Lead Opinion
delivered the judgment of the court, with opinion.
Chief Justice Fitzgerald and Justices Kilbride, Gar-man, and Karmeier concurred in the judgment and opinion.
Justice Thomas specially concurred, with opinion.
Justice Thomas also dissented upon denial of rehearing, with opinion.
Justice Burke took no part
OPINION
Plaintiff, Exelon Corporation, as successor to Unicom Corporation, filed a complaint in the circuit court of Cook County seeking administrative review of a decision by the Department of Revenue (Department). The Department denied plaintiffs claim for replacement tax investment credits provided by section 201(e) of the Illinois Income Tax Act (35 ILCS 5/201(e) (West 1994)). The circuit court confirmed the Department’s decision, and the appellate court affirmed.
I. BACKGROUND
The facts are undisputed. Commonwealth Edison (ComEd) was a wholly owned subsidiary of Unicom Corporation. During the years 1995 and 1996, ComEd was a public utility company principally engaged in the production, purchase, transmission, distribution and sale of electricity.
Unicom filed a combined 1995 and 1996 Illinois tax return. Unicom was liable for the “personal property tax replacement income tax” imposed by section 201(c) of the Illinois Income Tax Act. See 35 ILCS 5/201 (c) (West 1994). Unicom timely filed amended returns, in which it claimed investment credits against this tax liability provided by section 201(e) of the Income Tax Act. Section 201(e) provides a tax credit for investments in property used in Illinois by, among others, retailers. The section defines “retailing” as “the sale of tangible personal property or services rendered in conjunction with the sale of tangible consumer goods or commodities.” See 35 ILCS 5/201(e) West 1994). Unicom claimed a section 201(e) credit of $10,419,507 for 1995, and claimed a section 201(e) credit of $4,398,115 for 1996. The Department denied both claims.
Unicom filed an administrative protest and requested a hearing. The Department and Unicom filed cross-motions for summary judgment. The sole disputed point of law was whether Unicom was engaged in “retailing” as defined by section 201(e). The Department contended that Unicom was not engaged in retailing because it did not sell “tangible personal property,” but rather sold electricity, which was intangible. Unicom contended that electricity was “tangible personal property” as required by the statute. Unicom attached to its motion an affidavit and report from its expert witness, Dr. Joel Fajans, a professor of physics at the University of California, Berkeley. Dr. Fajans opined that “as a matter of irrefutable scientific fact, electricity is physical and material” because it can be measured and stored, obeys physical laws, and “can be felt, tasted and seen.”
Unicom further contended that the Department’s denial of the section 201(e) credit violated the uniformity clause of the Illinois Constitution (Ill. Const. 1970, art. IX, §2). Unicom claimed that it was the Department’s policy to grant such tax credits to natural gas utility companies but not to electric utility companies. Unicom argued that there was no possible justification for discriminating between natural gas and electric utilities based on the purposes and object of section 201(e).
The Administrative Law Judge (ALJ) recommended granting summary judgment in favor of the Department. The ALJ’s written recommendation accepted the Department’s arguments, which did not include any rebuttal of Dr. Fajans’ expert opinion. Relying on this court’s decision in Farrand Coal Co. v. Halpin,
Unicom filed a complaint for administrative review of the Department’s decision. Exelon thereafter succeeded Unicom. The circuit court substituted Exelon for Unicom in the case caption, and confirmed the Department’s decision.
The appellate court upheld the circuit court’s confirmation of the Department
II. ANALYSIS
A. Standard of Review
The Income Tax Act provides that judicial review of the Department’s decisions be in accordance with the Administrative Review Law (735 ILCS 5/3 — 101 et seq. (West 1994)). 35 ILCS 5/1201 (West 1994). In a case arising under the Administrative Review Law, we review the decision of the administrative agency, not the determination of the circuit court. Wade v. City of North Chicago Police Pension Board,
The Administrative Review Law provides that judicial review extends to all questions of law and fact presented by the entire record. 735 ILCS 5/3 — 110 (West 1994). The proper standard of review depends on whether the question presented is one of fact, one of law, or a mixed question of fact and law. Cinkus v. Village of Stickney Municipal Officers Electoral Board,
A mixed question of fact and law asks the legal effect of a given set of facts. Cinkus,
Unlike Pullman-Standard, where the rule of law was undisputed, this case presents solely questions of law. The Department and the appellate court each considered itself bound by this court’s tangential discussion of the physical properties of electricity in Farrand Coal Co. v. Halpin,
B. The Merits
Before this court, Exelon contends that it qualifies for the section 201(e) tax credit because it falls within the terms of the statute. Exelon alternatively contends that denial of the section 201(e) tax credit violates the uniformity clause of the Illinois Constitution (Ill. Const. 1970, art. IX, §2). It is quite established that this court will not address constitutional issues that are unnecessary for the disposition of the case. See, e.g., In re E.H.,
1. “Tangible Personal Property”
To determine whether Exelon qualifies for the section 201(e) tax credit, we engage in a two-tier analysis. First, we analyze section 201(e) itself to determine the boundaries of the statute. Second, we determine whether section 201(e) applies in this particular case. See Van’s Material Co. v. Department of Revenue,
The fundamental rule of statutory construction is to give effect to the intention of the legislature. A court’s analysis begins with the language of the statute, which is the best indication of legislative intent. Where the statutory language is clear and unambiguous, the court must give it effect without resort to other tools of interpretation. In construing a statute, it is never proper for a court to depart from plain language by reading
Section 201(c) of the Income Tax Act imposes a “personal property tax replacement income tax” on “the privilege of earning or receiving income” in Illinois. 35 ILCS 5/201(c) (West 1994). Section 201(e) provides a credit against the personal property replacement income tax for investments in “qualified property.” 35 ILCS 5/201(e) (West 1994). The statute defines “qualified property,” in pertinent part, as property “used in Illinois by a taxpayer who is primarily engaged in manufacturing, or in mining coal or fluorite, or in retailing.” 35 ILCS 5/201(e)(2)(D) (West 1994). This section lastly provides: “For purposes of this subsection (e), the term ‘retailing’ means the sale of tangible personal property or services rendered in conjunction with the sale of tangible consumer goods or commodities.” 35 ILCS 5/201(e)(3) (West 1994). The issue in this case is whether electricity is “tangible personal property.” If so, then Exelon’s business of selling electricity constitutes “retailing” as defined by section 201(e), thereby qualifying Exelon for the tax credit. The Income Tax Act does not define the term “tangible personal property.”
The Department and the appellate court considered this court’s analysis in Farrand Coal to be dispositive of Exelon’s claim for a section 201(e) tax credit. In Farrand Coal, this court considered the meaning of the phrase “tangible personal property” in the context of the Retailers’ Occupation Tax Act (Ill. Rev. Stat. 1955, ch. 120, par. 440 et seq.). In the Retailers’ Occupation Tax Act at that time, as in the Income Tax Act before us, the legislature used the word “tangible” to define the term “retail” without defining the word “tangible.” Assuming that the words had their ordinary and popular meaning, this court referred to Webster’s, which defined “tangible” as:
“ ‘Capable of being touched; also, perceptible to the touch; tactile; palpable.’ [Citation.]
The same dictionary gives the law definition of the term ‘tangible property’ as ‘Corporeal property either real or personal’ and defines ‘corporeal’ as meaning ‘Of the nature of, consisting of, or pertaining to, matter or a material body; physical; bodily; material; — opposed to spiritual or immaterial *** Tangible or palpable.’ ” (Emphases omitted.) Farrand Coal,10 Ill. 2d at 511 , quoting Webster’s New International Dictionary (2d ed. 1946).
This court has adhered to this definition of “tangible.” See First National Bank of Springfield v. Department of Revenue,
Obiter dictum refers to a remark or expression of opinion that a court uttered as an aside, and is generally not binding authority or precedent within the stare decisis rule. Cates v. Cates,
“One is that the passage was unnecessary to the outcome of the earlier case and therefore perhaps not as fully considered as it would have been if it were essential to the outcome. A closely related reason is that the passage was not an integral part of the earlier opinion — it can be sloughed off without damaging the analytical structure of the opinion, and so it was a redundant part of that opinion and, again, may not have been fully considered.” Crawley,837 F.2d at 292 .
See People v. Young,
In Farrand Coal, the plaintiff coal company attempted to avoid paying sales tax imposed under the Retailers’ Occupation Tax Act on the sale of coal to the city of Springfield, which operated an electric utility company. The coal company paid the sales tax under protest and sought to enjoin the Director of Revenue from collecting the payments. The circuit court dismissed the coal company’s complaint, and the coal company appealed. Farrand Coal,
This court viewed the issue presented in Farrand Coal as follows:
“The basic issue to be resolved in determining this case is whether, under the act in question, coal is sold as tangible personal property to the utility for use or consumption and not for resale and is therefore the measure of a taxable retail sale, or whether energy, as tangible personal property, is bought in the form of coal, extracted therefrom, processed and resold as tangible personal property in the form of electrical energy.” (Emphases added.) Farrand Coal,10 Ill. 2d at 509-10 .
This court made clear that the coal company’s coal was the focus of the case and not the electric company’s electricity:
“It seems patently clear that plaintiff is engaged in the business of selling coal to utilities. Such coal constitutes tangible personal property within the popular meaning of that term as used in the act in question. The coal is used by the utility to generate electrical energy. Such use is by the burning or combustion of the coal. When burned, the coal is gone except for the ash residue. It is difficult to perceive how there could be a more complete use or consumption of the coal within the meaning of the act. Clearly plaintiff coal company has sold tangible personal property to the utility for use or consumption.” (Emphases added.) Farrand Coal,10 Ill. 2d at 513 .
This was the dispositive reasoning of Farrand Coal. Indeed, affirming the circuit court, this court held: “Coal was sold as tangible personal property to the utility for use or consumption and not for resale within the meaning of the Retailers’ Occupation Tax Act and is therefore the measure of a taxable retail sale.” (Emphasis added.) Farrand Coal,
The Department characterizes this view of Farrand Coal as “myopic.” The Department argues that “whether electricity was tangible personal property was critical to the plaintiffs case.” In Farrand Coal, the coal company included in its contention the following allegation and reasoning:
“that the energy purchased by the utility and also the electrical energy sold by the utility are both tangible personal property; that since the energy purchased by the utility is tangible personal property and the same energy is resold by the utility to its customers, the energy is not used or consumed by the utility.” Farrand Coal,10 Ill. 2d at 508 .
Therefore, according to the coal company, the sale of “energy” to the electric utility was not subject to sales tax. Farrand Coal,
The court in Farrand Coal rejected the coal company’s arguments. The court observed:
“From the evidence it appears that although energy and mass are closely interrelated, indestructible, equivalent, interchangeable, directly proportional to and may be equated with each other, yet energy as such cannot be separatedfrom mass or matter and stored, weighed, transported, handled, liquified, solidified, photographed, touched or otherwise perceived by the senses in its own right or capacity separate and apart from mass or matter. All witnesses who testified on the subject, including plaintiffs witnesses, agreed that energy cannot be separated from matter and tagged or otherwise physically identified in any way, cannot be located spatially, and does not have dimensions. In all these respects energy falls short of fitting into the ordinary and popularly understood meaning of the word ‘tangible’ as used by the General Assembly in the act in question.” Farrand Coal, 10 Ill. 2d at 511 .
This court then concluded its analysis by focusing on the consumption of coal and not the tangibility of electricity. Farrand Coal,
However, in a three-paragraph passage, this court also recounted several cases in support of its observation that the court had “at no time held electricity to be ‘tangible’ personal property.” Farrand Coal,
We reject the argument that this court’s discussion of electricity in Farrand Coal was beyond mere obiter dicta. The above-referenced language in Farrand Coal was overly broad and not necessary to its holding. This three-paragraph passage was clearly unnecessary to the outcome of Farrand Coal. It was redundant in that it can be sloughed off without damaging the analytical structure of the opinion. See Crawley,
Of course: “Even obiter dictum of a court of last resort can be tantamount to a decision and therefore binding in the absence of a contrary decision of that court.” Cates,
However, in construing legislation that lacks statutory definitions, this court cannot ignore the laws of physics as humanity has come to understand them. See, e.g., Marzullo v. Kahl,
In his recommended decision, the ALJ acknowledged that “neither party disputes the properties of electricity.” The record in the present case contains the unrebutted affidavit and report of Dr. Fajans, entitled “The Physical Nature of Electricity.” He defined electricity as the flow of electrons in a circuit. Dr. Fajans explained: “Electricity is physical and material because, microscopically, it consists of the flow and ‘pressure’ of a material entity, namely electrons, and macroscopically, it can be sensed (felt, tasted, seen, and heard), measured, weighed, and stored, and is subject to universal laws of nature.” Dr. Fajans elaborated as follows:
“Without electrons, electricity cannot be transmitted. Though electrons themselves are very small and lightweight, they are one of the basic constituents of matter; common matter like hydrogen or ion consists of electrons, protons, and neutrons in roughly equal number. Recently, scientists have been able to see electrons, or more precisely, the density of electrons, with devices called Scanning Tunneling Microscopes. *** There is nothing more physical and material than an electron. