SIXTH DI VISI ON November 21, 2008 No. 1-07-1341

NANCY KE

AN, I ndividual ly a

nd on Behalf ) of All Others Similarly Situated, ) ) Plaintiff -Appella nt, )

) v. ) Appeal from the ) Circuit Court of WAL-MART STORES, INC., ) Cook County , Illi nois. WAL-MART.COM, U.S.A., LL C, and ) WAL-MART ASSOCIATES, I NC., )

) No. 06 CH 21735 Defendants-Appellees ) ) (Chip Russe ll, In

dividually and on Be

half ) Honorab le of All Others Similarly Situated, ) Philip L. Bronstein, ) Judge Presi ding. Inte rvenor a nd Plaintif

f-Appe llant; )

) The D epar

tment of Revenu e and

Alexi ) Giannoul ias as Tr

easure r of the St ate of I llinois, )

) Intervenors and De fendants-Appellees). )

JUSTICE JOSEPH GORDO

N deliver ed the opi nion of the

court: Plaintiff Nancy Ke an and Plaintiff-Intervenor Chip Russell (collectively plaintiffs) filed complaints against Wal-Mart Stores, Inc ., Wal-Mart.com, U.S.A., LL C, and Wal-Mart Associates, Inc. (collec

tively Wal-Mart), alleg

ing that Wal-Mart violated Illinois law by charging an unauthorized sales tax upon shipping charges for g oods purchased through its website. The trial court dismissed their complaints, finding that under the facts as alleg ed by plaintiffs, the shipping charges were

subject to sales tax as a matter of law. For the reasons that follow, weNo. 07-1341

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affirm. I. BACKGROUND On October 12, 2006, Kean filed her class ac tion complaint against Wal-Mart, in which she alleged the following: Throug h Wal-Mart’s website, http://www.walmart.com, Kean purchased a mini-trampoline for personal use on September 9, 2006. The price of the trampoline was $23.33, the shipping charge wa s an additional $7.97, and the sales tax charge was $2.74, based upon the sum of the product price and the shipping cha rge. Kean stated that although she paid, she sent a letter to Wal-Mart on that same day protesting the imposition of sales tax on the cost of shipping, but Wal-Mart represented that the tax was proper a nd would not rescind the charge. Kean then stated that such shipping charg es are not properly subject to sales tax. She therefore sought relief in three counts. In Count I , she contended that by collecting an unauthorized tax on shipping, Wal-Mart violated the Illinois Consumer Fraud and De ceptive Busines s Practic es Act, 8 15 IL CS 505/2 et seq. (West 2006 ); accordingly , on beha lf of herself and all other similarly situated consumer s, she sought actual damages. I n Count II, she contende d that Wal- Mart was unjustly enriche d to the exte

nt that it di d not deliver the ta xes it collected to the state, and she sought disgorg ement of any suc h wrongfully

retained money

. Finally, in Count I

II , she sought injunctive relief preventing Wal-Mar t from collecting such taxes in the future. Attached to the complaint as an exhibit is a printout of the alleged letter of protest that Kean se nt to Wal-Ma

rt’s online Help De sk on Septe mber 9, 20 06, which

reads a s follows:No. 07-1341

-3- “I r ecently checke d with the St

ate of I llinois, an d was told t

hat it is not

legal t o charge tax on shipping. Therefore , you are c harging too much tax on my order, which should be charged at 8.75% on the item ONL Y. Please adjust and advise.” Also attached is a response by a Wal-Mart customer service represe ntative stating that Wal-Mart is required to collect sales tax on taxable items shipped to Illinois and that shipping and handling charg es are s

ubject to sales tax in

applica ble state s. On Novemb er 14, 20 06, Kean filed a mo tion for a

prelimina

ry injunction

requiring WalMart to deposit all the sales tax on shipping services that it had collected into a protest fund (i.e., an interest-bearing fund set up by the court to hold disputed tax money until the rightful owner could be determined) instead of remitting the money to the state. In that motion, Kean averr ed that such relief was necessary because, if Wal-Mart were to remit the collecte d taxes to the state, Kean an d the cla ss members would no l onger have sta nding to r ecover the taxes, pursuant

to Adams v. Jewel Companies, Inc. , 63 Ill. 2d 336, 343, 348 N.E.2d 161, 165 (1976). In its response to Kean’ s motion, Wal -Mart sta ted that it had alre ady

remitted all Sep tem ber 200 6 t ax es, in clu di ng a ny ta x p aid by Ke an, to th e st ate on O cto ber 20, 200 6. It

averre d that it al

way s remits ta

xes to the sta

te on the 2 0th day

of the mon

th followi ng the month that the tax is charged. In support of this averment, it attached the affidavit of Michael Estes, the Senior Ta x Manage r of Sale s & Use T ax Sys tems for Wa l-Mart. B ased upon these a llegat ions, the court denied Kean’s motion.No. 07-1341

