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

Heading: interstate revenues

Text: The appellate court gave three reasons for reversing the circuit court on this aspect of the case. First, the language and history of the statute do not permit a construction which includes interstate messages within the scope of the authorized tax. Second, even if the statute permitted taxation of interstate revenues, the Department is bound by the written regulations it promulgated and the tax forms it disseminated, and imposition of the tax retroactively would be contrary to those regulations and forms. Finally, if the statute were to be applied in the manner the Department contends it should be, the statute would be vague and uncertain and thus violative of due process requirements. We affirm the appellate court because we believe the language and history of the statute make it inapplicable to interstate revenues. This makes it unnecessary to consider the two additional grounds on which the appellate court relied. In taxing the transmission of messages, the State may exclude interstate revenues and apply the tax only to revenues from messages which begin and end in this State. ( Adler v. Illinois Bell Telephone Co. (1978), 72 Ill.2d 295.) The wording of the taxing statute, the law in effect when it was passed controlling a State's authority to tax interstate messages, the statute's relationship to its predecessor and companion statutes, the Department's own interpretation of the statute, and the fact that the statute was subsequently amended with no change in the portion directly involved in this dispute indicate that the legislature intended to impose that kind of tax. The portion of the Messages Tax Act which we are called upon to construe and apply is section 2. It provides: A tax is imposed upon persons engaged in the business of transmitting messages in this State at the rate of three per cent (3 %) of the gross receipts from such business   . However, such tax is not imposed upon the privilege of engaging in any business in interstate commerce or otherwise to the extent to which such business may not, under the Constitution and statutes of the United States, be made the subject of taxation by this State. (Emphasis added.) Ill. Rev. Stat. 1945, ch. 120, par. 467.2. Two occupation taxes on transmission of messages in Illinois were adopted before the present statute. The first was a part of the Public Utility Tax Act enacted in 1935 (Ill. Rev. Stat. 1935, ch. 120, par. 440 et seq. ). The second was included in the public utilities revenue act passed in 1937 (Ill. Rev. Stat. 1937, ch. 120, par. 468 et seq. ). These statutes, in the words of the 1937 act, covered the gross receipts of persons engaged in the business of transmitting telegraph or telephone messages or of distributing, supplying, furnishing or selling gas or electricity to persons for use or consumption and not for resale   . (Ill. Rev. Stat. 1937, ch. 120, par. 469.) Both statutes provided that the taxes are not imposed with respect to any transaction in interstate commerce, or otherwise, which transaction may not, under the constitution and statutes of the United States, be made the subject of taxation by this State. Ill. Rev. Stat. 1935, ch. 120, par. 441; Ill. Rev. Stat. 1937, ch. 120, par. 469. At the time of these taxing measures, New Jersey Bell Telephone Co. v. State Board of Taxes & Assessment (1930), 280 U.S. 338, 74 L.Ed. 463, 50 S.Ct. 111, represented the prevailing law. That decision announced that although a State might tax property used to carry on interstate commerce, it could not tax or burden interstate commerce or tax gross earnings derived therefrom or impose a license fee or other burden upon the occupation or the privilege of carrying on interstate commerce, whatever may be the means employed to that end. That case prohibited a State from collecting a direct tax on gross receipts from interstate commerce. Cooney v. Mountain States Telephone & Telegraph Co. (1935), 294 U.S. 384, 79 L.Ed. 934, 55 S.Ct. 477, followed the same principle, holding that a State tax on telephone instruments used in making both intrastate and interstate calls was a privilege or occupation tax imposed through an indiscriminate application to instrumentalities common to both intrastate and interstate service, and as such the tax was an unconstitutional burden on interstate commerce. The regulations promulgated by the Department relating to the 1935 and 1937 taxes on messages provided that the tax was not imposed on revenues from the transmission of any message that either originates or terminates outside of Illinois. These regulations described such messages as being in interstate commerce and not taxable. They also provided that, where the message originates in Illinois and is transmitted to a second point in Illinois, the transaction is taxable even when a portion of the lines used for the transmission are outside Illinois. It is thus clear that the predecessors of the tax which is involved in this case authorized a tax only with respect to revenues from the transmission of intrastate messages notwithstanding the proviso in those statutes quoted above stating that taxes were not being