Hartney Fuel Oil Company v. Hamer
2013 IL 115130
| Ill. | 2013Background
- Hartney Fuel Oil, headquartered in Forest View, routed order-taking to a separate Mark office (clerk provided by local business) to reduce local retailers’ occupation tax exposure; Forest View handled pricing, marketing, billing, and logistics (including common carrier Energy Transport).
- Department of Revenue audited Hartney’s 2005–2007 sales and assessed local retail occupation taxes for Forest View, Cook County, and the RTA, based on finding that the business of selling occurred in Forest View; Hartney paid under protest and sued for refund in Putnam County circuit court.
- Circuit court found, applying Department regulations, that purchase orders were accepted in Mark and thus Mark was the situs; appellate court affirmed.
- The central legal question: whether the Department regulation (placing conclusive weight on where a purchase order is accepted) validly determines situs for local retail occupation taxes, or whether situs requires a fact‑intensive, totality‑of‑the‑circumstances inquiry consistent with Illinois precedent about the “business of selling.”
- Supreme Court held the regulation invalid to the extent it narrows the statutory “business of selling” to a bright‑line purchase‑order rule; because Hartney relied on the regulation, the Department must abate penalties and certain tax liabilities for the audit period.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper test for situs of local retail occupation tax | Hartney: regulation creates a bright‑line rule — situs is where purchase orders are accepted (if purchaser takes delivery in Illinois). | Dept: situs requires a fact‑intensive totality‑of‑the‑circumstances inquiry consistent with Ex‑Cell‑O precedent. | Court: statutory language and precedent require a fact‑intensive inquiry; regulation’s bright‑line purchase‑order rule is invalid as too narrow. |
| Validity of 86 Ill. Adm. Code 220.115(c)(1) (purchase‑order rule) | Hartney: regulation is a permissible administrative clarification that provides certainty. | Dept: regulation should be read in light of (b) as setting threshold only; overall regs allow totality approach. | Court: (c)(1) operates as an affirmative, conclusive situs rule in many scenarios and therefore impermissibly narrows the statute; invalid. |
| Effect of prior case law using "business of selling" concept | Hartney: regs should control taxpayer reliance; bright‑line promotes certainty. | Dept: Ex‑Cell‑O and successors require evaluating the composite of selling activities; regs must be consistent with that. | Court: Ex‑Cell‑O’s composite‑activities approach governs the local ROT Acts; regs conflict with that approach. |
| Remedy where taxpayer relied on invalid regulation | Hartney: entitled to rebate/abatement because it structured business relying on published regulation and paid under protest. | Dept: generally sovereign immunity/estoppel limitations, but Taxpayers’ Bill of Rights may constrain Dept. | Court: under Taxpayers’ Bill of Rights and prior authority, Dept must abate penalties and the assessed local ROT liabilities for the audit period because Hartney relied on the invalid regulation. |
Key Cases Cited
- Ex‑Cell‑O Corp. v. McKibbin, 383 Ill. 316 (1943) (the “business of selling” is a composite of many activities and requires case‑by‑case factual inquiry)
- Standard Oil Co. v. Department of Finance, 383 Ill. 136 (1943) (ROT is tax on the occupation of selling, not on sales; situs depends on where the business of selling is conducted)
- Automatic Voting Machine Corp. v. Daley, 409 Ill. 438 (1951) (illustrates limits where in‑state activities alone may be insufficient to establish taxable business of selling)
- Kean v. Wal‑Mart Stores, Inc., 235 Ill. 2d 351 (2009) (administrative regulations cannot broaden or narrow the scope of the taxing statute)
- Julie Q. v. Department of Children & Family Services, 2013 Ill. 113783 (2013) (agencies have broad latitude in issuing regulations but remain subject to statutory bounds)
- Gregory v. Helvering, 293 U.S. 465 (1935) (taxpayers may arrange affairs to minimize taxes where law permits)