1 At the time of intervention, the Treasurer was Judy Barr Topinka; she has since been succeeded as Treasurer

by Alexi Giannoulias, who is substituted for her as the name d defendant. See 735 IL CS 5/2-1008(d) (West 2006). -4- On November 29, 2006, the Illinois Depar tment of Revenue and the State Treasurer 1 (the state defendants) sought to intervene in the action as additional defendants; their motion was granted. On December 20, 2006, Chip Russell sought to intervene in the action and file his own complaint against Wal-Mart and the state defendants; his motion was gr anted. The following day, Russell filed his complaint, in which, like Kean, he contended that Wal-Mart had committed consumer fraud by

collecting an unlawful tax on shipping charge s for online sales. He alleged that on De cember

5, 2006, he

purchas ed a L eapfro g Le apster Learning Syst em throug

h WalMart’s w ebsite. T

he cost of the item w as $59.84 . To purchase the item, Russe ll alleg edly clicked a button to add the item to his “electronic shopping cart.” He then proceeded to the “checkout” page, whe

re he was presented with three diffe rent options for shipping; he chose the option of having the item shipped in 2-3 day s, at a stated cost of $11.97. Russell then alleged that Wal-M art impose d sales ta x on the cost

of the ite m as well a s the shipp ing of that item, bringin g the tot al to $78.2 7, which h e paid. H e stated that it is Wal -Mart’s

gener al prac tice to charge sales tax on all shipping charg es of this nature. Russell averred that Wal-Mart contracts with a third-party shipper, such as UPS or FedEx, to deliver purchases made at its online store, and the shipping cha rges it imposes are entirely or a

lmost entirely reflec

tive of the actual cost paid to the third party . He also stated thatNo. 07-1341

-5-

when a customer returns a product purcha sed online, the customer receives no refund of the shipping charges unless the product wa s damaged. Like Kean, Russell contended that the c ost of shipping such items is not taxable under Illinois law. T

herefore, on be

half of h imself an d the cla ss of simila

rly situated c onsumers , Russell sought actual damages, an injunction requiring Wal-Mart to place all such collected taxes in a prote st fund ra

ther tha n sending them to the

State, an d a perma nent injun

ction bar ring Wal

Mart from collecting such taxes in the future. On the same day

that he filed his complaint, Russell also moved for a preliminary injunction requiring Wal-Mart to place the disputed tax money in a protest fund rather than voluntarily remitting it to the state. The c ourt held a hearing on that motion on January 17, 2007. During this hearing, the court discussed with plaintiffs’ c ounsel whether it was possible to make online pur

chases w ithout concurren

tly p urchasi ng shipp ing ser

vices: “THE COURT: And you don’t plea d that you could g o to your local Wal-Mart having placed t he order and pick u

p the item. MR. RAPHAEL

[counsel f

or plainti ffs]: I

will say you can go to your loca

l WalMart and pick up the very item that was ordered off of the I nternet. You can’t pick it up after y ou’ve ordered it, but it’s available both on the I nternet and – THE COURT: Well, I don’t need to know at this point if a basket of g oods available on this website are exactly the same as the basket of goods available a t your local Wal- Mart, an

d I don’t know if

this case turns on th at. Suffi ce it to sa y, i f I c hoose no [shipping ] option, I

can’t bu y it, right?No. 07-1341

-6- MR. RAPHAEL: Correct.” Later that day

, the court denied Russell’s motion for a preliminary injunction, determining that Russell had not shown that he was likely to succe ed on the merits of his claim as required for the issuance of a temporary

restraining order. The court began by stating tha t, if Wal-Mart were properly taxing the shipping charges at issue, then plaintiffs would clear ly not be entitled to the injunctive relief they

requested. The court found that the shipping char ges paid by

Russell were part of the total selling price of the item purchased a nd concluded that “it is clear to the court from the language of the r elevant statute [Retailers’ Occupation Tax Act, 35 ILCS 120/1 et seq. (West 2006) (ROTA); Use Tax Act, 35 ILCS 105/1 et seq. (West 2006 )] that the tax here is proper.” Meanwhi le, both Wa

l-Mart a nd the sta te defe ndants fi led motions

to dismiss pl aintiffs ’ complaints for failure to state a claim. The court held a he aring on those motions on April 20, 2007, at which it decided to grant these motions because it stated that the tax at issue was prope r. The court issued an order that same day stating that the complaints would be dismissed “for the reasons set forth in the Court’s January 17, 2007, Order Deny

ing Russell’s temporary

restraining order.” Plaintiff s timely filed the instant ap

peal. II. AN ALYS IS On appeal, plaintiffs argue that, under the facts as alleged in their complaints, the shipping charges at issue were not subject to sales tax as a matter of law; thus, they c ontend that the trial court er red in dis missing their comp laints. De fendant s natura lly d ispute this . They

also contend that, in any e

vent, plaintiffs lack standing to pursue their claims under the voluntaryNo. 07-1341

