Opinion ID: 1978327
Heading Depth: 1
Heading Rank: 2

Heading: intrastate revenues

Text: This aspect of the appeal involves amounts reflected in Bell's records which are attributable and transmitted to telephone companies other than Bell under division-of-revenue formulas applied to determine the share of toll charges each of two or more telephone companies should receive for transmitting a message over its lines. The toll calls in question are intrastate, originating at one point in Illinois and terminating at another point in this State. The division-of-revenue formulas are negotiated between the telephone companies operating in Illinois and carried out by means of traffic agreements negotiated between the companies which directly interconnect. The traffic agreements are approved by the Illinois Commerce Commission. They provide for the way traffic is to be routed and establish the formulas and procedures for dividing revenues from calls that are transmitted over the facilities of more than one company. The Department claims that Bell is liable for the messages tax on the total revenues it collects even though a portion of those revenues are credited and paid under the traffic agreements to other telephone companies whose lines were used in completing the toll calls. The Department views the division of revenue as payments made by Bell to other telephone companies for furnishing their facilities or equipment in completing the calls which are initiated through Bell. Thus, instead of a sharing of revenue between Bell and other telephone companies the Department regards the payments in question as charges for services furnished by other telephone companies to Bell. These payments, according to the Department, are a part of Bell's cost and expenses of doing business and not deductible from the gross receipts of Bell on which the tax is based. Ill. Rev. Stat. 1981, ch. 120, pars. 467.1, 467.2. Bell, on the other hand, takes the position that the messages tax is payable, as Bell has paid the tax over the years, only on the portion of revenues it retains after settling up with the other telephone companies for the share of revenues to which they are entitled for transmitting toll calls over their lines. Bell points out that it neither leases nor rents the equipment and facilities of the other telephone companies, and the other companies neither work for it nor are a part of Bell. In fact, the Public Utilities Act requires the other telephone companies in Illinois to own, operate and equip the telephone facilities within the areas they serve, and no telephone company is permitted to acquire a lease on or own, operate or control any aspect of the business of another company or transact any business in the area the other company services without express approval from the Commission. (Ill. Rev. Stat. 1981, ch. 111 2/3, par. 27(b).) In addition the traffic agreements involving Bell which the Illinois Commerce Commission has approved provide that the other telephone companies will equip, own, operate, and control their own systems. There are approximately 57 telephone companies (sometimes referred to herein as the independent companies) operating in Illinois, each serving a different area. Unlike Bell, the independent companies are relatively small entities. The systems of all the telephone companies in Illinois are directly or indirectly interconnected so that a call may be placed from one phone to another within the State even though each phone is served by a different company. Each telephone company is authorized by the Illinois Commerce Commission to use its separately owned, operated and maintained facilities and equipment to provide an integrated telephone service to the public, not to Bell; in other words the facilities and equipment of each telephone company provide a link in a statewide system available to serve the public. The traffic agreements referred to above place on each company the responsibility for collecting all charges owing by its subscribers and customers, including charges for credit card calls. They also give each company responsibility for accounting for and making payments to the other companies for their share of the charges. At the same time, the traffic agreements assign to Bell administrative functions in carrying out the division of revenues between approximately three-quarters of the telephone companies in Illinois with which it interconnects and between itself and those companies. As part of its administrative function Bell disseminates monthly statements showing the share of toll revenues each of the independents with which it connects is to receive. These statements are calculated under the applicable formula on the basis of data the other telephone companies have furnished Bell; this data consists of each company's total amount of toll billings and in some instances the total number of toll calls it handled. After the settlement figures are computed, sufficient funds are transferred between the companies to give each company the share of the revenues billed to which it is entitled. At the time of collection, each company enters the amount it collects from its customers for toll services in its revenue account. These accounts are then adjusted when funds are transferred between the companies to reflect the proper and final division of revenues. It was after this legislatively sanctioned arrangement for cooperation and sharing of revenues between the many telephone companies in Illinois was already in place that the Messages Tax Act was adopted. Section 1 of the Act (Ill. Rev. Stat. 1981, ch. 120, par. 467.1) defines gross receipts as the consideration received for the transmission of messages and for all services rendered in connection therewith    without any deduction on account of the cost of transmitting such messages, the cost of materials used, labor or service costs or any other expense   . The same section of the Act, in defining transmission of messages, includes the furnishing of services or facilities connected with the sending of messages but only if the recipient do[es] not, in turn, receive any consideration in connection therewith. Ill. Rev. Stat. 1981, ch. 120, par. 467.1. The provisions of the Act, as we read them, demonstrate that the legislature intended to impose a tax on