{ "id": 1725102, "name": "BEATRICE COMPANIES, INC., and its Subsidiaries, Plaintiff-Appellant, v. DOUGLAS H. WHITLEY, Director, Department of Revenue, Defendant-Appellee", "name_abbreviation": "Beatrice Companies, Inc. v. Whitley", "decision_date": "1997-09-12", "docket_number": "No. 1-96-1070", "first_page": "532", "last_page": "538", "citations": [ { "type": "official", "cite": "292 Ill. App. 3d 532" } ], "court": { "name_abbreviation": "Ill. App. Ct.", "id": 8837, "name": "Illinois Appellate Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "15 U.S.C.A. \u00a7 381", "category": "laws:leg_statute", "reporter": "U.S.C.", "year": 1976, "pin_cites": [ { "page": "(a)" } ], "opinion_index": 0 }, { "cite": "673 N.E.2d 710", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1996, "opinion_index": 0 }, { "cite": "284 Ill. App. 3d 473", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 1260410 ], "year": 1996, "opinion_index": 0, "case_paths": [ "/ill-app-3d/284/0473-01" ] }, { "cite": "395 N.E.2d 1167", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1979, "opinion_index": 0 }, { "cite": "77 Ill. App. 3d 90", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3291922 ], "year": 1979, "pin_cites": [ { "page": "98" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/77/0090-01" ] }, { "cite": "469 N.E.2d 1067", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1984, "pin_cites": [ { "page": "1071" } ], "opinion_index": 0 }, { "cite": "103 Ill. 2d 363", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 3152664 ], "year": 1984, "pin_cites": [ { "page": "371-72" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/103/0363-01" ] }, { "cite": "417 N.E.2d 1343", "category": "reporters:state_regional", "reporter": "N.E.2d", "weight": 5, "year": 1981, "pin_cites": [ { "page": "1353" } ], "opinion_index": 0 }, { "cite": "84 Ill. 2d 102", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 3046664 ], "weight": 5, "year": 1981, "pin_cites": [ { "page": "121" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/84/0102-01" ] }, { "cite": "632 N.E.2d 1035", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1994, "opinion_index": 0 }, { "cite": "158 Ill. 2d 210", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 780281 ], "year": 1994, "opinion_index": 0, "case_paths": [ "/ill-2d/158/0210-01" ] }, { "cite": "648 N.E.2d 1089", "category": "reporters:state_regional", "reporter": "N.E.2d", "weight": 5, "year": 1995, "pin_cites": [ { "page": "1096" } ], "opinion_index": 0 }, { "cite": "271 Ill. App. 3d 700", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 249277 ], "weight": 5, "year": 1995, "pin_cites": [ { "page": "710-11" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/271/0700-01" ] } ], "analysis": { "cardinality": 589, "char_count": 13047, "ocr_confidence": 0.773, "pagerank": { "raw": 5.298132930532853e-08, "percentile": 0.33173208167734874 }, "sha256": "cef859670e56859324af4ea47997cc2cc9f43afc349d869a849c2810aa7ea112", "simhash": "1:3f95e80c0f8ce4cc", "word_count": 2075 }, "last_updated": "2023-07-14T14:39:42.526448+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "BEATRICE COMPANIES, INC., and its Subsidiaries, Plaintiff-Appellant, v. DOUGLAS H. WHITLEY, Director, Department of Revenue, Defendant-Appellee." ], "opinions": [ { "text": "JUSTICE THEIS\ndelivered the opinion of the court:\nTaxpayer appeals the trial court\u2019s order affirming a decision by the Illinois Department of Revenue (Department). The Department ruled that sales shipped from Illinois by a member of a unitary business group to purchasers located outside Illinois should be \"thrown back\u201d to Illinois for inclusion in the numerator of the taxpayer\u2019s combined Illinois sales factor, where the taxpayer was not separately subject to tax in the destination state. The trial court affirmed the ruling based upon this court\u2019s holding in Dover Corp. v. Department of Revenue, 271 Ill. App. 3d 700, 648 N.E.2d 1089 (1995). We affirm.