2 Althoug h defend ants rais ed this issu

e befor e the tria l court, the trial c ourt did no t rule upon it, as it stated that the tax was valid and so plaintiffs would not be entitled to relief

re ga rd le ss of

wh et he r t he ta x w as pa id vo lu nt ar il y. -7- payment doctrine, so dismissal was prope r. 2 The dismissal of an action for failure to state a claim is subject to de novo review. Hadley v. Illinois Dept. of Corrections , 224 Ill. 2d 365, 370, 864 N.E.2d 162, 165 (2007). Dismissal i s appropr

iate whe re no set of fact s could be

proved u nder the pleading s that woul d entitle plaintiffs to relief. Casualty Ins. Co. v. Hill Mechanical Group , 323 Ill. App. 3d 1028, 1033, 753 N .E.2d 370, 374 (2001 ); Wrigh t v. City of Danville , 174 Ill. 2d 391, 398, 675 N.E.2d 110, 115 (1996). In reviewing a motion to dismiss, we accept all well-pleaded facts in the complaint as true and view them in the light most favorable to plaintiffs. Casualty , 323 Ill. App. 3d at 1033, 753 N.E.2d at 374 . However, plaintiffs may not rely on fac

tual or legal conclusions that are not supported by

factual allegations. Gore v. Indiana Ins. Co. , 376 Ill. App. 3d 282, 285, 876 N.E.2 d 156, 161 (2007). We may affirm t he dismissa

l of a com plaint on a

ny g round tha t is apparent from the record. Golf v. Henderson , 376 Ill. App. 3d 271, 275, 876 N.E.2d 105, 109 (2007). In the case at ha

nd, plaintiffs argue that both the languag e of the relevant taxing statutes and the Department of Revenue reg ulations interpreting that language demonstrate that shipping charges cannot be consider ed part of the “total selling price” of the goods sold, so as to be subject to sales tax. We first consider the issue of statutory inter pretation in light of the relevant case la w; we the n move to c onsider t

he Depa rtment of Revenue regula tions rais ed by

plaintiff s.No. 07-1341

-8-

In interpreting the r

elevant provisions of the ROTA and the Use Tax Act, we are mindful that our goal is “to ascertain and g ive effect to the true intent and meaning of the legislature.” People v. Trainor , 196 Ill . 2d 31 8, 332 , 752 N .E.2d 1055, 1063 ( 2001) . The s tatut ory language chosen by the leg

islature, when read in context, is considered the best indicator of the true meaning of the statute. Trainor , 196 Ill . 2d at 332, 7 52 N.E .2d at 1063. Howev er, th at lan guage must be evaluated in light of other relevant provisions of the statute, ra ther than read in isolation. Quality Saw & Seal, Inc . v. Illinois Commerce Comm’n , 374 Ill. App. 3d 776, 783, 871 N.E.2d 260, 267 (2007). The relevant statutory

language is as follows: Sales tax, as defined in the ROTA and the Use Tax Act, is a tax upon the sale and subse quent use

of “tang ible per sonal pro

perty .” 35 I

LCS 120/2 (West 2006); 35 ILCS 105/3 (West 2006). The tax rate unde r the ROTA is based upon “gross receipts from sales of tang ible personal property

made in the course of business.” 35 IL CS 120/2-10 (West 2006). “Gross receipts” are defined as “ the total selling price or the amount of such sales [of tangible personal property ].” 35 ILCS 120/1 (West 2006). “Selling price” is, in turn, defined

in both the

ROTA and t

he Use Ta

x Act as: “the consideration for a sale valued in money *** and shall be determined without any deduction on account of the cost of the property sold, the cost of materials used, labor or service cost or a ny o ther expe

nse what soever. ” 35 ILCS 120 /1 (West 200 6); 35 I

LCS 105/2 (West 2006). Thus, if th e shipping

charg es at issue

can be c onsidere d part of the “sel ling pri ce” of t

he items purchased through Wal-Mart’s Web site, they are part of Wal-Mart’s “gross r eceipts” under theNo. 07-1341

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ROTA and a re th eref ore s ubje ct to s alestax. Plaintiffs’ first major argument, based upon the statutory text quoted above, is that shipping charg es are n

ot actua lly p art of the

selling price of goods pu rchase d online. T

hat is, they do not claim that shipping cha rges are per se deductible, nor can they make such a claim. See 35 IL CS 120/1 (West 2006) (merchants are not allowed to deduct any expenses that may form part of the selling price of their wa res); 35 IL CS 105/2 (West 2006); see also Keystone Consolidate

d Industri es, Inc. v. Allphin , 45 Ill. App. 3d 714, 359 N.E.2d 1202 (1977) (apply ing this statutory languag e to hold that company’s purc hase of gaseous nitrogen a nd oxygen was subject to use tax in its

entirety without de ducting

the “fa cility charg e” for t

he stora ge of those gases). Rather, plaintiffs arg ue that such charges are

not taxable because they do not form part of the taxable base in the first place. Defendants, on the other ha nd, contend that the shipping charges are par

t of the selling price of the items, because it is impossible to purchase items from Wal-Mart ’s Web site

without fi

rst selec ting a sh ipping me

thod and a

greei ng to pa y f or it. In de termining whether service charg es form p art of the

selling price of goods, c ourts have ruled that the crucial issue is whether there is an “inseparable link” between the sale of goods and the associated shipping charges. Gapers, Inc. v. Department of Revenue , 13 Ill. App. 3d 199, 203 , 300 N.E. 2d 779, 782(1973); Velde Ford Sales, Inc. v. Department of Revenue , 136 Ill. A pp. 3d 589, 483 N.E.2 d 721 (198 5); Airco Industrial Gas Division, BOC Group, Inc. v. Department of Revenue , 223 I ll. App. 3d 386, 584 N .E.2d 1017(1991). I f such a l ink exists, then the shipping charges are part of the selling price and subject to sales tax under the ROTA and Use Tax Act; if not, then not. Gapers is instructive on this issue. There, plaintiff operated aNo. 07-1341

