Shared Imaging, LLC v. Hamer
2017 IL App (1st) 152817
| Ill. App. Ct. | 2017Background
- Shared Imaging, an Illinois-based lessor of mobile medical units (e.g., MRI trailers), was audited and assessed $807,544 (tax, interest, penalties) for purchases during Jan 1, 2008–Apr 30, 2009; it paid under protest and sued the Illinois Department of Revenue.
- Disputed units fall into groups: (1) Units 229, 231, 588 — purchased out of state, temporarily stored in Illinois, later returned to Illinois; (2) Units 52, 55, 579, 585, 591 — bought in Illinois but claimed to qualify under the expanded temporary storage exemption; (3) Units 553, 582 — conceded by the Department to have never been used in Illinois; (4) Unit 587 — factual dispute over prior use and tax payments.
- Trial court granted cross-summary judgment mostly for the Department; Shared Imaging appealed; appellate court initially dismissed for a Rule 304(a) jurisdictional defect but reinstated after rehearing.
- Key statutory framework: Illinois Use Tax Act exemptions for temporary storage (35 ILCS 105/3-55(e)) and expanded temporary storage with a required permit (35 ILCS 105/3-55(j)); credits for out-of-state taxes and depreciation rules also implicated.
- The appellate court affirmed in part, reversed in part, and remanded: it upheld denial of the temporary/expanded exemptions for many units, reversed as to units conceded by the Department, and found genuine issues of fact on credits/depreciation for certain units and on penalties for others.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of temporary storage exemption (Units 229, 231, 588) | Units were purchased out-of-state, stored in IL only briefly, then leased exclusively out-of-state — so storage was "temporary" and exemption applies | Storage qualifies as "use"; later returns to IL (even for storage) defeat the requirement that property be used solely outside IL | Court: Initial short-term post-purchase storage was "temporary," but later returns to IL for storage constituted in-state "use," so exemption ultimately did not apply; tax assessment stands. |
| Applicability of expanded temporary storage exemption (Units 52,55,579,585,591) | Units met substantive requirements for exemption (centralized purchasing, temporary storage) so exemption should apply despite late permit | Exemption requires an Expanded Temporary Storage Permit issued before purchases; no permit existed at purchase, so exemption fails | Court: Exemption requires timely permit; Shared Imaging obtained permit years later, so exemption did not apply and tax stands. |
| Commerce-clause fair apportionment challenge | Tax on full purchase price unfairly taxes property that only had transient contacts with IL | Use Tax Act contains credit for taxes paid to other states, which prevents multiple taxation and satisfies Complete Auto fair-apportionment prong | Court: Following Irwin, existence of credit provision satisfies fair apportionment; challenge fails. |
| Credit for out-of-state taxes and depreciation deduction (various units, incl. 229,231,588,587) | Entitled to credit for taxes previously paid to other states and to reduce tax base for depreciation during out-of-state use | Credit applies only to taxes "already paid" before IL use; depreciation limited by rules and in some cases inapplicable because property was acquired/used in IL | Court: For units that returned to IL after initial temporary storage (229,231,588) plaintiff can claim credit and depreciation for the pre-return out-of-state-use period (genuine issues of fact remain on amounts). For units bought in IL without permit, no credit/depreciation. Unit 587 facts unresolved — remand. |
| Abatement of late-filing/late-payment penalties | Shared Imaging had reasonable cause to rely on exemption interpretation and thus penalties should be abated (esp. for temporarily stored units) | For units plainly taxable (e.g., bought in IL without permit or leased in IL), no reasonable cause; penalties appropriate | Court: Abated late-filing/payment penalties for Units 229,231,588 (reasonable cause). Penalties sustained for Units 52,55,579,585,591 and Unit 587 (no reasonable cause for those items). |
Key Cases Cited
- Irwin Industrial Tool Co. v. Department of Revenue, 238 Ill. 2d 332 (Ill. 2010) (use-tax fair-apportionment analysis and role of credit for out-of-state taxes)
- Nutrition Headquarters, Inc. v. Department of Revenue, 106 Ill. 2d 58 (Ill. 1985) (temporary-storage exemption applied to brief in-state handling)
- Philco Corp. v. Department of Revenue, 40 Ill. 2d 312 (Ill. 1968) (credit for out-of-state sales taxes should be applied to avoid multistate taxation)
- Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (U.S. 1977) (four-factor test for commerce-clause validity of state tax)
- Oklahoma Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175 (U.S. 1995) (application of Complete Auto factors)
- Robidoux v. Oliphant, 201 Ill. 2d 324 (Ill. 2002) (appellate rules have force of law; compliance expected)