NO. 4-01-0942

IN THE APPELLATE COURT

OF ILLINOIS

FOURTH DISTRICT

Plaintiff Freeman United Coal Mining Company (Freeman),referred to collectively with Central Illinois Light Company(CILCO) as Taxpayers, appeals from an order of the circuit court ofSangamon County affirming on administrative review a decision ofthe Illinois Department of Revenue (Department). The issues onreview are whether (1) Freeman is entitled to a credit or refund onthe basis that the coal sold by Freeman to CILCO was exempt undersection 1a of the Illinois Retailers' Occupation Tax Act (ROTA) (35ILCS 120/1a (West 1994)), and (2) Freeman failed to prove that itwould not receive a "windfall" if its claim was allowed. Weaffirm.

The stipulated facts essentially indicate that from April1, 1992, through December 31, 1994, Freeman paid retailers'occupation tax on coal sold to CILCO in Illinois, but it claimed acredit under section 1a of ROTA for taxes paid on the coal used byCILCO to fuel its certified pollution-control facilities. Correspondingly, from January 1, 1992, through December 31, 1994,CILCO paid taxes under the Use Tax Act (UTA) (35 ILCS 105/1 et seq.(West 1994)) for coal purchased from out-of-state suppliers,claiming a credit under section 2a of UTA (35 ILCS 105/2a (West1994)) for use taxes paid on coal purchased and used to fuelCILCO's certified pollution-control facilities. Following anaudit, the Department tentatively denied CILCO's claim on March 18,1998, and Freeman's claim on April 9, 1998; and the Taxpayers filedwritten protests on May 12, 1998. CILCO claimed a credit or refundof $23,984, and Freeman claimed a credit or refund of $170,983.

CILCO, an electrical power generating utility, operatedtwo coal-fueled power plants identified as the E.D. Edwards PowerPlant and the Duck Creek Power Plant. To reduce or eliminate ashand sulfur-dioxide emissions into the air, the pollution-controlsystems of each power plant used electrostatic precipitators, andthe Duck Creek Power Plant also employed a sulfur-dioxide scrubber. The emissions were produced as a result of burning coal to generateelectricity. The electricity so generated was, in part, used topower the pollution-control systems. CILCO calculated the amountof coal necessary to generate the electrical power needed tooperate the pollution-control systems.

The CILCO and Freeman claims were consolidated before theDepartment. Because the facts were stipulated, no evidentiaryhearing was conducted at the administrative level. On September26, 2001, the administrative law judge (ALJ) recommended the claimsbe denied on the basis that the primary purpose of the coal was notpollution control. The Department's Director issued a supplementaldecision accepting the ALJ's reasoning and additionally found thatFreeman failed to prove that a refund would not result in awindfall as required by section 6 of ROTA (35 ILCS 120/6 (West2000)). On November 22, 2000, the Department issued finaldeterminations of the claims, denying each.

On December 13, 2000, Freeman filed a complaint foradministrative review in the circuit court. Because Freeman hadnot been given the opportunity to address the windfall issue in theadministrative proceeding, the circuit court entered an agreedorder to supplement the record with a copy of "AMENDMENT TO ANDRESTATEMENT OF COAL SUPPLY AGREEMENT" between CILCO and Freeman. On October 4, 2001, the circuit court affirmed the Department'sdenial of the Freeman's claim on the basis that the primary purposeof the coal was to create electricity and not pollution control. The circuit court did not reach the issue of windfall. On October24, 2001, Freeman filed its notice of appeal.

Because the issues involve the interpretation of statutesand the application of these interpreted statutes to undisputedfacts, questions of law are presented that this court considers denovo. Panhandle Eastern Pipe Line Co. v. Environmental ProtectionAgency, 314 Ill. App. 3d 296, 300, 734 N.E.2d 18, 21 (2000).

ROTA (35 ILCS 120/1 et seq. (West 1994)) and UTA arecomplimentary statutes colloquially referred to as the "sales tax." Brown v. Zehnder, 295 Ill. App. 3d 1031, 1034, 693 N.E.2d 1255,1258 (1998). Brown discusses the relationship between the two acts(Brown, 295 Ill. App. 3d at 1034-35, 693 N.E.2d at 1258-59). Thebasic purposes of UTA are to compliment ROTA by preventing evasionof taxes on interstate purchases and protecting Illinois retailersfrom competition advantages of out-of-state retailers not requiredto collect sales tax from Illinois purchasers. Illinois RoadEquipment Co. v. Department of Revenue, 32 Ill. 2d 576, 580, 207N.E.2d 425, 427 (1965). The relationship of the acts is notdirectly at issue in this case, and because CILCO did not appeal,we need not discuss UTA.

