THIRD DIVISION

								MARCH 29, 2002

No. 1-01-0733

BLESSING/WHITE, INC., NORBERT			)	Appeal from the

BLESSING, STROLLER WHITE, and			)	Circuit Court of

LINDA WHITE,						)	Cook County.

								)

	Plaintiffs-Appellees,			)

								)

		v.						)

								)

KENNETH E. ZEHNDER, Director of		)

Revenue, and THE STATE OF ILLINOIS		)

DEPARTMENT OF REVENUE,				)	Honorable

								)	Joanne L. Lanigan,

	Defendants-Appellants.			)	Judge Presiding.

	JUSTICE CERDA delivered the opinion of the court:

	In this administrative review action, defendants, the

Illinois Department of Revenue and its director, Kenneth E.

Zehnder1 (Director) (collectively the Department), appeal the order of the circuit court reversing its determination that

certain income realized by plaintiffs, Blessing/White, Inc.

(BWI), a former New Jersey corporation, its sole shareholders,

Norbert Blessing and Stroller White, and Stroller's wife, Linda

White (collectively plaintiffs), through the sale of

substantially all of BWI's business assets qualified as taxable

"business income" under section 1501(a)(1) of the Illinois Income Tax Act (the IITA) (35 ILCS 5/1501(a)(1) (West 2000)).  The

principal issue raised by the Department's appeal concerns the

proper tax classification of income realized by a non-resident

corporation that conducts business activities within Illinois,

from a sale of substantially all its business assets where,

subsequent to the sale, the corporation ceases its operations and

distributes all the sale proceeds to its shareholders.  The

Department contends such gain classifies as "business income"

under section 1501(a)(1) and is, thus, taxable by the state. 

Plaintiffs, on the other hand, claim such gain constitutes

nonbusiness income and, as such, falls outside the scope of

income taxable under the IITA.  O'Connor Partners, a private

partnership, and Nicor, Inc., a private holding company, have

been permitted to file an amicus curiae brief in support of plaintiffs' position.  We agree with plaintiffs and, for the

following reasons, affirm the order of the circuit court.

	BACKGROUND

	The following facts were stipulated to by the parties during

the administrative proceedings.

	At all times prior to May 1989, BWI was a New Jersey

corporation with its principal place of business in Princeton,

New Jersey, engaged in the human resource consulting business,

providing services mainly to major private businesses and

governmental entities.  Specifically, BWI provided instructional

programs directed at enhancing the managerial and motivational abilities of its clients' personnel.  As part of its operations,

BWI maintained a sales office in Chicago.

	On May 31, 1989, BWI sold substantially all of its assets to

an unrelated third party for $25,996,758.  The assets involved in

the sale consisted primarily of intangible assets, particularly

client relationships, customer lists and a variety of proprietary

curricula that had been developed by the company over the years. 

Per the parties' stipulation, the foregoing assets had been used

by BWI in its regular course of business and as part of its

income-producing activities in Illinois.

	Following the sale, BWI ceased its business activities,

including those conducted in Illinois, and distributed nearly all

of the sale proceeds to Blessing and White.  Only a small amount

of cash and a note retained for collection remained as assets.

	On its Illinois income tax return for the tax year ending

January 30, 1990, BWI classified the gain realized from the May

1989 sale as nonbusiness income not subject to tax by the State

and allocated the gain to its corporate domicile of New Jersey. 

Given BWI's classification of the sale proceeds, Blessing and

White, both New Jersey residents, did not file Illinois income

tax returns for 1990.2

	Upon conducting an audit of BWI's 1990 tax filing, the Department reclassified BWI's gain as business income

apportionable to Illinois.  The Department thereafter issued

notices of tax deficiency to BWI, Blessing and the Whites3.

	Plaintiffs timely protested the Department's

reclassification of BWI's gain.  During the administrative

proceedings, the parties stipulated to all material facts and

exhibits.  In pertinent part, plaintiffs expressly acknowledged

that if the Department's classification of the sale proceeds as

business income was accurate, the proceeds were apportionable to

Illinois and had to be reported to the State as taxable income.

	The case was heard and considered by an administrative law

judge (ALJ) in mid-1996.  In a written ruling, the ALJ

recommended that the Department's classification of BWI's gain be

upheld.  The Director agreed with the ALJ's assessment and fully

adopted the ALJ's ruling as his decision on February 14, 1996.4

	Following the Director's ruling, the Department notified

plaintiffs of their respective income tax arrearages.  According

to the Department's calculations, BWI owed $31,211, Blessing owed

$27,105, and the Whites owed $30,506.

	On April 19, 1996, plaintiffs filed a complaint with the circuit court for review of the Department's decision under the

Administrative Review Law (Review Law) (735 ILCS 5/3-101

et seq.).  By agreement of the parties, the circuit court allowed the case to remain idle while our supreme court considered the

case of Texaco-Cities Service Pipeline Co. v. McGaw, 182 Ill. 2d 262, 695 N.E.2d 481 (1998).  Following resolution of that matter, the circuit court concluded BWI's gain realized from the 1989

asset sale constituted nonbusiness income and, hence, was not

taxable in Illinois.  Accordingly, the circuit court reversed the

Department's decision.

	The Department's timely appeal followed.

	ANALYSIS

	The principle issue here is whether the Department's

characterization of BWI's gain from the 1989 asset sale as

"business income" was accurate.  The IITA, derived from the

Uniform Division of Income for Tax Purposes Act (UDITPA),

addresses when income of a non-resident corporation conducting

business within Illinois is subject to taxation by the state. 

Under the statute, foreign corporations are required to pay taxes

in proportion to the amount of its income-producing activities. 

35 ILCS 5/304(a) (West 2000); Texaco-Cities Service Pipeline Co. v. McGaw, 182 Ill. 2d 262, 268, 695 N.E.2d 481, 484 (1998); Automatic Data Processing, Inc. v. Illinois Dept. of Rev., 313 Ill. App. 3d 433, 438, 729 N.E.2d 897, 902 (2000).

	Essentially, the IITA establishes two methods by which corporate income will be divided among Illinois and the other

jurisdictions in which the taxpayer conducts business.  These two

methods are "apportionment" and "allocation," and the particular

method by which the taxpayer's income will be divided turns upon

whether the income is classified as "business income" or

nonbusiness income."

	"Business income" is defined as:

		"income arising from transactions and

activity in the regular course of the

taxpayer's trade or business ***, and

includes income from tangible and intangible

property if the acquisition, management, and

disposition of the property constitute

integral parts of the taxpayer's regular

trade or business operations."  35 ILCS

5/1501(a)(1) (West 2000).5

Income falling within the purview of the foregoing definition is

subject to apportionment in Illinois through use of a three-

factor formula that takes into account the corporation's

property, payroll and sales.  35 ILCS 5/304(a)(1), (a)(2), (a)(3)

(West 2000).

	Any income not deemed to be business income is considered

nonbusiness income.  35 ILCS 5/1501(a)(13) (West 2000).  For taxing purposes, nonbusiness income is allocated to a particular

state, generally the state in which the corporation is domiciled

or in which the income-producing property is situated.  35 ILCS

5/303 (West 2000); Automatic Data, 313 Ill. App. 3d at 438, 729 N.E.2d at 902.

	Following the approach of other jurisdictions that have

adopted the UDITPA, our supreme court has recognized that section

1501(a)(1) of the IITA encompasses two alternative and distinct

approaches for determining whether gain realized from the sale of

a capital asset may be apportioned.  The first, or

"transactional" test, is reflected by the first clause of the

definition stating that business income is "income arising from

transactions and activity in the regular course of the taxpayer's

trade or business."  Texaco-Cities, 182 Ill. 2d at 268, 695 N.E.2d at 484.  The second, or "functional" test, is embodied in

the second clause which reads that business income "includes

income from tangible or intangible property if the acquisition,

management, and disposition of the property constitute integral

parts of the taxpayer's regular trade or business operations." 

