Court Opinion

ID: 9522228
Source: CourtListenerOpinion
Date Created: 2023-08-07 02:20:24.260707+00
Date Added: 2024-06-11T13:02:25.281246
License: Public Domain

JUSTICE THOMAS, dissenting: Although I commend the majority’s decision to make its opinion prospective only, that remedy falls far short of what is truly necessary in this case: allowing rehearing and addressing the Department’s arguments. The grounds for allowing rehearing are points overlooked or misapprehended (see 210 Ill. 2d R. 367), and this opinion contains both. The majority barely mentions the Department’s arguments, and has essentially overlooked the Department’s entire brief. Not only that, the majority completely misrepresents the Department’s position. See 234 Ill. 2d at 284 (“The parties agree that if electricity is ‘tangible personal property,’ then Exelon would be engaged in ‘retailing’ as defined by section 201(e)”). The principal argument that the Department made on appeal — that given this court’s precedents going back 75 years that electric utilities are not retailers of tangible personal property (see Peoples Gas Light & Coke Co., 359 Ill. at 158-61), we must assume that the legislature did not intend for the tax credit in question to apply to electric utilities — is never addressed. This failure of the majority to do so is rendered even more puzzling by the reasons the majority gives for making its opinion prospective only. The majority concedes that the outcome of today’s opinion was not clearly foreshadowed. 234 Ill. 2d at 286. Indeed, it was the opposite result that was clearly foreshadowed. The majority further states that Farrand Coal “suggested” in “obiter dicta” that electricity is intangible.12 234 Ill. 2d at 286. The majority also explains that prospective application will give the legislature a chance to comport with this court’s new definition, while avoiding the uncertainty in other areas of tax law that would result from retroactive application. 234 Ill. 2d at 286. Is this not a clear acknowledgment that the legislature did not intend for the tax credit to include electric utilities when it originally enacted it? And, if the majority concedes that “[t]he fundamental rule of statutory construction is to give effect to the intention of the legislature” (234 Ill. 2d at 274), why not simply hold that the tax credit is not available to electric utilities? I would allow rehearing, address the Department’s arguments, apply this court’s well-established precedent, and hold that the tax credit is not available to electric utilities. Below is a summary of the key problems with the majority opinion that demand some sort of corrective action. I. Obiter Dicta: The Majority Opinion Is Wrong on the Merits The Department correctly points out that this court’s determination that Farrand Coal’s discussion of the tangibility of electricity was obiter dicta is demonstrably false. As the Department notes, an essential element of the plaintiffs claim in Farrand Coal was demonstrating that its product was resold by the purchaser as tangible personal property. Accordingly, the plaintiff could not succeed without demonstrating that electric utilities sell tangible personal property. Thus, the discussion of this issue could not be obiter dicta. Moreover, in the section of the opinion that the majority acknowledges is the court’s holding, this court stated quite clearly and explicitly that the sale of electrical energy by a utility is not a sale of tangible personal property. Farrand Coal, 10 Ill. 2d at 513. How much more clearly could the court have said it? Moreover, if the court expressly held that energy is intangible (Farrand Coal, 10 Ill. 2d at 511), how can the majority possibly conclude that it is an issue of first impression whether electrical energy is intangible? Exelon’s counsel conceded in its written argument in support of summary judgment that the holding that energy is intangible necessarily includes electricity: “The court in Farrand Coal Co. found that electricity was not ‘tangible’ in the ordinary sense of the word because, apart from its connection with mass and matter, ‘energy’ cannot be stored, weighed, transported, or touched, and it thus not otherwise perceptible by the senses.” (Emphasis added.) Does the majority really expect anyone to believe that when this court stated that energy is intangible and that electric utilities are not retailers of tangible personal property it was merely making offhand comments (for who knows what reason) instead of addressing and rejecting the key component of the plaintiff’s claim? Moreover, the majority does not believe its own opinion. The majority states that Farrand Coal was based on our scientific understanding of over a half century ago, but that our current understanding of electricity has progressed beyond that time.13 If this is an issue of first impression (234 Ill. 2d at 286), what has our understanding of electricity progressed beyond? The Department makes a couple of additional points that should be noted. First, the Department points out that the relevant precedent from this court has already been described as a holding. In Waukegan School District, this court explained that “[t]his court held in Peoples Gas Light & Coke Co. v. Ames (1934), 359 Ill. 152, that the retailers’ occupation tax did not apply to public utilities because those corporations are not in the business of selling tangible personal property, but are in the business of providing a public utility service. (See also Farrand Coal v. Halpin (1957), 10 Ill. 2d 507 ***.)” (Emphases added.) Waukegan School District, 95 Ill. 2d at 252-53.14 Second, the appellate court read