imposed on transactions in interstate commerce which may not under the Constitution and statutes of the United States be taxed by Illinois. The legislature adopted the Messages Tax Act with which we are concerned in this case in 1945. (Ill. Rev. Stat. 1945, ch. 120, par. 467.1 et seq. ) There is nothing in the history of that statute or in the wording of the statute in comparison with its predecessor statutes adopted in 1935 and 1937 to suggest that the legislature intended to enact a different type of tax in 1945. Moreover, the history of the Messages Tax Act and its wording, as compared with the wording of two other tax acts contemporaneously adopted in 1945, indicate the contrary. In that year the General Assembly divided the public utilities revenue act into three separate taxing statutes  the Messages Tax Act, applying to transmittal of messages, the Gas Revenue Tax Act (Ill. Rev. Stat. 1945, ch. 120, par. 467.16 et seq. ), applying to the business of selling gas, and the Public Utilities Revenue Act (Ill. Rev. Stat. 1945, ch. 120, par. 468 et seq. ), taxing the business of selling electricity. When these three statutes were enacted, the law continued to prohibit the taxation of receipts from interstate messages. See Joseph v. Carter & Weekes Stevedoring Co. (1947), 330 U.S. 422, 432-34, 91 L.Ed. 993, 1003-04, 67 S.Ct. 815, 821. The language the legislature used in contemporaneously taxing the transmission of messages, the sale of gas, and the delivery of electricity is significant. The phrase in this State, as used in section 2 of the Messages Tax Act quoted above, is not found in the Gas Revenue Tax Act at all, while the Act taxing sales of electricity uses the phrase in an entirely different context. The statute relating to the business of selling electricity taxes persons engaged in this State in the business of selling electricity. (Ill. Rev. Stat. 1945, ch. 120, par. 469.) The use of the limiting phrase in this State in the Messages Tax Act, as compared with its use in the Public Utilities Revenue Act to modify persons and its complete omission from the Gas Revenue Tax Act, demonstrates that the legislature used the phrase in the Messages Tax Act to modify messages. The use and placement of the phrase in this State indicate that it was employed as a limitation upon the area in which such messages must move, that is, in this State as compared with wholly or in part outside Illinois. Turning to the specific language of section 2 of the Messages Tax Act of 1945, we reach the same conclusion. We are not persuaded by the Department's argument that the phrase in this State modifies persons and has nothing to do with the scope of the tax. The tax applies to the business of transmitting messages in this State at a specified percent of the gross receipts from such business. (Ill. Rev. Stat. 1945, ch. 120, par. 467.2.) The business referred to is transmitting messages in this State. The words in this State modify messages, not persons, and declare which gross receipts are subject to the tax. Under the last-antecedent rule of statutory construction, which is followed in Illinois ( City of Mount Carmel v. Partee (1979), 74 Ill.2d 371, 375), the qualifying phrase in this State modifies the immediate preceding word messages. This supports the conclusion that the Act authorized taxation only on messages which both begin and end in Illinois. The result we reach also follows from the presumption that the legislature in 1945 intended to enact a valid taxing statute. Statutes are to be interpreted in a manner consistent with the state of the law existent at the time of their enactment. ( People v. Boreman (1948), 401 Ill. 566, 571-72.) Adhering to this principle this court in Adler v. Illinois Bell Telephone Co. (1978), 72 Ill.2d 295, 297, construed a city of Chicago message tax adopted when Federal constitutional law barred taxes on interstate revenues as not applicable to such revenues even though the ordinance on its face was not limited to intrastate calls. In examining section 2 of the Messages Tax Act we conclude that the General Assembly did not intend to tax interstate revenues either in 1935, 1937 or 1945 because Federal constitutional law, as construed and applied in judicial decisions, prohibited such taxation at those times. Again we observe that the terms of the Messages Tax Act expressly reflected the specific regulations previously applicable to the 1935 and 1937 acts and were consistent with the Federal prohibition against burdening interstate commerce with a direct tax on gross receipts from interstate messages. New Jersey Bell Telephone Co. v. State Board of Taxes & Assessment and Cooney v. Mountain States Telephone & Telegraph Co ., both referred to above, held prior to the enactment of the 1945 messages tax that a State privilege or occupation tax on interstate commerce is constitutionally prohibited. In the latter case the Supreme Court, addressing this question, said: There is no question that the State may require payment of an occupation tax from one engaged in both intrastate and interstate commerce. But a State cannot tax interstate commerce; it cannot lay a tax upon the business which constitutes such commerce or the privilege