\nThe Illinois Department of Revenue issued notices of deficiencies to Beatrice Companies, Inc. (BCI), and several of its subsidiaries. BCI filed protests, contending that certain corporate income liabilities were taxable outside Illinois. Specifically, BCI disputed the Department\u2019s calculation of the apportionment formula applied toward BCI\u2019s Illinois subsidiaries. The formula established the percentage of business income subject to taxation in Illinois. The Department ruled that, under the \"throwback rule,\u201d Illinois was statutorily authorized to include in the sales factor of the apportionment formula those sales of property shipped from Illinois to purchasers in states where that specific subsidiary was not taxable. See 35 ILCS 5/304(a)(3)(B) (West 1994).\nBCI sought administrative review of the Department\u2019s ruling, arguing that the throwback of these foreign destination sales was inappropriate, because other subsidiary members of their unitary business group were taxable in the other jurisdictions. The circuit court affirmed the Department\u2019s ruling, finding that this court\u2019s decision in Dover Corp. v. Department of Revenue, 271 Ill. App. 3d 700, 648 N.E.2d 1089 (1995), directly supported the Department\u2019s position.\nOn appeal, BCI takes issue with the application of the throwback rule to members of unitary business groups, contending that the Dover decision was wrongly decided. BCI claims that: (1) as a matter of statutory construction, sales shipped by an Illinois member of a unitary business group to a foreign destination cannot be \"thrown back\u201d to Illinois if any other member of the unitary group pays taxes in the foreign destination; and (2) adoption of the Department\u2019s position is contrary to the concept of a unitary tax policy.\nUnder the Administrative Review Law, the factual determinations of an administrative agency are deemed prima facie true and correct. 735 ILCS 5/3 \u2014 110 (West 1994). However, we will review the agency\u2019s conclusions of law under a de novo standard. Envirite Corp. v. Illinois Environmental Protection Agency, 158 Ill. 2d 210, 632 N.E.2d 1035 (1994). In order to fully address BCI\u2019s arguments on appeal, we will first discuss unitary business groups and the history of the Illinois Income Tax Act (35 ILCS 5/101 et seq. (West 1994)).\nWhen applied to a corporation, the term \"unitary business group\u201d describes a corporation with interrelated subsidiaries located in various states and countries. Subsidiaries in a unitary business group are so interdependent, however, that it becomes relatively impossible for one state to determine the net income generated by a particular subsidiary\u2019s activities within the state. Caterpillar Tractor Co. v. Lenckos, 84 Ill. 2d 102, 417 N.E.2d 1343 (1981). The difficulty in determining the portion of income attributable to a particular state translates into difficulty in allocating income for purposes of taxation. Caterpillar, 84 Ill. 2d 102, 417 N.E.2d 1343. The Uniform Division of Income for Tax Purposes Act (UDITPA), adopted in 1957 as a model act, sets forth guidelines for apportioning income when a business entity conducts business in different states. 7A U.L.A. 331 (1985). UDITPA was designed to enable states to apportion the income of a multistate corporation based upon the distribution of the corporation\u2019s property, sales, and payroll. UDITPA provides that sales that occur in states where the group member is not taxable are thrown back to the state of origination. 7A U.L.A. 331 (1985).\nIn 1969, the Illinois General Assembly enacted the Illinois Income Tax Act (Tax Act), modeling the apportionment portion of the Tax Act after the UDITPA. See Caterpillar, 84 Ill. 2d 102, 417 N.E.2d 1343. The Illinois apportionment provision provides that when an entity conducts business in more than one state, a three-factor formula is utilized to determine what proportion of income is attributable to the various states. 35 ILCS 5/304(a) (West 1994). Specifically, the statute provides:\n\"If a person other than a resident derives business income from this State and one or more other states, then, except as otherwise provided by this Section, such person\u2019s business income shall be apportioned to this State by multiplying the income by a fraction, the numerator of which is the sum of the property factor (if any), the payroll factor (if any) and 200% of the sales factor (if any), and the denominator of which is 4 reduced by the number of factors other than the sales factor which have a denominator of zero\n* * *\n(3) Sales Factor.