, the Department contends

that (1) Subway was not an agent for the University; (2) Subway

did not make "sales at retail" to the University; and (3) even if

Subway's on-campus restaurants were likened to the University-run

cafeterias, Subway was not exempt from ROT because, unlike the

University-run cafeterias, the on-campus restaurants were open to

the public.  We agree with all of the Department's contentions.

	1. Review of Exemption Provisions

		The Department's regulations have the force and effect

of law and courts construe them under the same standards govern

ing a statute's construction.  Tivoli Enterprises, Inc. v. Zehnder, 297 Ill. App. 3d 125, 132, 696 N.E.2d 1202, 1206 (1998).  When construing exemption provisions, we must be mindful that (1)

"taxation is the rule.  Tax exemption is the exception" (Chicago Bar Ass'n v. Department of Revenue, 163 Ill. 2d 290, 301, 644 N.E.2d 1166, 1171-72 (1994)), and (2) all debatable questions

must be resolved in favor of taxation (Illini Media Co. v. Department of Revenue, 279 Ill. App. 3d 432, 435, 664 N.E.2d 706, 709 (1996)).  

	2. Whether Subway Is An Agent of the University

		The Department first contends that Subway was not

exempt from ROT because it was not acting as the University's

agent in operating the on-campus restaurants.  We agree.

		As earlier stated, an educational institution's agent

is exempt from ROT under three circumstances--that is, (1) when

the sale of products for consumption is primarily for the pur

poses of the school; (2) where the sales do not compete with area

businesses; and (3) where the sale constitutes an occasional

dinner or social event.  86 Ill. Adm. Code §§130.1915(a)(2),

130.2005(a)(2) through (a)(4) (West CD-ROM April 1997).   

		In this case, the lease agreements provided that Subway

functioned as a lessee and independent contractor for the Univer

sity.  Although the University retained rights to review Subway's

operation of the on-campus restaurants, nothing in the record

indicates that Subway acted as the University's agent when it

sold food and beverages to debit-card holders at the on-campus

restaurants.  Indeed, in its brief before this court, Subway concedes that it was not the University's agent.  We therefore

conclude that Subway was not exempt from ROT based on its agency

status.   

	3. Whether Subway Makes "Sales at Retail" to the University

		The Department next contends that Subway was not exempt

from ROT because it did not make "sales at retail" to the Univer

sity but, instead, made such sales to the University's students,

faculty, and staff members.  In response, Subway contends that it

was exempt from ROT because it acted as a wholesale supplier when

it sold food and beverage products to the University, which in

turn resold the products to students, faculty, and staff members. 

We agree with the Department.

		As earlier stated, ROT is "imposed upon persons engaged

in the business of selling at retail tangible personal property."  (Emphasis added.)  35 ILCS 120/2 (West 1996).  "'Sale at retail'

means any transfer of the ownership of or title to tangible

personal property to a purchaser, for the purpose of use or

consumption, and not for the purpose of resale ***."  35 ILCS

120/1 (West 1996).   

		We agree with the Department that the "sale at retail"

in this case occurred when a student, faculty, or staff member

paid by debit card for a food or beverage product at one of

Subway's on-campus restaurants for the purpose of consuming that

product.  The University never made a purchase at retail from

Subway. 

		In addition, we reject Subway's contention that it "was acting as a wholesale supplier of food to the University[,] which

was acting as a retail seller to its students and staff." 

Nothing in the record indicates that Subway "transfer[red] ***

the ownership" of its food and beverage products to the Univer

sity, whoich then retailed the products to debit-card holding

students, faculty, and staff members.  Instead, the record shows

that (1) the University did not take part in Subway's day-to-day

operations or management; (2) all of the on-campus restaurant

workers were Subway employees, not University employees; and (3)

Subway did not produce any food products for distribution by the

University.  The fact that the University retained the right to

review Subway's prices and menu did not transform the University

into the retailer of Subway's food products. 