of engaging in it. And the fact that a portion of a business is intrastate and therefore taxable does not justify a tax either upon the interstate business or upon the whole business without discrimination. Cooney v. Mountain States Telephone & Telegraph Co. (1935), 294 U.S. 384, 392-93, 79 L.Ed. 934, 941, 55 S.Ct. 477, 481-82. Years before the Supreme Court had held that express companies whose vehicles were used to haul both intrastate and interstate shipments out of New York City were immune from a city licensing fee. ( Barrett v. City of New York (1914), 232 U.S. 14, 58 L.Ed. 483, 34 S.Ct. 203.) Again in Freeman v. Hewit (1946), 329 U.S. 249, 252, 91 L.Ed. 265, 271, 67 S.Ct. 274, 276, in prohibiting an Indiana gross income tax on an Indiana broker, the court observed that the commerce clause by its own force created an area of trade free from interference by the States. That tax contained a proviso similar to that in section 2 of the Illinois Messages Tax Act excepting from its scope such gross income as is derived from business conducted in commerce between this state and other states    to the extent to which    Indiana is prohibited from taxing such gross income by the Constitution of the United States. 329 U.S. 249, 250, 91 L.Ed. 265, 271, 67 S.Ct. 274, 275-76. Spector Motor Service, Inc. v. O'Connor (1951), 340 U.S. 602, 95 L.Ed. 573, 71 S.Ct. 508, is another authority holding that this principle of constitutional law was still adhered to six years after the messages tax was enacted. Spector was a motor freight line engaged in hauls in interstate commerce. Its trucks went directly to a customer's place of business in Connecticut to pick up full truckloads and then took them directly out of Connecticut. When less than full-truckload shipments were available, Spector's pickup trucks gathered freight from customers and took it to two terminals operated by the company within the State of Connecticut where it was assembled into full truckloads and then transported outside Connecticut. The court held that the pickup trucks merely acted as part of the interstate transportation and observed that there was long-established precedent for keeping interstate commerce free from State taxation on the privilege of doing business. It was not until 1977 when Spector Motor Service, Inc. v. O'Connor was overruled by Complete Auto Transit, Inc. v. Brady (1977), 430 U.S. 274, 51 L.Ed.2d 326, 97 S.Ct. 1076, that the rule that a State tax on the privilege of doing business is per se unconstitutional when applied to interstate commerce finally collapsed. The Department argues that Spector provided a sanctuary for interstate commerce against a State occupation tax only where the business being taxed did not conduct intrastate activity as well as interstate activity. Although the carrier which the State of Connecticut sought to tax in Spector was not engaged in any intrastate shipments in that State, we find nothing in the opinion to indicate that applying the tax to interstate business would have been more acceptable had the company at the same time been an intrastate carrier in Connecticut. The Supreme Court addressed the subject of whether an occupation tax was more palatable when imposed on both interstate and intrastate commerce than when imposed only on the former in both the portion of Cooney v. Mountain States Telephone & Telegraph Co . quoted above and in Freeman v. Hewit . In both cases it answered in the negative. In Freeman v. Hewit it said: Of course a State is not required to give active advantage to interstate trade. But it cannot aim to control that trade even though it desires to control its own. It cannot justify what amounts to a levy upon the very process of commerce across State lines by pointing to a similar hobble on its local trade. It is true that the existence of a tax on its local commerce detracts from the deterrent effect of a tax on interstate commerce to the extent that it removes the temptation to sell the goods locally. But the fact of such a tax, in any event, puts impediments upon the currents of commerce across the State line, while the aim of the Commerce Clause was precisely to prevent States from exacting toll from those engaged in national commerce. Freeman v. Hewit (1946), 329 U.S. 249, 254, 91 L.Ed. 265, 273, 67 S.Ct. 274, 277. As late as 1959, in Northwestern States Portland Cement Co. v. Minnesota (1959), 358 U.S. 450, 458, 3 L.Ed.2d 421, 427, 79 S.Ct. 357, 362, which initiated the erosion of Spector culminating in Complete Auto Transit, and which involved a State net income tax on a corporation engaged exclusively in interstate commerce, the court summarized the holding in Spector in the following sentence: Moreover, it is beyond dispute that a State may not lay a tax on the `privilege' of engaging in interstate commerce. 