-10-

home catering business in which it arrang ed parties at the homes of its consumers. I n finding that plain tiff was not entitle d to deduct the cost o f transp orting f ood and ot

her go ods to its customers’ homes, the court stated: “the delivery *** becomes an inseparable link in the chain of events le ading to

the compl etion of the sale of meals to pu

rchase rs and not merely incident al to the purpose of the taxpaye r’s business of catering private par ties in its customers’ homes.” Gapers , 13 Ill. App. 3d at 203, 300 N.E.2d at 782; see also Terrace Carpet Co. v. Department of Revenue , 46 Ill. App. 3d 84, 91, 360 N.E.2d 153, 157 (1977) (plaintiff, which wa s engaged in the retail sa le of wal l-to-wa

ll carpe ting, wa s requir

ed to pay sales tax on

carpet installat ion costs because installation was an “inseparable link in the completion of the tra nsaction with the consumer”). Likewise, in Velde Ford Sales , the cour t found tha

t the plain tiff car dealer was req uired to pay sales tax on certa

in services rendered after the c ompletion of an automobile sale. After a

customer purchas ed an au

tomobile f

rom plaint

iff’s de alership , plaintif

f would of

fer to pr ocess the license and title applications for that automobile in exchange for a fee. The court found that perfor mance of this servi ce was “ substantia lly ‘ an insepa

rable lin k in the chain of ev ents’ involved i

n the sale of automo

biles eve n though the tran saction u sually

took plac e after

the sale had been completed.” Velde Ford Sales , 136 Ill. App. 3d at 592, 483 N.E.2d at 723, quoting Gapers , 13 Ill. App. 3d at 203, 300 N.E.2d at 782. I t reasoned that under state law, plaintiff was required to provide at least some of such services in conne ction with the sale, so there was an intrinsic link between the services at issue and the taxable sale. Velde Ford Sales , 136 Ill. App. 3d at 592, 483 N.E.2 d at 723. T he court also note d that pro vision of the servic e was mer elyNo. 07-1341

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incident to the sale of the vehicle. Velde Ford Sales , 136 Ill. App. 3d at 593, 483 N.E.2d at 724. By contr ast, in Airco , the court applied the “inseparable link” test of Gapers to find that the plaintiff, an industrial gas seller, did not have to pay sales tax on the money it receive d from renting gas storage

tanks to its customers. Under the Airco facts, the parties stipulated that plaintiff ’s custome

rs neede d to have i

nsulated storag e tanks in

order to take poss ession of

liquid gases they

purchased from plaintiff; however, they could choose to use their own storage tanks or rent tanks from plaintiff. Airco , 223 Ill. App. 3d at 387, 584 N.E.2d at 1018. The court found that these facts were sufficient to show that there was no inseparable link between purchase a nd rental, so the rental was not part of the “selling pr ice” of the gas under the ROTA. Airco , 223 I ll. App. 3d at 392-93, 584 N.E.2d at 1021; see also Liquid Air Corp. v. Johnson , 240 Ill. App. 3d 722, 6 08 N.E .2d 55 8 (199 2) (app lying Airco to a highly fa ctually similar situation). We find that the instant case is analogous to Gapers and Velde Fo rd Sales rather than Airco . Plaintiffs did not allege in their complaints that it was possible to purchase goods from Wal-Mart’s Web site without also paying f or shipping; indeed, before the trial court, counsel f or plaintiffs conceded that selecting a shipping option wa s a necessary step in any online purcha se. Under su ch a setu p, the pay ment of sh

ipping c osts is a re quired e lement of the sale of tang ible goods, so it is subject to sales tax under the test articulated in Gapers

. Gapers , 13 Ill. App. 3d at 203, 300 N.E.2d at 782. Just as the customers in Gapers could not purchase catering servic es without ha

ving the food and other ma terials d elivere d to their h

omes, and

just as the

customers in Velde Fo rd Sales could not p urchase vehicle s without a

lso submittin

g licen se and titl e applica tions to the

state, so the custo mers at Wa

l-Mart’ s online sit

e canno t purcha se produc tsNo. 07-1341

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without ag

reeing to pay shipping on their p

urchase s. Plaintiffs attempt to distinguish the Gapers line of cases in two ways. First, they ar gue that the plaintiff in Gapers could not conduct its catering business without delivering its food, unlike Wal-Mart, which could choose to conduct online sales without shipping the purchased goods to customers, but instead requiring customer pickup. I n this same vein, plaintiffs argue that Wal-Mart consumers could, in any event, choose to acquire their items at a brick-a nd-mortar Wal-Mart instead o f using i

ts online sa

les outlet , so there

is no nece ssary

link betwe en the ite

ms and the shipping charges at issue. Howe ver, we are not concerned w ith hypothetical scenar