		Nor does the fact that on a monthly basis, the Univer

sity remitted cash to Subway for its debit-card sales (minus a 2

1/2% transaction fee) make the University the purchaser of

Subway's products (either as a consumer or a retailer).  The

University's only role was to facilitate the transactions between

its students, faculty, and staff members and Subway through the

debit-card system.  At the point of each sale, the computerized

debit-card system subtracted the exact cost of the food and

beverage products from the debit-card holder's account reserves

and credited Subway with the cost, minus the transaction fee. 

Under this system, the debit-card holder was always responsible

for paying for the product.  If the debit-card holder did not

have sufficient funds available in his debit-card account, he had to pay for the food or beverage product with cash or Subway would

not transfer ownership of the product.  We agree with the Depart

ment that the debit-card arrangement between Subway and the

University was similar to that of a retailer and credit card

company.  That a restaurant receives cash for a sale at retail

from an entity other than the point-of-purchase consumer does not

mean that the restaurant has made a sale at retail to anyone

other than that consumer.  

		The record establishes that (1) Subway made sales at

retail to the debit-card holders, not to the University; and (2)

Subway did not act as a wholesale supplier to the University. 

Neither the applicable statutory provisions nor the Department's

regulations grant for-profit public businesses, such as Subway,

tax exemptions for sales to university students, faculty, or

staff members, regardless of the manner in which they pay for

their purchases.  We therefore conclude that Subway was not

exempt from ROT for its sales at retail to holders of the

University-issued debit cards. 

	4. University-Run Facilities Which Are Open to the Public  

		The Department also contends that even if Subway's on-

campus restaurants were likened to the University-run cafeterias,

Subway was not exempt from ROT because the on-campus restaurants

were open to the public.  We agree. 

		Section 130.2005(b)(4)(A) of the Code provides as

follows:

		"A school does not incur [ROT] liability on its operation of a cafeteria or other dining

facility which is conducted on the school's

premises, and which confines its selling to

the students and employees of the school.  In any instance in which the dining facility is opened up for the use of other persons, all sales that are made at such facility while that condition continues to prevail are tax able."  (Emphasis added.)  86 Ill. Adm. Code §130.2005(b)(4)(A) (West CD-ROM April 1997). 

Thus, even if this court were to assume that Subway's sales of

food and beverage products to debit-card holders served the same

function as the University-run cafeterias, we would conclude that

Subway was not exempt from ROT because its on-campus restaurants

were open to the public.

		Contrary to Subway's contention, the Department's

Private Letter Ruling No. 95-0195, issued May 12, 1995, does not

require a different result.  In that ruling, the Department

determined that Southern Illinois University at Edwardsville

(Southern) was entitled to an ROT exemption for food sales to

"students who reside in on-campus university housing who have

purchased a meal plan," even though such sales were made at the

student union, which was open to students, faculty, staff mem

bers, and the general public.  Department of Revenue, Private

Letter Ruling No. 95-0195, May 12, 1995.  The ruling did not

extend to other students, faculty, or staff members who had established debit-card accounts with the university.  Southern

had requested an exemption after (1) opening its first residence

hall and (2) deciding to provide meals to residence-hall students

at the existing student union to avoid the cost of building a

"multi[]million dollar kitchen and dining facility."  Department

of Revenue, Private Letter Ruling No. 95-0195, May 12, 1995.  

		Generally, "private letter rulings have no precedential

effect."  Union Electric Co. v. Department of Revenue, 136 Ill. 2d 385, 400, 556 N.E.2d 236, 243 (1990).  However, where a

private letter ruling "clearly contains a policy of general

applicability" that "reflects the policy which was in effect

during the time period at issue," it may be considered "instruc

tive" as to the Department's construction of its regulations. 

Union Electric Co., 136 Ill. 2d at 400-01, 556 N.E.2d at 243.  