Farrand Coal the same way. In Union Coal Co., the appellate court stated that “[i]n the Farrand case the court held an electric utility company does not sell tangible personal property when it sells electricity or electrical energy.” (Emphasis added.) Union Coal Co., 38 Ill. App. 3d at 294. Third, the Department points out that the meaning of Farrand Coal was so well established that even Exelon’s counsel several times at the administrative and circuit court levels described Farrand Coal as holding that electricity is not tangible personal property. The record is replete with such examples. It was only after Exelon’s repeated attempts to distinguish Farrand Coal failed that Exelon changed its position on appeal and made a dicta argument — an argument that should have been summarily rejected. When this court can characterize as obiter dicta a discussion that has been uniformly recognized as a holding and that addresses a key component of one of the parties’ claims, it shows that this court will characterize anything as obiter dicta, thus avoiding stare decisis considerations. This court cannot expect the bench and bar to afford our opinions a level of deference and respect that we are unwilling to give ourselves. Much more importantly, however, let us assume for a moment that the majority is correct and that all relevant portions of Farrand Coal were mere obiter dicta. This in no way justifies the majority’s refusal to consider the legislature’s intent in using the phrase “tangible personal property” in the statute in question. An unstated fallacy in the majority opinion is that the rules of dicta apply to the legislature. If we are willing to concede that they do not, then it is obvious that we must consider whether the legislature would have relied on Farrand Coal and the decisions interpreting it. As I have already demonstrated above, until the majority’s opinion in this case, there appeared to be universal agreement about what Farrand Coal said. Given that, it is safe to assume that the legislature acted with the same belief. Further, there was appellate court authority describing this portion of Farrand Coal as a holding. See Union Coal Co., 38 Ill. App. 3d at 294. Taking things a step further, what if the Farrand Coal opinion did not even exist? The majority’s opinion would still be directly contrary to Peoples Gas Light & Coke Co. This court established in that case that utilities are not retailers of tangible personal property, but are engaged in a service business. Peoples Gas Light & Coke Co., 359 Ill. at 154-58. That case involved whether gas and electric utilities could be taxed under the Retailers’ Occupation Tax Act, which was a tax upon retailers of tangible personal property. As in this case, the parties introduced scientific evidence concerning whether what they sold was tangible. This court concluded that it did not have to reach that issue, because the legislature treats utilities and retailers differently and that a tax imposed on retailers could not be imposed on utilities. The court held that, for tax purposes, utilities are engaged in a service business and are not retailers. Commonwealth Edison was involved in that case, too, and it and the other utilities convinced this court to adopt this position. We agreed with Commonwealth Edison and the other utilities that “their occupation constitutes a peculiar class of business enterprise entirely distinct and separate from the business of the retailer or retail merchant.” (Emphasis added.) Peoples Gas Light & Coke Co., 359 Ill. at 155. This court held that the language of the public utilities act clearly showed that the legislature regards utilities as engaged in service. Peoples Gas Light & Coke Co., 359 Ill. at 155. We further explained that the legislature could not have intended the Retailers’ Occupation Tax Act to apply to utilities because “the act plainly refers to those engaged in the business of selling tangible personal property for use or consumption.” Peoples Gas Light & Coke Co., 359 Ill. at 158. This point bears repeating: this court specifically held that the legislature could not have intended a statute to apply to public utilities if it referred to ‘‘those engaged in the business of selling tangible personal property.” In this case, we are faced with a tax credit that the legislature reserved for those engaged in the business of selling tangible personal property. Even if Farrand Coal had never existed, Exelon’s arguments should be rejected, and they should be rejected because of the very law that Exelon’s predecessor helped to bring about. Even if this court now wants to say that all relevant parts of Farrand Coal were obiter dicta, that does not mean that we do not have to consider whether the legislature would have acted in reliance on that opinion, or on any of the opinions interpreting it, or on any of the opinions that preceded it. Similarly, does the majority really believe that the legislature would have concerned itself with whether Menagas’s statement that electricity is intangible was merely an “assumption” and that assumptions do not constitute holdings (234 Ill. 2d at 281)? The majority seems to be coming around to these points. It already acknowledged in the opinion that “it was reasonable for the appellate court to consider itself bound by this court’s discussion of the tangibility of electricity in Farrand Coal.” 234 Ill. 2d at 282. Moreover, in the new section of the opinion making this decision prospective only, the court explains that its holding was not clearly foreseen and that it wants to give the legislature a chance to comply with its holding. 