\n(A) The sales factor is a fraction, the numerator of which is the total sales of the person in this State during the taxable year, and the denominator of which is the total sales of the person everywhere during the taxable year.\n(B) Sales of tangible personal property are in this State if:\n(i) The property is delivered or shipped to a purchaser, other than the United States government, within this State ***; or\n(ii) The property is shipped from an office, store, warehouse, factory or other place of storage in this State and *** the person is not taxable in the state of the purchaser.\u201d (Emphasis added.) 35 ILCS 5/304(a)(3)(A), (B)(i), (B)(ii) (West 1994).\nBCI takes issue with the Department\u2019s interpretation of the word \"person\u201d as singular, referring only to the Illinois subsidiary, when determining the numerator of the sales factor, and then as plural, referring to all group members, when determining the denominator of the sales factor and when construing the throwback rule. BCI claims that such inconsistency is impermissible, as section 1501(b)(3) of the Tax Act provides:\n\"Any term used in any Section of this Act with respect to the application of, or in connection with, the provisions of any other Section of this Act shall have the same meaning as in such other Section.\u201d 35 ILCS 5/1501(b)(3) (West 1994).\nThis court was presented with the nearly identical argument in Dover Corp. v. Department of Revenue, 271 Ill. App. 3d 700, 648 N.E.2d 1089 (1995). In Dover, however, the petitioner argued that the term \"taxpayer,\u201d as opposed to \"person,\u201d should not be interpreted singularly but, rather, plurally. Specifically, the petitioner claimed that, when applied to a unitary group, the term \"taxpayer\u201d as applied to the numerator in section 303(f) of the Tax Act referred to the entire unitary group and not a single subsidiary of the corporation. Dover, 271 Ill. App. 3d at 710-11, 648 N.E.2d at 1096. The Dover petitioner also argued that, if one member of the unitary group paid a tax in the destination state, the Illinois subsidiary should be deemed to have paid tax in the destination state as well, because under the statute they are considered one taxpayer.\nIn rejecting the petitioner\u2019s argument, the court noted that a review of the relevant statutes and regulation revealed the legislature\u2019s intent to tax 100% of business income. As in the instant case, there was no evidence that other members of the unitary group included the Illinois subsidiary\u2019s sales in computing their sales factors. Accordingly, if Illinois did not throw back the Illinois subsidiary\u2019s sales to Illinois, the sales would result in a \"nowhere\u201d tax. Because such a result would undermine legislative intent, the court gave deference to the Department\u2019s interpretation of the Tax Act. Dover, 271 Ill. App. 3d 700, 648 N.E.2d 1089.\nAcknowledging that the Dover case is clearly on point, BCI argues that the Dover decision ignored fundamental rules of statutory construction. Accordingly, BCI contends that Dover was incorrectly decided. We disagree. Section 1501(b)(1) provides that we may construe singular words as plural if such a construction is \"not otherwise distinctly expressed or manifestly incompatible with the intent\u201d of the Tax Act. 35 ILCS 5/1501(b)(1) (West 1994). We find that adopting BCI\u2019s construction of the term \"person\u201d is manifestly incompatible with legislative intent.\nFor example, the Illinois Supreme Court stated that the apportionment formula is calculated as follows:\n\"[Tjo determine the apportionment factor for a group member subject to the Illinois income tax, the property, payroll, and sales factors would be computed using the individual group member\u2019s Illinois property, payroll, and sales as numerators, and the entire unitary group\u2019s property, payroll, and sales as denominators.\u201d (Emphasis added.) General Telephone Co. v. Johnson, 103 Ill. 2d 363, 371-72, 469 N.E.2d 1067, 1071 (1984), citing Caterpillar Tractor Co. v. Lenckos, 77 Ill. App. 3d 90, 98, 395 N.E.2d 1167 (1979), affd, 84 Ill. 2d 102, 417 N.E.2d 1343 (1981).\nThe year after the Illinois Supreme Court decided Caterpillar, the Illinois General Assembly added the definition of \"unitary business group\u201d and the concept of combined apportionment to the Tax Act, but rejected the Caterpillar court\u2019s concept of \"worldwide combined apportionment.\u201d See Pub. Act 82 \u2014 1029, eff. December 15, 1982. We find that, in doing so, the legislature otherwise embraced the Illinois Supreme Court\u2019s concept of combined apportionment. See Kroger Co. v. Department of Revenue, 284 Ill. App. 3d 473, 673 N.E.2d 710 (1996).\nThe legislature\u2019s definition of a unitary business group further undermines BCI\u2019s contention, as section 1501(a)(27) of the Tax Act defines a unitary business group as consisting of \"a group of persons related through common ownership whose business activities are integrated with, dependent upon and contribute to each other.\u201d (Emphasis added.) 35 ILCS 5/1501(a)(27) (West 1994). Further, the Illinois Supreme Court stated that the purpose of the combined apportionment formula is \"to permit the fair determination of the portion of business income that is attributable to the business activity in Illinois by the reporting member of the unitary group.\u201d (Emphasis added.) Caterpillar Tractor Co. v. Lenckos, 84 Ill. 2d 102, 121, 417 N.E.2d 1343, 1353 (1981). Accordingly, we find that BCI\u2019s construction of the throwback rule statute is inconsistent with legislative intent, rules of construction, and the Illinois Supreme Court\u2019s interpretation of the apportionment formula.\nFinally, BCI contends that it is inappropriate for the Department to treat unitary business groups differently than corporations. BCI claims that sales of goods shipped from this state by a member of a unitary business group should not be reassigned to the numerator of the seller\u2019s sales factor so long as any member of the seller\u2019s unitary business group is subject to tax in the destination state. BCI notes that the government employs such a scheme when taxing corporate entities and it should therefore be applied to unitary business groups as well.\nThe Dover court rejected a uniformity argument similar to the one BCI raises on appeal. Under the unitary business structure, taxes are assigned to various states based upon the sales of each member\u2019s transactions. When an Illinois member of a unitary group ships goods to a foreign state, federal law may prevent that state from taxing the Illinois member if the Illinois member has no contact with the state other than the solicitation of sales. See 15 U.S.C.A. \u00a7 381(a) (West 1976). Unless Illinois were to throw back that sale for inclusion in the Illinois member\u2019s numerator, that transaction would go untaxed. Accordingly, failure to apply the throwback rule in the manner advanced by the Department would result in a \"nowhere\u201d tax on the Illinois sales.\nConversely, while a corporation files only one tax return covering all transactions, members of a unitary group may or may not file returns in Illinois. We find, as the Dover court found, that such a distinction justifies treating the two entities differently and does not subvert the principles of the unitary business concept. As such, we affirm the ruling of the trial court.\nAffirmed.\nGREIMAN, P.J., and ZWICK, J\u201e concur.", "type": "majority", "author": "JUSTICE THEIS" } ], "attorneys": [ "Fred 0. Marcus, James H. Ryan, and Jordan M. Goodman, all of Horwood, Marcus & Braun, Chartered, of Chicago, for appellant.", "James E. Ryan, Attorney General, of Chicago (Barbara A. Preiner, Solicitor General, and Deborah L. Ahlstrand, Assistant Attorney General, of counsel), for appellee." ], "corrections": "", "head_matter": "BEATRICE COMPANIES, INC., and its Subsidiaries, Plaintiff-Appellant, v. DOUGLAS H. WHITLEY, Director, Department of Revenue, Defendant-Appellee.\nFirst District (6th Division)\nNo. 1 \u2014 96\u20141070\nOpinion filed September 12, 1997.\nFred 0. Marcus, James H. Ryan, and Jordan M. Goodman, all of Horwood, Marcus & Braun, Chartered, of Chicago, for appellant.\nJames E. Ryan, Attorney General, of Chicago (Barbara A. Preiner, Solicitor General, and Deborah L. Ahlstrand, Assistant Attorney General, of counsel), for appellee." }, "file_name": "0532-01", "first_page_order": 550, "last_page_order": 556 }