		The Department's May 12, 1995, private letter ruling

did not clearly contain a policy of general applicability that

was in effect during the time period at issue.  As evidence of

this fact, we note that the parties have appended to their briefs

four private letter rulings issued between 1983 and 1994, in

which the Department adhered to section 130.2005(b)(4)(A) of the

Code (86 Ill. Adm. Code §130.2005(b)(4)(A) (West CD-ROM April

1997)).  See Department of Revenue, Private Letter Ruling Nos.

83-0986, November 22, 1983; 83-0335, April 5, 1983; 83-0360,

April 14, 1983; unnumbered, August 8, 1994.  In particular, in

its August 8, 1994, private letter ruling, the Department re

jected Southern's contention that Southern should be exempt from ROT for food and beverage sales to all student debit-card hold

ers, which took place at a university-run dining facility open to

the public.  Department of Revenue, Private Letter Ruling,

unnumbered, August 8, 1994.

		This record establishes that before and during the tax

period in question, the Department's stated position--in virtu

ally all instances--was that when a university-run dining facil

ity was open to the public, all sales would be taxed.  During the

same time, the Department issued only one private letter ruling

granting an exemption from ROT to an exclusively educational

institution (see Department of Revenue, Private Letter Ruling,

No. 95-0195, May 12, 1995).  In our view, the most that can be

inferred from the May 12, 1995, private letter ruling is that the

Department decided to grant a very limited exemption to accommo

date the particular circumstances facing that university. 

Because the record shows that the Department had not established

a clear policy against taxing food and beverage sales to holders

of university-issued debit cards at university dining facilities

open to the public, the May 12, 1995, private letter ruling did

not establish a rule binding the Department in this case.

		In so concluding, we note that Subway makes several

policy-related arguments in support of its contention that for-

profit businesses whoich have contracted with a university to

operate on-campus restaurants and conduct debit-card sales should

be exempt from ROT for food and beverage sales to holders of

university-issued debit cards.  In particular, Subway asserts the following:  (1) "[o]ne of the prime subjects of privatization in

the area of higher education *** is the provision of prepared

food and beverages to students and staff with whom a university

has contracted to furnish board"; (2) the "requirement that sales

be made only to students and employees in a closed dining facil

ity apparently exists solely to facilitate the Department *** in

its audit function of sales to such individuals"; (3) section

130.2005(b)(4)(A) of the Code (86 Ill. Adm. Code §130.2005(b)

(4)(A) (West CD-ROM April 1997)) "has not kept pace with data

processing improvements which make it possible to identify and

segregate cash transactions with the general public from debit 

[-]card transactions with students and staff"; and (4) if the

University, which is "an instrumentality" of the State, relies

upon the accuracy of and "places its faith" in the debit-card

system, "that should suffice for the administration of the [ROT]

Act by the Department."  Whatever merit these assertions may

possess, the appellate court is not the forum to which they

should be addressed.  Instead, Subway should address its proposed

change in the law to the institution in this Sstate charged with

making public policy--the General Assembly.  As an alternative,

Subway could address its proposal to the Department.      

	D. Uniformity Clause

		Last, the Department argues that the difference in the

taxation of Subway and the University under the ROT statutory

scheme does not violate the uniformity clause of the Illinois

Constitution of 1970 (Ill. Const. 1970, art. IX, §2).  We agree.

		Article IX, section 2, of the Illinois Constitution

provides as follows:

			"In any law classifying the subjects or

objects of non[]property taxes or fees, the

classes shall be reasonable and the subjects

and objects within each class shall be taxed

uniformly.  Exemptions, deductions, credits,

refunds[,] and other allowances shall be

reasonable."  Ill. Const. 1970, art. IX, §2.

To survive scrutiny under the uniformity clause, a nonproperty

classification must (1) be based on a real and substantial

difference between the people taxed and those not taxed; and (2)

bear some reasonable relationship to the object of the legisla

tion or to public policy.  Milwaukee Safeguard Insurance Co. v. Selcke, 179 Ill. 2d 94, 98, 688 N.E.2d 68, 70 (1997).