Texaco-Cities, 182 Ill. 2d at 268, 695 N.E.2d at 484.6

	As explained by the supreme court, the transactional test classifies income as business income if the gain is "attributable

to a type of business transaction in which [the] taxpayer

regularly engages."  Texaco-Cities, 182 Ill. 2d at 269, 695 N.E.2d at 484.  Under this approach, the use or function of the

asset sold is not determinative.  General Care Corp. v. Olsen, 705 S.W.2d 642, 645 (Tenn. 1986); Western Natural Gas Co. v. McDonald, 446 P.2d 781, 783 (Kan. 1968).  Rather, it is the nature, frequency and regularity of the income-generating

transaction that define the test.  Texaco-Cities, 182 Ill. 2d at 269, 695 N.E.2d 484; see also Ross-Araco Corp. v. Commonwealth of Pennsylvania, 674 A.2d 691, 693 (Pa. 1996) ("[t]he transactional test measures the particular transaction against the frequency

and regularity of similar transactions in the past practices of

the business").7

	As the parties submit, BWI's gain from the asset sale in

question does not constitute business income under the

transactional approach since asset liquidations accompanied by a

cessation of business activity, like that undertaken by BWI here,

is an extraordinary and uncommon corporate event not typically

occurring within a corporation's regular course of operations.  See Hoechst Celanese Corp. v. Franchise Tax Bd., 22 P.3d 324, 337 (Cal. 2001) ("income arising from 'extraordinary' events such as

a 'complete liquidation and cessation of business' cannot satisfy

the transactional test"); Ex parte Uniroyal Tire Co., 779 So. 2d 227, 236 (Ala. 2000) ("[a] complete liquidation and cessation of

business do not generate business income under the transaction

test *** because, by definition, such events are most

extraordinary; they do not occur in the 'regular course of the

taxpayer's trade or business'").

	The functional test, as noted, provides that income is

business income where the "acquisition, management, and

disposition of the property constitute integral parts of the

taxpayer's regular trade or business operations."  The express

wording of the IITA indicates that the acquisition, management

and disposition of the property at issue must constitute integral parts of the taxpaying corporation's business operations.  Under

this construction of the statute, income is apportionable as

business income under the functional test only if the income-

generating transaction (i.e., the disposition), as well as the taxpayer's relationship to the property before disposition (i.e., acquisition and management), are integral to the corporation's

regular operations.  See Texaco-Cities, 182 Ill. 2d at 280-81, 695 N.E.2d at 490 (Bilandic, J., dissenting).

	The majority opinion in Texaco-Cities, yet, embraced a different view.  At first blush, the court's decision seems to adopt the construction of the statute discussed above.  The

majority specifically explained that the functional approach

classifies all gain from the disposition of a capital asset as

income "if the asset disposed of was used by the taxpayer in its

regular trade or business operations."  Texaco-Cities, 182 Ill. 2d at 268, 695 N.E.2d at 484.  In construing the express wording

of the act, the majority determined that "the acquisition,

management and disposition of the income-producing property must closely relate to the taxpayer's regular trade or whole process

of operating its business."  (Emphasis added.)  Texaco-Cities, 182 Ill. 2d at 271, 695 N.E.2d at 485.  In this regard, the court

stated "the words 'acquisition, management, and disposition'

suggest elements typically associated with the 'keeping' of

corporate property, or *** the 'conditions of ownership' of

corporate property."  Texaco-Cities, 182 Ill. 2d at 271, 695 N.E.2d at 485.  Thus, according to the majority, "the sale of

property will constitute business income if the property and sale are essential [i.e., integral] to the taxpayer's business operations."  (Emphasis added.)  Texaco-Cities, 182 Ill. 2d at 271, 695 N.E.2d at 485.

	Further examination of the Texaco-Cities decision, however, reveals the majority believed the paramount inquiry was not

whether the property and disposition were essential but, rather, only whether the property itself was integral to the corporation's business.  In addressing the taxpayer's argument that the second clause of the "business income" definition

mandates that the taxpayer "'emphasize the trading of the sold

asset as an integral part of its regular business," the majority

stated:

		"We think that, had the legislature intended

for this section to be confined to taxpayers

who routinely trade assets, or to gain from

the sale of inventory, it could have said so. 

[The taxpayer's] construction narrowly

focuses upon the 'regularity' or frequency of

the transaction that produced the income. 

Instead, the reach of the second clause is

much broader, directed toward the use or disposition of the property as forming an

integral part of the taxpayer's business." 

(Emphasis added.)  Texaco-Cities, 182 Ill. 2d at 271, 695 N.E.2d at 486.

	The Texaco-Cities majority seemed to refine the scope of the functional test even more when it continued:

		"The functional test classifies as business

income all gain from the disposition of a

capital asset if the asset was 'used by the

taxpayer in its regular trade or business

operations. *** [T]he second clause of

section 1501(a)(1) focuses upon the role or function of the property [disposed of] as being integral to regular business operations.  The use of a capital asset in the taxpayer's regular trade or business

indisputably renders that asset an integral

part of the taxpayer's regular business

operations."  (Emphasis added.)  Texaco- Cities, 182 Ill.2d at 272, 695 N.E.2d 486.

The court further added that "the extraordinary nature or

infrequency of the sale is irrelevant" in applying the functional

approach.  Texaco-Cities, 182 Ill. 2d at 269, 695 N.E.2d at 485.

	The court's analysis of the case before it confirms that the

use of the property by the taxpayer is the focal point of the

functional test.  The taxpayer in Texaco-Cities, Texaco-Cities Service Pipeline Company, was in the business of transporting

crude oil and other petroleum products by pipeline.  As part of

its business, Texaco-Cities owned and operated pipelines that ran

through several states, including Illinois.  During the 1983 tax

year, Texaco-Cities sold major segments of its pipeline assets

and, specifically, its entire contingent of assets in Illinois. 

As a result, Texaco-Cities realized a nearly 90% reduction in its

total pipeline miles and generated a gain of $9,987,176.

	Texaco-Cities reported the income from its sale as

nonbusiness income on its return for the 1983 tax year.  The

Illinois Department of Revenue audited Texaco-Cities' tax returns and, based thereupon, assessed a tax deficiency against the

company.  The revenue department reclassified the gain as

"business income" subject to apportionment under the IITA,

finding the sale to have constituted an integral part of Texaco-

Cities' business operations.  Texaco-Cities' protest to the

reclassification proved unsuccessful and the company filed for

administrative review.

	In a four-to-three decision, the supreme court, analyzing

the case under the functional approach, held the gain realized by

Texaco-Cities represented apportionable income under the IITA:

		"According to Texaco-Cities' tax return for

the year in question, its business was

'pipeline transportation.'  The pipelines

sold were among several that Texaco-Cities

employed to transport petroleum and other

substances in its regular course of business. 

There was no dispute that they were used

for the production of business income." 

Texaco-Cities, 182 Ill. 2d at 273, 695 N.E.2d at 486.

	Certainly, in its application of the functional test, the

majority opinion focused solely on the property and particularly

whether Texaco-Cities' pipeline assets were essential to the

company's operations, i.e., whether the pipelines were "used by the taxpayer in its regular trade or business operations."  In evaluating the significance of the subject pipeline to the

company's business activities, the majority noted the pipeline

assets had generated income for the company during the course of

their utilization.8  No where in the majority's analysis is it apparent that the court concerned itself with whether the sale of

the pipelines was also integral to the company's business.  See Texaco-Cities, 182 Ill. 2d at 280, 695 N.E.2d at 490 (Bilandic, J., dissenting) (noting the majority's holding that "to satisfy

the functional test for business income, the property that is

sold must simply be property that was "'used by the taxpayer in

its regular trade or business operations'").

	The majority's discussion and application of the functional approach in Texaco-Cities indicates the functional test for business income is satisfied where the asset disposed of was used

by the taxpayer as an integral part of its regular trade or

business operations.  In determining whether the subject asset

was integral, particular attention is given to whether the asset

generated income for the company during its period of

utilization.  The relevant focus is on the property and use

thereof by the taxpayer, and the nature of the particular transaction engaged in is typically of no concern.9  We say "typically" because further examination of the Texaco-Cities opinion reveals that the majority believed application of a

modified form of the functional test is appropriate when the

disposition of assets was made pursuant to a corporate

liquidation in cessation of business.

	After characterizing the pipeline assets sold by Texaco-

Cities to be income-producing property while held by the company,

the Texaco-Cities majority examined and distinguished the Pennsylvania supreme court decision of Laurel Pipe Line Co. v. Commonwealth, 642 A.2d 472 (Pa. 1994), the principal authority relied on by Texaco-Cities in arguing for nonapportionment.  In

Laurel Pipe Line, the court, adopting both the transactional and functional tests, considered the issue of whether the proceeds

from the sale of an independent pipeline held by a company

engaged in the petroleum product transportation business

constituted business or nonbusiness income under statutory

apportionment provisions nearly identical to those contained in

the IITA.  As part of its business activities, the taxpaying

corporation operated several pipelines, including a pipeline that

extended from Aliquippa, Pennsylvania to Cleveland, Ohio.

	After discontinuing operation of the Aliquippa-Cleveland

pipeline in 1983, the taxpayer sold the pipeline, along with

related assets, in late 1986 for a gain of $3,766,047.  Shortly

thereafter, the proceeds from the sale were distributed to the

company's stockholders.  No amount of the sale proceeds was

reinvested back into the company's ongoing business activities.

	The issue before the Laurel Pipe Line court was whether the Pennsylvania department of revenue's classification of the

taxpayer's gain represented apportionable business income for tax

purposes.  Considering the issue strictly within the parameters

of the functional test, the court held the gain realized on the

pipeline's sale was nonbusiness income.  Laurel Pipe Line, 642 A.2d at 477.  While initially explaining that the functional test

will be satisfied "if the gain arises from the sale of an asset

which produced business income while it was owned by the

taxpayer," the court nevertheless found the nature of the

transaction engaged in by the taxpayer significant, explaining the "statutory definition of business income requires that 'the

acquisition, management, and disposition of the property constitute integral parts of the taxpayer's regular trade or business operations.'"  (Emphasis in original.)  Laurel Pipe Line, 642 N.E.2d at 475.  In this regard, the court commented:

			"The Aliquippa-Cleveland pipeline had

been idle for over three years prior to the

time that it was sold.  In our view, the

pipeline was not disposed of as an integral

part of *** [the taxpayer's] regular trade or

business.  Rather, the effect of the sale was

that the company liquidated a portion of its

assets.  This is evidenced by the fact that

the proceeds of the sale were not reinvested

back into the operations of the business, but

were distributed entirely to the stockholders

of the corporation.  Although *** [the

taxpayer] continued to operate a second,

independent pipeline, the sale of the

Aliquippa-Cleveland pipeline constituted a

liquidation of a separate and distinct aspect

of its business."  Laurel Pipe Line, 642 A.2d at 475.

To the Laurel Pipe Line court, the disposition of the property, in addition to the property itself, had to be integral to the taxpayer's regular operations for the gain generated by the

disposition to qualify as business income under the functional

test.  Since the sale of the Aliquippa-Cleveland pipeline was not

essential to the taxpayer's business, the gain was deemed not

taxable.

	In finding Laurel Pipe Line distinguishable, the majority in Texaco-Cities cited the effects the subject transactions had on each of the taxpayer's respective business as well as the

taxpayers' respective use of the proceeds generated by the sales. 

The majority explained the sale consummated by Texaco-Cities,

unlike the transaction involved in Laurel Pipe Line, did not represent a liquidation and cessation of Texaco-Cities business

operations or a distinct and separate portion thereof.  Texaco- Cities, 182 Ill. 2d at 273-74, 695 N.E.2d at 487.  Rather, the majority stressed, Texaco-Cities, following the sale, "remained

primarily in the business of providing transportation by

pipeline, and that the sales proceeds were invested right back

into the business rather than being disseminated to its

shareholders."  Texaco-Cities, 182 Ill. 2d at 273, 695 N.E.2d at 486-87.

	The supreme court's treatment of the Laurel Pipe Line decision is significant and suggests the functional test assumes

a different application in cases where the taxpayer's disposition

of assets amounts to a corporate liquidation in cessation of

business.  Notably, the Laurel Pipe Line court applied a functional test that considered the importance of both the

property and transaction to the taxpaying corporation.  Yet, the

Texaco-Cities majority did not distinguish Laurel Pipe Line on that basis but, rather, cited the discontinuation of the

taxpayer's business and the distribution, as opposed to

reinvestment, of the sale proceeds.  Neither did the majority

cite the extraordinary nature of the transaction engaged in by

Laurel Pipe Line taxpayer.  Certainly, the court's handling of Laurel Pipe Line raises the question of whether the majority would have reached a different conclusion had Texaco-Cities

ceased its pipeline activities, either in whole or part, and

distributed the sale proceeds to its stockholders.  Texaco- Cities, in our view, tacitly recognizes the distinctive nature of corporate liquidations resulting in a discontinuation of business

activity and suggests that the functional test will be met in

such cases only where the property and the liquidation of assets (i.e. disposition) are essential to the taxpayer's regular trade or operations.10

	Turning to the merits of the Department's appeal, we first discuss the applicable standard of review.  Under the

Administrative Review Law (735 ILCS 5/301 et seq. (West 2000)), we review the final decision of the administrative agency and not

the decision of the circuit court.  Hercules, Inc. v. Department of Rev., 324 Ill. App. 3d 329, 335, 753 N.E.2d 418, 424 (2001).  We consider all questions of law and fact presented by the record

(735 ILCS 5/3-110 (West 2000)), and the standard of review

applied by this court turns on the proper characterization of

question presented.  City of Belvidere v. Illinois State Labor Relations Bd., 181 Ill. 2d 191, 204, 692 N.E.2d 295, 302 (1998).

	Deference is afforded the agency's findings of fact and they

will not be disturbed unless against the manifest weight of the

evidence.  City of Belvidere, 181 Ill. 2d at 205, 692 N.E.2d at 302.  Agency determinations involving mixed questions of fact and

law are also provided a degree of deference and are reviewed

pursuant to a clearly erroneous standard.  City of Belvidere, 181 Ill. 2d at 205, 692 N.E.2d at 302.  Determinations of law,

conversely, are not afforded deference and are reviewed on a

de novo basis.  City of Belvidere, 181 Ill. 2d at 205, 692 N.E.2d at 302.

	The parties here disagree as to the proper characterization

of the Department's decision.  The Department characterizes its

ruling as a mixed question of fact and law and, therefore, urges

for review under the clearly erroneous standard.  Plaintiffs, on

the other hand, assert the absence of any factual dispute as a result of the parties' stipulation required the Department to

determine only a question of law.  Plaintiffs, therefore,

advocate use of a de novo standard of review.

	In City of Belvidere, the supreme court applied the clearly erroneous standard in reviewing the ruling of the Illinois State

Labor Relations Board (ISLRB) that found the City of Belvidere

guilty of an unfair labor practice under the Illinois Public

Relations Act when it refused to bargain with a firefighters

union concerning its decision to contract out paramedic services

to a private company.  Characterizing the ISLRB's ruling as a

mixed question of fact and law, the court explained the board's

determination was, in part, factual because it involved a

consideration of whether the facts supported a finding that the

city's decision "affected wages, hours and other conditions of

employment (City of Belvidere, 181 Ill. 2d at 205, 692 N.E.2d at 302), a primary consideration in determining an employer's duty

to bargain under the labor act.  While the evidence in this

respect was undisputed, the ISLRB was nonetheless required to

make certain factual findings.  In particular, the board had to

examine the evidence and ascertain: whether the city had an

established operating procedure and, if so, whether the city's

decision constituted a departure from that practice; the

conditions of the firefighters' employment and how they were

affected by the city's decision (i.e., whether the firefighters were deprived of potential work or promotional opportunities); and whether the firefighters, by the nature of their position,

had a reasonable expectation to provide paramedic services to the

city's residents.  City of Belvidere, 181 Ill. 2d at 201, 692 N.E.2d at 300.

	The supreme court further explained the ISLRB's decision

also involved a question of law because the statutory phrase

"wages, hours and other conditions of employment" is a legal term

that required interpretation.  City of Belvidere, 181 Ill. 2d at 205, 692 N.E.2d at 302.  Stating a mixed question of fact and law

was presented by the agency's decision "because *** [the] case

involve[d] an examination of the legal effect of a given set of

facts," the court reviewed the agency's determination for clear

error.  City of Belvidere, 181 Ill. 2d at 205, 692 N.E.2d at 302.

	The Department contends that the instant case, like the case

in City of Belvidere, concerns the legal effect of a given set of facts and, thus, represents a mixed question to be reviewed under

the clearly erroneous standard.  We disagree.  While the facts

before the Department, like the facts before the ISLRB, were not

in dispute, the Department was not required, like the labor

board, to draw any additional factual findings from the evidence. 

The only issue before the Department was whether BWI's gain from

the 1989 asset sale constitutes business income under the

functional test.  Not only did the parties stipulate that the

disposed assets produced income for BWI and, thus, were essential

to the company's business, the parties further stipulated that BWI ceased its activities in Illinois and distributed the sale

proceeds to the company's shareholders shortly after the

transaction.  Under these circumstances, the Department's

decision represents a legal determination subject to de novo review.  See Taylor v. Cook County Sheriff's Merit Bd., 316 Ill. App. 3d 574, 579, 736 N.E.2d 673, 677 (2000) ("[t]he legal effect

of undisputed facts is a question of law, and the appellate court

considers the propriety of the determination de novo").11

	While the record demonstrates that the assets disposed of

were essential to BWI's regular operations, it wholly fails to

show that the disposition of those assets was equally important

to the company.  The disposition amounted to a liquidation of

BWI's business property, reflecting an extraordinary, one-time

corporate event and marking the cessation of the company's

business activities including those conducted in Illinois. 

Significantly, the liquidation proceeds were not used to support

any ongoing business concerns but, instead, disbursed in their

entirety to the company's shareholders.  Since the liquidation of

BWI's assets was not integral to the company's regular business

operations, BWI's gain does not qualify as business income under the functional approach.  See Lenox, 548 S.E.2d at 519-20 (finding gain realized by taxpayer's liquidation of separate and

distinct portion of business operations did not constitute

business income under functional approach where the liquidation

resulted in taxpayer's complete departure from the fine jewelry

business and where the sale proceeds were distributed to the

taxpayer's sole shareholder and not used to support any ongoing

business activities); Kemppel, 746 N.E.2d at 1076 (finding taxpayer's gain not business income under functional test where

gain resulted from liquidation of assets followed by a

dissolution of the corporation); crf. Texaco-Cities, 182 Ill. 2d at 273, 695 N.E.2d at 486-87.  BWI's gain, therefore, is  is tehreaherefore 8best

classified as nonbusiness income under the IITA and, as such, is

not taxable in Illinois.

	CONCLUSION

	For the foregoing reasons, the order of the circuit court

reversing the Department's decision is affirmed.  Because of our

holding, we need not address the constitutional arguments against

apportionment raised by the amici.

	Affirmed.

	HALL, P.J., and WOLFSON, J., concur.