ios about how Wal-Mart could choose to conduct its online business; Wal-Mart in its current Web site setup has created a necessary link between online consumers’ purchase of g oods and purchase of shipping services, and as discusse d above, that is sufficient to render those shipping charges subject to sales tax. See Gapers , 13 I ll. App. 3d at 203, 30 0 N.E.2d a

t 782; Velde Fo rd Sales , 136 I ll. App. 3d

at 592, 48 3 N.E.2d a

t 723; Terrace Carpet , 46 Ill. App. 3d at 91, 360 N.E.2d at 157. Nor is our analy sis affected by the fact that the customer could have chosen another means of acquiring the g oods at issue through an in-store purchase or throug h other distinctly separate sa

les operations. See Velde Ford Sales , 136 Ill. App. 3d at 592, 483 N.E.2d at 723 (find ing that service s associa

ted with ve

hicle sa les were subject to

tax even though ve

hicle purchasers could choose to obtain license and title by other means). Second, plaintiffs state that in Gapers and Terrace Carpet , the service was being provided by t he busine ss being

taxed – ca

tering service bringin g food, carpet

retaile r installin g its carpet – while in the case at hand, Wal-Mart contra cts out delivery ser

vices to a third party likeNo. 07-1341

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UPS, so it does not actually perform any delivery ser

vices itself. While this is certainly a fac tual distinction between the cases, it makes no difference a s to the outcome. The factor that the court focused on in the Gapers and Terrace Carpet cases was the fact that the service c ame in a package with the goods being purchased – that is, it came as a single unit, not on an either-or basis – and the same is true of the shipping services in this case, re gardless of whether the truck arriving at a customer’s doorstep bea rs a Wal-Mart or a UPS label. It is the conne ction between service and sale that is dispositive under Gapers and its progeny , not the ultimate provider of the service s. Plaintiffs also argue that Wal-Mart’s return policy supports a finding that the shipping charg es are s everab le from th e purcha se price of the ite m: Russell a

lleged in his comp laint that , when a Wa

l-Mart c ustomer r eceive s a refu

nd on goo ds purcha sed online , the cost of shippin

g is not refundable unless the goods were da maged. However, this alone has no impact on the tax status of the shipping charges, which, in all likelihood, are not r etrievable by

Wal-Mart from the shipper once they

have been paid. Wal-Mart’s view of what constitutes the purcha se price of the item, as reflected in its return policy , would not, in any event, suffic e to control the legal status of the item’s “selling price” for tax purposes. Rather, the leg al status is controlled by the text of the ROTA and the Use Tax Act, and the body of law interpreting those statutes – and as discussed above, that law demonstrates for taxation purposes that there is an insepara ble link between purchase of the goods and purcha se of the shipping services at issue. See, e.g. , Gapers , 13 I ll. App. 3d at 203, 300 N.E.2d at 782. Plaintiff s furthe rmore c ontend tha

t shipping charg es are n

ot tangi ble pers onal prop ertyNo. 07-1341

-14-

and therefore cannot be made subjec t to tax under the plain text of the ROTA and Use Tax Act. See 35 IL CS 120/2 (West 2006); 35 ILCS 105/3 (West 2006) (describing the ROTA and Use Tax Act, respectively , as taxes on “tangible personal property ”). In support, they

cite Farrand Coal Co. v. Halp in , 10 Ill. 2d 507, 140 N.E.2d 698 (1957), in which the I llinois Supreme Court stated that “tan gible” in the con

text of the R

OTA mean

t “ ‘[c]apa

ble of be ing touc

hed; also , perce

ptible to the touch; tactile; palpable’ ” and therefore did not apply to electrical energy

produced from coal. Farrand , 10 Ill. 2d at 511, 140 N.E.2d at 700, quoting Webster’s Ne w International Dictiona ry , 2d ed. ( 1946). Pla

intiffs c ontend tha

t shipping charg es are s imilarly

intangi ble, so taxation is proper. However, this argument overlooks the fac t that the shipping charges at issue in this case are inextricably linked with the sale of actual phy sical goods – specifically , a trampoline and a Leapf

rog toy – so a s to form part of the selling price of those goods unde r the ROTA and Use Tax Act. Making the entire selling pric e of such goods subject to sales tax does not violate the principle set out in Farrand ; indeed, as discus sed extens ively above, there is ample case law in support of the proposition that services may be subject to sales tax to the extent that they are insepa rably linked with sales of ta ngible goods. See Gapers , 13 Ill. App. 3d at 203, 30 0 N.E.2d a

t 782; Velde Ford Sales , 136 I ll. App. 3d at 592, 48 3 N.E.2d a

t 723; Terrace Carpet , 46 Ill. App. 3d at 91, 360 N.E.2d at 157. Plaintiffs contend that under the Department of Revenue’s rule s and regulations in the Illinois Administrative Code which interpret the ROTA and the Use Tax Act, shipping charges are not properly

subject to

sales tax. A s shall be

discusse d below, w e disag ree with their interpretation of the applicable regula tions, and in any event, such r egulations would not beNo. 07-1341

-15-

binding u pon us if th ey

were in c onflict w

ith the sta tutory provision s that they

purport t o implement. Where an agency is charged with the administration and enforce ment of a statute, courts will give deference to that ag ency’s inter pretation of ambiguous statutory provisions. Hadley , 224 Ill. 2d at 370, 864 N.E.2d at 165. However, suc h interpretations are not binding upon the courts. Van’s Material Co. v. Department of Revenue , 131 Ill. 2d 196, 202-03, 545 N.E.2d 695, 699 (1989). In addition, “ ‘[a]dministrative rules can neither limit nor extend the scope of a statute.’ ” Van’s Material , 131 Ill . 2d at 203, 5 45 N.E .2d at 699, q uoti ng Du-Mont Ventilating Co. v. Department of Revenue , 73 Ill. 2d 243, 247-48, 383 N.E.2d 197, 200 (1978). Courts will not follow an agency interpretation that is in conflict with the statute, unreasonable, or otherwise erroneous. Hadley , 224 Ill. 2d at 371, 376-80, 864 N.E.2d at 165, 168-170 (rejecting administrative rules adopted by the Illinois Department of Corrections bec ause they conflic ted with th e statutor y la nguag e that the

y w ere supp osed to re flect); Gapers , 13 Ill. App. 3d at 202, 300 N.E.2d at 781. Section 130.410 of Title 86 of the Code, entitled “Cost of Doing Business Not Deductible,” states that in computing liability under the ROTA, taxpayer s may not take deductions for “l abor or s ervice costs” or “any other expe

nses wha tsoever ”; it goe s on to state that “Cost s of doing

business a

re an el ement of

the reta iler’s g ross rec eipts subje ct to tax.” 8 6 Ill. Adm. Code § 130.410, amended at 24 Ill. Reg . 15104 (eff. October 2, 2000). However , the section a lso states : “[C]harges designated as ‘shipping and ha ndling’ as well as delivery or transportation charg es in ge

neral, a re not ta xable if it c an be shown that the y a re both se parate lyNo. 07-1341

-16-

contracted for and that such charg es are actually reflective of the costs of shipping. To the extent that shipping and handling charges e xceed the costs of shipping, the charges are subject to tax.” 86 Ill. Adm. Code § 130.410, amended a t 24 Ill. Reg. 15104 (eff. October 2, 2000). The Code also contains a section on “Transportation and Deliver y Charg es,” which states that the tax status of outgoing shipping charges to c ustomers “depends not upon the separate billing of such transpor tation or delivery c

harges or expense, but upon whether the transportation or delivery charges are included in the selling price of the property which is sold or whether the seller and the buy er contract separa tely for such transpor tation or d

elivery charg es by

not includ

ing such charg es in such selling price. I

n addition, charges for transportation and deliver y must not exceed the costs of transportation or delivery . If those charg es do exceed the cost of delivery or transportation, the excess amount is subject to tax.” 86 Ill. Adm. Code § 130.415(b), amended at 24 Ill. Reg . 15104 (eff. October 2, 2000). The sec tion also st

ates: “If the selle r and the buyer agr

ee upon the transp ortation or delive ry charg es separ

ately from the selling price of the tangible pe rsonal property

which is sold, then the cost of the transpor tation or d

elivery service is not a pa

rt of the ‘ selling

price’ of the ta

ngible personal property

which is sold, but instead is a service charge, sepa rately contr

acted for, and nee d not be inc luded in th e figur e upon whi ch the se ller comp utes his Re

tailers’ Occupation Tax liability. Deliver y charge s are dee med to be agreed u pon separ

atelyNo. 07-1341

-17-

from the selling price of the tangible personal property being sold so long as the seller requires a separate charge for delivery and so long as the charges designated as transportation or delivery or shipping and handling are actually reflective of the costs of such shipping, transportation or delivery. *** The best evidence that transportation or deliver y charge s were agr

eed to se parately and apart fr

om the se lling price

, is a separ

ate and distinct contract for transportation or delivery. However, documentation which demonstrates that the purchaser had the option of taking delivery of the property, at the seller’s location, for the agreed purchase price, or having delivery made by the seller for the agree d purchas e price, plus an asc ertained or ascert ainable de livery c

harge, will suffice. ” (Emp hasis added .) 86 Ill . Adm. Code § 130.4 15(d) , amen ded at 24 Ill. R eg. 15104 (eff. October 2, 2000). Plaintiff s first contend tha

t under th ese admi

nistrativ e regu

lations as applied t o the fac ts as alleged in their complaints, the agre ement to pay shipping c osts is a separate and distinct contract from the underly ing contract for sale of g oods, which renders these costs exempt from sales tax un

der the precedi

ng Code p

rovisions . They

argue that Wal-M art’s shi

pping charge

is separate from the charg e for goods, in that it is separately itemized on the purchase receipt receiv ed by

online cu stomers, a

nd that it a

ctually reflects Wal-Mar

t’s costs o f shipping , so it satisfies the requirements of section 130.415(d) to be considered a separate contract. I

n addition to the fa ct that we are not b ound by

the admin

istrative regula tions, as s tated ab ove, thes e regula tions do not

demand a

differe nt line of a

naly sis than we

have alr eady conducte d in interpre ting the statutory provision s. Even though the shipping charg e may

be listed a s a discr

eteNo. 07-1341

-18-

quantity , it is not onl

y pa id for in the same credit ca rd trans action, b

ut such pa

yme nt is a prerequisite to the transfer of ownership of the goods at issue, for the sale may not be consummated without such payment. I n that sense, it is not at all separate from the purchase of goods, but, rather, inseparably linked with it, as has been discussed earlier. See Gapers , 13 I ll. App. 3d at