the total amount billed consumers for toll calls in this State by taxing each telephone company only upon its share of the total revenues collected. Only funds which are received as a company's consideration for the furnishing of services or facilities are taxable to that company. The Department's Messages Tax Act regulations are even more explicit on this subject. They have provided since the first Messages Tax Act was enacted in 1935 that the tax is only upon amounts received and retained by a company as its consideration for its part in the transmission of messages: [W]here a message is transmitted over the lines of more than one telephone or telegraph company    the gross receipts of each telephone or telegraph company    are that portion of the total messages charge received and retained by each such company as its consideration for its part of such transmission. (Emphasis added.) (Illinois Department of Revenue, Rules and Regulations Relating to the Messages Tax Act, art. 10(B).) This regulation recognizes that individual phone companies will receive only a portion of the total messages charge. We conclude that where more than one telephone company is engaged in the transmission of a message, the amounts any company receives from the billing company or from Bell pursuant to their traffic agreement is not a cost or expense of doing business of either the billing company or Bell. The amount collected by the billing company or Bell does not represent consideration received as that term is used in section 1 of the Messages Tax Act (Ill. Rev. Stat. 1981, ch. 120, par. 467.1). On the contrary, these amounts are gross receipts of the telephone company whose facilities have contributed to completion of the call for its part in such transmission. Under article 10(B) of the Department's messages tax regulations these are gross receipts taxable to the participating company which receives them rather than to the billing company or Bell, which, as the case may be, may collect them or temporarily hold them. Under the division-of-revenues concept, the telephone companies act as collection agents for each other in the functioning of an integrated, interconnected, statewide telephone network, not as independent contractors furnishing services to each other and charging compensation for those services. ( Phillips v. Illinois Bell Telephone Co. (1966), 34 Ill.2d 234.) Viewing the relationship between the telephone companies as we do, it follows that the Messages Tax Act imposes the tax on the portion of the billings each company receives and retains under the division-of-revenue formula. When an independent telephone company's service and facilities are utilized in transmitting a message, it is satisfying its statutory obligation to the public, and it is to the public rather than to Bell or any other telephone company that its services and facilities are being provided. Those companies, rather than Bell, are the providers of telephone service in the regions in which Bell is obliged to route calls through their facilities. The costs and expenses of participating telephone companies are their costs and expenses, not those of Bell, and their costs and expenses are paid for by telephone users, not by Bell. By the same token, Bell does not pay other telephone companies for using their facilities; it simply performs the administrative function of calculating how much of the total charge they are entitled to have for the use of their own facilities by the public. We know of no occupational tax statute which requires a taxpayer to pay taxes on revenues which belong to someone else and over which the taxpayer never claims rights of ownership; we find nothing in the Messages Tax Act which allows it to be imposed in so extraordinary a fashion. Finally, figures representing amounts collected by independent companies with which Bell has traffic agreements appear in Bell's records; the Department urges that these amounts represent gross revenues on which the tax is payable. Generally speaking, the figures that the Department claims are taxable under this theory appear in Bell's records in connection with its administrative function of computing the settlement statements as required by the traffic agreements between it and the independent companies with which its lines interconnect. According to Bell, the only times Bell holds any of these amounts, even temporarily, is when an independent company happens to bill its customers less than it is entitled to receive and retain. If Bell were not performing the administrative function of calculating the settlements owing each company, these amounts would never appear in its records. The reporting of statistical data to Bell by the independent companies does not constitute receipt of revenue by Bell. Even assuming that the reporting of information to Bell by the independent companies for the purpose of computing the allocations of revenue to which each company is entitled could be treated as a receipt of money, it is obvious that Bell is not receiving money as consideration    for the transmission of messages, the only type of receipt which is taxable. (Ill. Rev. Stat. 1979, ch. 120, par. 467.1.) It was clearly not the intention of the legislature that performance of a mechanical calculating function, a role which could no doubt be fulfilled as satisfactorily by an accounting firm or an escrow trustee, should subject the calculator to a messages tax on all the toll revenues relevant to the calculation. The circuit and appellate courts were correct when they held that the amounts which are reported to Bell by other telephone companies in calculating the settlement figures do not subject Bell to a tax on those amounts. The Department argued unsuccessfully in the appellate court that Bell's tax returns are improper because they are based on gross services rendered rather than on gross receipts. (95 Ill. App.3d 115, 133-35.) Although the Department asserts in several places in its briefs before this court that Bell's tax calculations reflect something other than gross receipts, it does not appear to raise this precise argument before us, and we do not address it here. The judgment of the appellate court is affirmed. Judgment affirmed. JUSTICE CLARK took no part in the consideration or decision of this case.