		The scope of a court's inquiry under the uniformity

clause remains relatively narrow.  Allegro Services, Ltd. v. Metropolitan Pier & Exposition Authority, 172 Ill. 2d 243, 250, 665 N.E.2d 1246, 1251 (1996).  As the supreme court in Allegro Services explained:

		"Statutes bear a presumption of constitution

ality, and broad latitude is afforded to

legislative classifications for taxing pur

poses.  [Citation.]  One challenging a non

property tax classification has the burden of

showing that it is arbitrary or unreasonable, and if a state of facts can reasonably be

conceived that would sustain the classifica

tion, it must be upheld."  Allegro Services, Ltd., 172 Ill. 2d at 250-51, 665 N.E.2d at 1251.  

The following procedural process is used to determine whether a

statute violates the uniformity clause.  Upon a good-faith

uniformity challenge, a taxing body bears the initial burden of

producing a justification for its nonproperty tax classification. 

Once done, the plaintiff bears the burden of persuading the court

that the justification is not supported by facts or is insuffi

cient as a matter of law.  The plaintiff who fails to meet its

burden of persuasion loses, and the tax classification will be

upheld.  Geja's Café v. Metropolitan Pier & Exposition Authority, 153 Ill. 2d 239, 248-49, 606 N.E.2d 1212, 1216 (1992).

		In this case, the Department has submitted a legally

sufficient justification for imposing ROT on for-profit busi

nesses whoich sell products for consumption to a university's

students, faculty, and staff members, which bears a reasonable

relationship to the legislation or public policy.  As the Depart

ment points out, a real and substantial difference exists between

for-profit businesses, like Subway, and exclusively educational

institutions.  The Department also notes that the University is

exempt from ROT because it is an exclusively educational institu

tion which operates a closed dining facility for the sole purpose

of serving its students and employees.  In contrast, Subway is a for-profit business that is open to the general public and is in

competition with several other fast-food restaurants in the area. 

		Subway has failed to rebut the Department's justifica

tion.  Subway claims that the uniformity clause would be violated

if students who purchase food and beverages at Subway's on-campus

restaurants have to pay ROT while students who purchase food

products at other university-run cafeterias in the State do not

have to pay ROT.  Contrary to Subway's contention, the ROT is a

tax on the seller, not on the buyer of the goods.  See First National Bank v. Jones, 48 Ill. 2d 282, 288, 269 N.E.2d 494, 497 (1971), quoting National Bank of Hyde Park v. Isaacs, 27 Ill. 2d 205, 207, 188 N.E.2d 704, 705 (1963) (ROT "'is levied upon the

seller, and the custom of passing the burden to the buyer by

means of a price increase does not alter its nature.  It is the

legal incidence of the tax that controls'").  

		We therefore conclude that the ROT statutory scheme,

under which for-profit businesses, like Subway, must pay ROT on

sales of products to a university's students, faculty, and staff

members, while exclusively educational facilities, like the

University, are exempt from ROT for such sales, does not violate

the uniformity clause.  

		Because (1) Subway was not exempt from ROT for its

"sales at retail" to the University's students, faculty, and

staff members; and (2) the uniformity clause was not violated, we

hold that the trial court erred by granting Subway's motion for

summary judgment and denying the Department's motion for summary judgment.  Accordingly, we remand with directions that the court

grant the Department's motion for summary judgment. 		

	III. CONCLUSION

		For the reasons stated, we reverse the trial court's

order granting Subway's motion for summary judgment, reverse the

court's order denying the Department's motion for summary judg

ment, and remand with directions that the court enter summary

judgment in the Department's favor.

		Reversed and remanded with directions.	

		McCULLOUGH and KNECHT, JJ., concur.