Section 1a of ROTA exempts from the retailers' occupationtax the purchase, employment, and transfer of tangible personalproperty as "pollution control facilities" and defines that term asfollows:

"'Pollution control facilities' means anysystem, method, construction, device or appliance appurtenant thereto sold or used orintended for the primary purpose of eliminating, preventing, or reducing air and waterpollution as the term 'air pollution' or'water pollution' is defined in the Environmental Protection Act', enacted by the 76thGeneral Assembly, or for the primary purposeof treating, pretreating, modifying or disposing of any potential solid, liquid or gaseouspollutant which if released without suchtreatment, pretreatment, modification ordisposal might be harmful, detrimental oroffensive to human, plant or animal life, orto property." 35 ILCS 120/1a (West 1994).

Although courts give deference to an agency's interpretation of a statute that the agency is charged with administering, anerroneous interpretation will be rejected. City of Decatur v.American Federation of State, County, & Municipal Employees, Local268, 122 Ill. 2d 353, 361, 522 N.E.2d 1219, 1222 (1988); Moller v.Civil Service Comm'n of the City of Blue Island, 326 Ill. App. 3d660, 664, 761 N.E.2d 242, 245 (2001). In statutory construction,courts apply the cardinal rule of ascertaining and giving effect tolegislative intent by first looking to the statutory language,avoiding interpretations that render any part of the statutemeaningless or void, and presuming that the legislature did notintend absurdity, inconvenience, or injustice. McNamee v.Federated Equipment & Supply Co., 181 Ill. 2d 415, 423-24, 692N.E.2d 1157, 1161 (1998). Courts will not depart from thestatute's plain language by reading into it exceptions, limitations, or conditions that the legislature did not express. Countyof Lake v. Board of Education of Lake Bluff School District No. 65,325 Ill. App. 3d 694, 701, 761 N.E.2d 163, 169 (2001).

Revenue laws are generally given reasonable construction, but when there is uncertainty, taxing statutes are construed infavor of the taxpayer. TTX Co. v. Whitley, 313 Ill. App. 3d 536,543, 729 N.E.2d 844, 849 (2000). On the other hand, exemptions totaxation are construed strictly in favor of the taxing body andagainst exemption, and any doubts about the application of anexemption are resolved in favor of taxation. County of Lake, 325Ill. App. 3d at 702, 761 N.E.2d at 170; Medcat Leasing Co. v.Whitley, 253 Ill. App. 3d 801, 803, 625 N.E.2d 424, 426 (1993).

The legislature has recognized that fossil-fuel electric-generating plants are a significant source of air emissionsrequiring studies on their impact on public health. 415 ILCS5/9.10(a)(1) (West 2000). In this case, the question is whether toexempt from sales tax, under the pollution-control facilitiesexemption, the material which, when used as a fuel to generateelectricity, caused the pollution.

Coal is a combustible material used as a fuel. Webster'sThird New International Dictionary 432 (1986) (hereinafterWebster's). It is not itself a system, defined as a unity of partsor an assemblage to form a working unity or a set of materials orappliances used to carry out a method or design. Webster's at2322. Nor is it a method, i.e., a technique or process (Webster'sat 1422), for controlling pollution. Nor is it a construction,device, or appliance (Webster's at 489 (construction), 618(device), 104-05 (appliance)) that eliminates, prevents, or reducesair pollution. Here, the coal is used to fuel the electric-generating plants, and the pollution-control systems employed byCILCO are powered by electricity. Except for being the fuelcreating the pollution, the coal is not directly implicated in thepollution-control process.

Defendant Department compares the instant case to BeelmanTruck Co. v. Cosentino, 253 Ill. App. 3d 420, 624 N.E.2d 454(1993). Beelman involved the use of escort trucks that carriedplastic lines, gloves, et cetera, used to unload the waste and, inthe event of an accident, the escort drivers work to contain thespill. We find Beelman and Wesko Plating, Inc. v. Department ofRevenue, 222 Ill. App. 3d 422, 584 N.E.2d 162 (1991) (chemicalsused to reduce or eliminate air or water pollution exempt fromtax), inapposite.

Freeman also argues that the coal use here is similar tothe use of limestone in Columbia Quarry Co. v. Department ofRevenue, 154 Ill. App. 3d 129, 130-32, 506 N.E.2d 795, 796-97(1987). However, in Columbia Quarry, the limestone purchased wasused exclusively as material in scrubber equipment to removepollution, was part of a system and method used to reduce airpollution, and was found to be exempt from ROTA. Here, the coal isnot a component for conclusive pollution control. The Departmentcorrectly determined that Freeman was not entitled to an exemptionunder section 1a of ROTA for the sale of coal to CILCO.

Freeman argues that the Department inappropriately reliedon section 130.335 of its rules (86 Ill. Adm. Code