234 Ill. 2d at 285. Thus, the majority has clearly acknowledged the strong possibility (if not certainty) that the legislature relied on this court’s and the appellate court’s previous opinions. No justification exists for the majority’s refusal to address the Department’s arguments. II. A Legal Question Becomes a Factual Question: The Majority’s Remedy Is Wrong Another reason that rehearing (or at least a more extensive modification to the majority opinion) is necessary is to clarify this court’s holding to ward off the inevitable confusion that will follow. The majority begins its analysis by stating that “this case presents solely questions of law.” 234 Ill. 2d at 273. If the majority had addressed the true question in this case — whether we presume that when the legislature enacted the tax credit in question it acted with knowledge of this court’s longstanding determinations that electric utilities are not retailers of tangible personal property — then the question would be a legal one. But the majority never addresses that issue, choosing instead to answer a factual question: whether, as a matter of scientific fact, electricity is tangible.15 The court then relies on the fact that the record contains the unrebutted affidavit of Dr. Fajans that electricity is tangible. 234 Ill. 2d at 282. Clearly, the majority is resolving a factual question, not a legal one. The Department argues in its petition for rehearing that if this court now wants to make this a factual question instead of a legal one, then it should remand for further proceedings. The basis for the Department’s summary judgment motion was that whether an electric utility is a “retailer” under the statute is a question of law and that the physical properties of electricity were not material to that issue. The Department explained that whether Dr. Fajans believed that electricity was tangible as a matter of science was irrelevant, because the issue had already been decided as a matter of law. Exelon argued that whether electricity was tangible was an essential factual question that needed to be resolved, and at one point even conceded that its summary judgment motion should be denied because whether electricity or electrons are tangible personal property was a material fact question that precluded summary judgment. As I noted in my special concurrence, the Department grounded its summary judgment motion in this court’s precedents resolving the question as a matter of law, but asked for time to obtain its own expert in the event that the relevant questions were determined to be factual. The Department prevailed on its argument that this was a question of law at the administrative level, the circuit court level, and the appellate court level. Thus, there was never a reason for the Department to submit testimony on this issue. If this court agrees with Exelon that the issue that must be resolved is one of scientific fact, then it should also agree with the position that Exelon took below: that the existence of this material fact question precludes summary judgment in Exelon’s favor. This court completely misrepresented the Department’s position in its original opinion when it stated that “[t]he parties agree that if electricity is ‘tangible personal property,’ then Exelon would be engaged in ‘retailing’ as defined by section 201(e).” 234 Ill. 2d at 284. This was never the Department’s argument, and this point alone mandates that we grant rehearing.16 The Department’s position was that whether an electric utility is a “retailer” under the statute is a question of law and that the physical properties of electricity were not material to that issue. The Department correctly argues that now that this court has changed a legal question into a factual one, the cause should be remanded so that the Department may contest the material facts. All relevant facts and scientific opinions should be considered. Instead, the majority simply shuts down the fact-finding process after hearing only one side of one part of the argument. This is profoundly unfair to the Department. The Department correctly argues that, if this is a factual question, then several important issues need to be resolved. First, relying on my special concurrence, the Department argues that, even if electrons are material, that does not make an electric utility a retailer of tangible personal property. As I explained before, expert testimony considered in our previous cases shows that electrons flow from the utility to the customer and then back to the utility, so that the customer never takes possession of electrons. The customer is simply purchasing the work that electrons do — an unquestioned intangible. I stated previously that, “[i]f there is anything in Dr. Fajans’ affidavit that would call these conclusions into question and suggest that the customer actually purchases electrons from the utility, the majority has not cited it.” 234 Ill. 2d at 319-20 (Thomas, J., specially concurring). Not only does Dr. Fajans’ report not contradict this point, it fully supports it. In Dr. Fajans’ report, he explains that electrons flow from the power source to the load along one wire, and then back from the load to the power source. The report even includes a diagram showing the electrons flowing from the power source to the load and then back to the power source. In other words, and this point cannot be overstated, even within the four corners of Dr. Fajans’ report, a legitimate question exists whether an electric utility can be considered a retailer of tangible personal property. Indeed, the State Board of Equalization of California (the Board) relied on this aspect of Dr. Fajans’ report to