203, 300 N .E.2d at 7 82; Velde Ford Sales , 136 Ill. App. 3d at 592, 483 N.E.2d at 723; Terrace Carpet , 46 Ill. App. 3d at 91, 360 N.E.2d at 157. Theref ore, these shipping charge s at issue ar e part of the same transac tion as the

purchas e of the u

nderly ing go ods and no t entitled to be exempted from taxation under section 130.415(d). In their brief, plaintiffs place heavy we ight upon the final sentence of section 130.415(d). If the documentation require ment of this sentence is met, that is sufficient to demonstrate that the shipping charges are se

parate from the selling price of the items being delivered and are therefore not taxable. Plaintiffs interpret this sentence as stating that there are two se parate and independent way s of satisfying the documentation requirement. First, the taxpay er can show that the purchaser had “the option of taking de livery of the prope rty, at the seller’ s location, for the agreed purchase pr

ice”; alternately , the taxpayer ca n show that the taxpayer “ha [d] delivery made by the seller for

the agreed purchase pr

ice, plus an ascertained or ascer tainable delivery

charge.” 86 Ill. Adm. Code § 130.415(d), amended at 24 I ll. Reg. 15104 (eff. October 2, 2000). Plaintiffs argue that they

have alleged facts sufficie nt to support the second condition, if not the first, and that, they say

, is enough under this section. Defendants, on the other hand, ur ge a different reading of this sentence. They contend that in order to prevail under this section, the taxpay er must be ab le to show t

hat the pu rchase r had the option of c

hoosing either o f the two a

lternati ves;No. 07-1341

-19-

that is, the

presenc e of one c ondition or the other , without the option to select b etween

them, is inadequate. Under such an interpretation, plaintiffs ca nnot prevail under this section, as they have all eged no facts that would in dicate that purchasers ha

ve such a n option; r

ather, t hey only al le ge th e e xi st en ce of

th e s ec on d a lt er na ti ve , w hi ch ha s n o i nd ep en de nt vi ab il it y. The crucial difference be

tween these two interpretations hinges upon the use of the word “option.” The word “option” necessarily requires the presence of multiple alternatives that one can cho ose betw een, or e lse no ge nuine opti on exists. Pla

intiffs ha ve faile d to adequ

ately account for this word in their interpretation of the sentence . They re ad the word “option” as applying only

to the first clause (“taking delivery of the property , at the seller’s location, for the agreed purchase pr

ice”); however, as this clause only describes a single alternative, it raises the question a s to where in the option lies. Either plain tiffs ar e ignor ing the word “opti on” in the ir interpretation, rendering it superfluous text, or they are presuming the existence of alternative choices within the first clause, subsumed within the clause but not explicitly spelled out. Such an interpretation is awkward at best. Defenda nts’ interpretation, by c ontrast, makes the word “option” the linchpin of the documentation requirement: the “option” at issue is an option between the two alternatives expressly laid out in the remaining portion of the sentence. Under defendants’ interpretation, to evidence nontaxability under this sentence would require a showing that the purchaser had a choice betwe en picking up the merchandise at the seller’ s location or having it shipped with an ascertainable delivery charge. Documentation that merely showed the latter would not suffice under this regulation to prove a se parate contract so as to avoid the imposition of sales tax. As this interpretation makes better use of the language of the regulation,No. 07-1341

-20-

we find it to be contextually more corr ect on its face. Moreover, defendants’ reading is more in line with the Gapers line of cases than plaintiff s’ read ing: if c onsumers

may take del ivery

of produc

ts at reta ilers’ pl aces of

business, then that would wei gh ag ainst the p resenc e of an in separa

ble link. A dditionall

y, t he Code its elf states tha t the fact that shipp ing cha rges ma y be separa tely billed is no t dispositiv e. 86 I ll. Adm. Code § 130.415(b), amended at 24 I ll. Reg. 15104 (eff. October 2, 2000). Plaintiffs’ rea ding of section 130.415(d) would seem to contradict that statement, in spirit if not in strict logic, by placing an inordinate amount of weight on the se parately ascertainable nature of the shipping charges at issue. See Quality Saw & Seal , 374 I ll. App. 3d

at 783, 87 1 N.E.2d a

t 267 (sta tute must be read as a whole). Thus, plaintiffs’ reliance on the fact that the shipping charge s were ascertainable apart from the price of the item is misplaced. Plaintiffs additionally contend that their position is supported by various private letter rulings and ge neral in formation letters

issued by the Depa rtment of Revenue in respon se to inquiries about tax liability. Specifically , they cite letters r egarding the tax status of mail-order deliver y charge s which the

y a rgue a re anal ogous to

the online

deliver y charge s incurr

ed byWalMart shoppers in the instant case. Yet as plaintiffs concede in their brief, such letters have no preced ential va lue and a re not bin ding upon us, altho

ugh the y ma y be consider ed instru ctive in understanding how the regulatory authority interprets the statute a t issue. Subway Restaurants of Bloomington-Normal, Inc. v. Topinka , 322 Ill. App. 3d 376, 385, 751 N.E.2d 203, 211 (2001), citi ng Union Electric Co. v. Department of Revenue , 136 Ill. 2d 385, 400, 556 N.E.2d 236, 243 (1990). Therefore, they

are insufficient to override the langua ge of the statute itself and theNo. 07-1341

-21-

significant body

of precedent that finds shipping charg es taxable to the extent that they are inseparably linked w

ith the sale of goods. See Gapers , 13 Ill. App. 3d at 203, 300 N.E.2d at 782; Velde Ford Sales , 136 I ll. App. 3d at 592, 48 3 N.E.2d a

t 723; Terrace Carpet , 46 Ill. App. 3d at 91, 360 N.E.2d at 157. Furthermore, even to the extent that such letters might be persuasive, such persuasive power does not entirely

weigh in favor of plaintiffs. Defenda nts cite an April 19, 2006, general information letter (ST 06-0069-GIL ) in which the Department of Revenue states that shipping charges incurred by

store managers purchasing goods are taxable as part of the selling pric e of such go ods. The l etter sta tes that th e store ma

nagers purcha se good s in one of two way s. First, they can plac e phone orders wi th a vendor; at the t

ime they make the order, t hey are quot ed only the price of the products being purcha sed, and shipping charges ar e not addressed. Second, they can place orders on the vendor’s Web site, in which ca se the confirmation message they receive contains only the cost of the pr oducts plus a message stating that shipping costs will be communicated prior to shipment. After reiterating the text of section 130.415(d), the Department of Reven ue decla red that the shippi

ng costs were ta xable in bot

h cases, citing the followi ng facts by way of explanation: “It appears that the shipping charges are in fac

t not separately c ontracted for between the store manage rs and the seller. In addition, y our request references the f act that the store managers do not have the option of picking up the merchandise at the seller’s location.” Both of these factors are also pre sent in the case at hand, indicating that the trial court’s ruling on the taxation issue is in line with the Department of Revenue’s interpretation of the law. If, upon such facts, the De partment of Revenue still found that the shipping charge s andNo. 07-1341

-22-

the cost o f the go ods were not separ ately contracted for, then it is a lso, if not a

ll the more

true in the present case, where cha rges for both merchandise and shipping are agreed to in a sing le click of the mouse. For the foregoing r

easons, the judgment of the trial court is affirmed. Affirmed. O’MALL EY, P.J., and CAHILL , J., concur.No. 07-1341

-23- REPORTER OF DECISIONS - ILLINOIS APPELLATE COURT

(Front Sheet to

be Attached to Each Case) Please use the following form Nancy K ean, Individually

and on Behalf of All Others Similarly Situated, Plaintiff -Appella nt, v. Wal-Mart Stores, Inc., Wal-Mart.com, U.S.A., L LC, and Wal-Mart Associates, I nc., Defendants-Appellees (Chip Russell, Individually and on Behalf of All Others Similarly Situated, Inte rvenor a nd Plaintif

f-Appe llant; The Depa rtment of Revenue and Alexi G iannoulia s as Trea surer of the State of Il linois, Intervenors and De fendants-Appellees).

Docket No. COURT Opinion Filed No. 1-07-1341 Appellat e Court of

Illinois First District, SIXTH

Division November 21, 2008 (Give month, day and y

ear)

JUSTICES JUSTICE JOSEPH GORDO

N DEL IVER

ED THE OPI

NIO N OF THE

COURT: O’Malley, P.J., and Cahill, J. , concur. APPEAL from the Circuit Court of Cook County; the Hon___ Judge Presi ding. Lowe r Court an

d Trial Judg e(s) in f

orm indica

ted in mar

gin: Ap pe al fr om th e C ir cu it Co ur t o f C oo k C ou nt y. The Hon. Philip L. Bronstein Judge Presi ding.

APPELL ANTS: John Doe, o f Chi cago Indicate if attorney represents APPELL

ANTS or APPELLEES and include attorney s of counsel. Indicate the wor d NONE if not represented. APPELLANT S: Aron D. Robinson, Law Office of Ar on D. Robinson, 19 South LaSalle, Suite 1300, Chicago, Illinois 60603; L ance A. Raphael, The Consumer Advocacy Center, P.C., 180 West Washington, Suite 700, Chicago, Illinois 60602 For APPEL

LEES, Smith and Smith of Chica go APPELL EES: Arthu

r M. Schel ler, III , and Stev en D. Ha milton, Dr

inker B iddle & Re ath L LP, 191 North Wacker Drive, Suite 3700, Chicago, Illinois 60606No. 07-1341

-24- Add attorneys for

3rd party appe llants and/or appelle es. INTERVENORS AND DEFEN DANTS-APPELLEES: Lisa Madigan, Michae l A. Scodro, and Brett E. Leg

ner, 100 W. Randolph Street, 12th Floor, Chicago, I llinois 60601