358 U.S. 450, 458, 3 L.Ed.2d 421, 427, 79 S.Ct. 357, 362. Thus, the law which prevailed at the time the Messages Tax Act was adopted was that a State was prohibited by the commerce clause from imposing an occupation tax on interstate commerce, regardless of whether the enterprise being taxed also engaged in commerce confined to the taxing state. Our conclusion regarding the scope of the Messages Tax Act is supported by the unchanging interpretation given the statute by the administrative department charged with enforcing it and the fact that while the legislature has amended the statute it has never changed the provisions with which we are now concerned. The regulations adopted by the Department with respect to the 1945 act shortly after its passage were compatible with those relating to the two predecessor acts, and the Department continued to adhere to those regulations for more than two decades. The consistent and contemporaneous construction by those charged with the administration of the Act, a construction which went unchallenged by the legislature, is persuasive in arriving at the proper interpretation to be given the statute. ( Johnson v. Robison (1974), 415 U.S. 361, 367-68, 39 L.Ed.2d 389, 398, 94 S.Ct. 1160, 1166; People ex rel. Watson v. House of Vision (1974), 59 Ill.2d 508, 514-15.) The Messages Tax Act has been amended nine times since its passage in 1945, two of these amendments being of section 2, the provision which imposes the tax. But the legislature has never amended the Act to change the manner in which the Department was interpreting and applying it; nor has the legislature changed the statutory terms to which Bell directs our attention. ( American Oil Co. v. Mahin (1971), 49 Ill.2d 199, 205-06.) The following observation in People ex rel. Spiegel v. Lyons (1953), 1 Ill.2d 409, 414, is relevant: That the statute has remained unaltered through successive sessions of the General Assembly since 1941 [in this case since 1945] indicates legislative acquiescence in the contemporary and continuous administrative interpretation. The Department's principal argument appears to be that the Messages Tax Act of 1945 is a flexible type of statute which taxes interstate service to the extent Federal constitutional law may from time to time permit. The circuit court judge characterized it as a tax in a state of vacillation. The Department contends that, if the tax is not regarded as opening the door for taxation of interstate as well as intrastate service, the proviso in section 2 that the tax is not imposed on interstate service to the extent to which such service or business is prohibited by the Constitution and statutes of the United States from being taxed by the State of Illinois would be meaningless. We do not believe that to save the messages tax from being meaningless it has to be applied like an accordion stretching in and out with changes in the interpretation of the Constitution so far as the authority to tax interstate service is concerned. The provision in question is a routine one. Identical language appears in the other two taxing measures enacted in 1945 at the same time as the Messages Tax Act, the Gas Revenue Tax Act (Ill. Rev. Stat. 1945, ch. 120, par. 467.17) and the Public Utilities Revenue Act (Ill. Rev. Stat. 1945, ch. 120, par. 469). It appears in some form generally similar to the Messages Tax Act proviso in several Illinois occupation tax statutes. See the Illinois Service Occupation Tax Act (Ill. Rev. Stat. 1979, ch. 120, par. 439.103), the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1979, ch. 120, par. 441), the Cigarette Tax Act (Ill. Rev. Stat. 1979, ch. 120, par. 453.2), and the Tobacco Products Tax Act (Ill. Rev. Stat. 1977, ch. 120, par. 453.83). The interpretation we give section 2 does not render the proviso in question meaningless. The proviso saves the statute from invalidity in the event Federal law were held to preclude taxation of some of the intrastate services incorporated into the first sentence of section 2. This question might arise, for example, in connection with an intrastate telephone call to place an interstate telegram. The applicable regulations taxed revenues from the telephone call, but a challenge to this tax on the ground the telephone call was an integral part of the interstate telegram might be advanced in view of a holding such as that in Joseph v. Carter & Weekes Stevedoring Co. (1947), 330 U.S. 422, 91 L.Ed. 993, 67 S.Ct. 815. The court decided in that case that intrastate stevedoring is so integrally a part of interstate commerce that the revenues of stevedoring companies from loading vessels employed in interstate and foreign commerce are immunized from State taxation. We do not find the Department's argument that the purview of the tax expands with removal of constitutional limitations on a State's right to tax interstate transactions sound. The scope of a statute is fixed by the conditions which exist and the law which prevails at the time the statute is adopted. This court has observed that [s]tatutes are to be construed as they were intended to be construed when they were passed. (Emphasis added.) ( People v. Boreman (1948), 401 Ill. 566, 572; see People v. Day (1926), 321 Ill. 552.) Some statutes utilize words that clearly envision that their operation and scope are to change with changes in the underlying law without the need for further approval by the legislature. The Messages Tax Act is not such a statute. It does not expressly provide that changes in the constitutional law by judicial decision or constitutional amendment which authorize the General Assembly to do what it previously was restricted from doing should expand the reach of the statute without further legislative action. On the contrary, as we read the statute, the legislature would then have to decide whether it wished to exercise its expanded authority. In Green v. Advance Ross Electronics Corp. (1981), 86 Ill.2d 431, we decided that our long-arm statute was not in a state of vacillation, expanding or contracting such jurisdiction to the extent permitted by cases decided from time to time construing and applying the due process clause in determining when jurisdiction over a nonresident is proper. We held there that our long-arm statute had a fixed meaning without regard to changes in the concepts of due process. Similarly, we believe the Messages Tax Act had a fixed meaning when it was enacted regarding what revenues it taxed, notwithstanding judicial decisions several years later enlarging the authority of a State to tax interstate transactions. The proviso in section 2 does not contemplate an expansion of the scope of the act; it provides merely that the fixed meaning of the act may contract further should it collide with any existing or new constitutional provision, as we have noted. Hence in interpreting the Messages Tax Act we must look to the state of the law concerning a State's authority to tax interstate business at the time the Act was adopted in 1945, not to the law in later years when Federal decisions expanded that authority. Even if we were less confident that the scope of the Messages Tax Act was limited to intrastate messages in 1945, any doubts that remained would have to be resolved in favor of Bell. This court adhered to this principle in Oscar L. Paris Co. v. Lyons (1956), 8 Ill.2d 590, 598, and reasserted it recently in Getto v. City of Chicago (1979), 77 Ill.2d 346, 359. The teaching of Oscar L. Paris Co. was: Taxing laws are to be strictly construed and they are not to be extended beyond the clear import of the language used. If there is any doubt in their application they will be construed most strongly against the government and in favor of the taxpayer. Oscar L. Paris Co. v. Lyons (1956), 8 Ill.2d 590, 598. Finally, the Department argues that irrespective of whether the Messages Tax Act authorized taxation of interstate revenues, Bell has failed to establish that the revenues in dispute are from interstate calls, and thus Bell has failed as a matter of proof to cloak these revenues with the interstate exemption. The circuit court found to the contrary, and the Department is bound by that finding, especially because it stipulated that the revenues in issue are the amounts which Bell retained from its billing for interstate toll calls. The Department also argues that Bell has forfeited the interstate exemption because it reports as its interstate revenue the amounts it receives after crediting other phone companies for remuneration to which they are entitled for use of their lines instead of the amounts Bell actually bills its customers for their interstate calls. We find no merit in this argument because the manner in which Bell reports its gross receipts complies fully with the definition of gross receipts in the Act itself as well as with the regulations. There is no point in treating billings as the equivalent of gross receipts because the former would include revenue for use of lines completely outside Illinois which even the Department does not claim is within the scope of the tax. The appellate court offered an example which convincingly demonstrates this point: a call from one point outside Illinois to another point outside Illinois, but billed to a Chicago number. Bell, in that case, would collect from its Chicago subscriber, but would credit the revenue to the phone companies whose lines were actually used in the call. This is not Bell's revenue at all. The Department also finds fault with the manner in which Bell reported its interstate revenues, contending the method Bell followed could have reduced its tax liability. Bell included on one line the portion of its billings for interstate calls that it retained and then included the same figure in a deduction it made on a lower line of the reporting form. If Bell had handled the reporting in the way the Department now argues it should have  by including all interstate billings on the earlier line and subtracting that figure on the lower line  the bottom line figure would have been exactly the same. Either method of reporting leaves Bell's intrastate receipts as the amount reported. Although we regard Bell's method of reporting its revenues as in compliance with both the statute and the regulations, the Department's objections to the manner of reporting are not relevant to the question which confronts us. That question is whether interstate revenues are within the scope of the statute adopted in 1945. Even if Bell failed to report its interstate revenues properly, we do not understand how that would authorize including those amounts within the revenues subject to tax if the statute imposing the tax exempts those amounts from taxation. With respect to taxation of interstate revenues, the appellate court was right and the circuit court was wrong.