conclude that the sale of electricity was the sale of a service rather than a sale of tangible personal property. In In re Appeal of PacifiCorp, 2002 WL 31153476 (September 12, 2002), the Board considered whether the sale of electricity was the sale of tangible personal property. The respondent in that case relied on Dr. Fajans’ report to argue that electricity is tangible personal property. The Board concluded that Dr. Fajans’ report instead led to the conclusion that the sale of electricity is the sale of a service. The Board noted that the Ohio Supreme Court held in Otte v. Dayton Power & Light Co., 37 Ohio St. 3d 33, 36, 523 N.E.2d 835, 838 (1988), that electricity is a service rather than a product: “A ‘product’ is anything made by human industry or art. Electricity appears to fall outside this definition. This is so because electricity is the flow of electrically charged particles along a conductor. DP&L does not manufacture electrically charged particles, but rather, sets in motion the necessary elements that allow the flow of electricity.” The Board found Dr. Fajans’ report to be consistent with Otte: “Although Professor Fajans’s discussion of electricity in his report seems intended to support respondent’s position that electricity is ‘tangible personal property’ by emphasizing the ‘physical and material’ nature of electrons, his discussion is also consistent with the definition of electricity in Otte as a ‘flow of electrically charged particles along a conductor.’ In addition, Professor Fajans’s discussion of electricity is also consistent with the conclusion of the court in Otte that the ‘distribution system’ with respect to electricity there was a service. In our view, just as the ‘distribution system’ by which the flow of electrically charged particles occurred in Otte was a service, appellant’s generation and transmission of electricity were also services under section 25136.” The Board summed up by concluding that, “for purposes of California tax law, electricity is intangible.”17  Thus, Dr. Fajans’ affidavit and report are no justification for shutting down the fact-finding process. Important questions need to be resolved, and concluding that an electron is material is simply the beginning, not the end, of the inquiry. As In re Appeal of PacifiCorp shows, one possible conclusion that can be taken from Dr. Fajans’ report is not the majority’s view that this court was hopelessly out of touch with science in 1957 when it decided Farrand Coal, but rather that this court was ahead of the game in 1935 when it held in Peoples Gas Light & Coke Co. that the sale of electricity is the sale of a service rather than the sale of tangible personal property. Other factual questions that the Department argues need to be resolved now that this court has changed the inquiry to one of fact are: (1) whether, when the Investment Tax Credit was enacted in 1981, “humanity” (234 Ill. 2d at 282) (and, by necessary extension, the General Assembly) considered electricity to be tangible personal property; and (2) whether, even if the transmission of electricity is the sale of tangible personal property, Exelon was “primarily engaged in *** retailing” within the meaning of the Investment Tax Credit, or was instead primarily engaged in the production, purchase, transmission, and distribution of electricity.18 Both points are well-taken, and these questions need to be resolved. Clearly the Department is correct that a remand is the appropriate course of action following the majority’s decision to transform the relevant inquiry into one of fact. III. Failure to Completely Dispose of the Appeal Now that the court has made its opinion purely prospective — applying only to tax year 2009 and after— and has affirmed the judgment of the appellate court, its previous reasons for not addressing Exelon’s uniformity clause argument are no longer valid. Exelon sought the tax credit for tax years 1995 and 1996 under two theories: (1) it is entitled to it as a matter of statutory construction; and (2) the Department’s failure to grant it the tax credit violated the uniformity clause of the Illinois Constitution. Explaining why it is not reaching the second issue, the court states that, “[a]s the Department correctly observed in its motion for summary judgment and at oral argument before this court, if Exelon qualifies for the section 201(e) tax credit as a matter of statutory construction, then there is no reason to reach the alternative constitutional issue.” 234 Ill. 2d at 274. The court later explains that constitutional issues are only reached when the matter may be resolved on nonconstitutional grounds, and states that the court’s “disposition of this cause obviates the need to determine whether the Department violated the uniformity clause of the Illinois Constitution.” 234 Ill. 2d at 286. It goes without saying that the court’s decision to change its judgment from a reversal to an affirmance mandates that we now address Exelon’s other issue. This appeal involves Exelon’s claim for tax years 1995 and 1996, over a decade before the effective date of the majority’s holding that electric utilities are retailers of tangible personal property. Thus, the majority affirms the appellate court’s judgment denying Exelon the credit. How can this court possibly deny Exelon the credit on the first issue and then refuse to address Exelon’s second argument on the basis that Exelon’s qualification for the credit on the first issue obviates the need to address Exelon’s second argument? Given the court’s revisions on denial of rehearing, Exelon is entitled to be heard on its uniformity clause argument. IV Conclusion In sum, rehearing should be granted, and this court should at long last address the Department’s arguments. There was an obvious outcome in this case, and this court should apply its long-standing precedent that electric utilities are engaged in a service business and are not retailers of tangible personal property. No legitimate reason exists to fundamentally alter the tax treatment of electric utilities after all this time. This court’s precedents are now that electric utilities are not engaged in retailing (Peoples Gas Light & Coke Co.) and are primarily engaged in retailing (Exelon). The majority’s failure to explain how this can be so ensures no end of headaches not only for the Department and the legislature, but also this court, which will likely spend years considering questions thought put to rest decades ago. If the majority is unwilling to acknowledge and address the Department’s arguments, it should remand for further fact-finding. It is also mandatory that the court now address Exelon’s uniformity clause argument. For all of the above reasons, I cannot join the majority’s decision to deny rehearing.  This is wrong twice. First, it was not a suggestion. Second, it was not dicta, let alone obiter dicta.   It should be noted that Farrand Coal was decided five years after the United States had detonated a hydrogen bomb. The majority gives no support at all for its claim that the properties of electricity were a mystery in 1957.   As the Department notes, the continued validity of Waukegan School District is now also in doubt. In that case, this court held that a tax that applied to “persons engaged in the business of distributing supplying, furnishing, or selling electricity for use or consumption” was an impermissible tax on the sale of services. Waukegan School District, 95 Ill. 2d at 252-54. The taxing authority tried to argue that it was taxing the “product” sold by the utility, but this court, relying on Farrand Coal and Peoples Gas Light & Coke Co., rejected that argument on the basis that utilities render a service and are not retailers of tangible personal property. This court explained that the term “service” under Illinois tax law means “all ‘sales’ transactions other than sales of tangible personal property." (Emphasis added.) Waukegan School District, 95 Ill. 2d at 254. Therefore, Commonwealth Edison’s sale of electricity to its customers was provided as part of a service and was not a sale of tangible personal property. Waukegan School District, 95 Ill. 2d at 253-54. If electric utilities are now retailers of tangible personal property (234 Ill. 2d at 284-85), then Waukegan School District is now of the same dubious validity as Peoples Gas Light & Coke Co. and Farrand Coal.   The greatest misunderstanding in the majority opinion, which taints everything, is its belief that the question before the court is scientific. This was simply a nonissue introduced into the case by Exelon that this court unfortunately made the centerpiece of its opinion. The Department put it best in its reply to Exelon’s response to its summary judgment motion when it wrote: “The fact that Taxpayer’s expert, Professor Fajans, believes that electricity is tangible as a matter of science, however, is of no legal consequence. The issue of whether electricity is tangible for purposes of this tax credit, is not a question of science or even fact, but what the General Assembly intended to include under the phrase ‘tangible personal property.’ From the Farrand decision we know that within the framework of its ordinary and popular meaning, ‘tangible personal property’ does not include electricity. Accordingly, a scientist can shed no light, or be of any assistance, to this Tribunal in understanding whether the legislature meant to include electricity within ‘tangible personal property. ’ This question can only be addressed by a court as a question of law through means of statutory interpretation, which the Illinois Supreme Court has already done.” (Emphasis added.)   Even if the Department had made this argument, the majority would be required to reject it under Peoples Gas Light & Coke Co. If the scientific evidence in that case was held to be irrelevant to the question of whether an electric utility is a retailer, then it should also be found to be irrelevant in this case. We are not bound by a party’s incorrect framing of the issue. (Of course, the Department did not incorrectly frame the issue, the majority did. For a summary of what the Department actually argued, quoted directly from the Department’s brief, see my special concurrence to the majority opinion (234 Ill. 2d at 303-04 (Thomas, J., specially concurring)).)   This is an unpublished decision that is designated “not to be cited as precedent.” I discuss it here only to show that more than one legitimate conclusion can be drawn from Dr. Fajans’ report. Further, in the California case cited by the majority, Searles Valley Minerals Operations, Inc. v. State Board of Equalization, 160 Cal. App. 4th 514, 72 Cal. Rptr. 3d 857 (2008), the California appellate court itself cited and discussed In re Appeal of PacifiCorp and distinguished it instead of dismissing it as nonprecedential.   The majority’s implied conclusion that this question does not need to be answered is curious, given the majority’s citation to L. Hyman, A. Hyman & R. Hyman, America’s Electric Utilities: Past, Present and Future 89 (7th ed. 2000), for the proposition that electric utilities must “perform the following functions to deliver the product: production, marketing, transmission, distribution, metering and billing, and retail supply.” 234 Ill. 2d at 281.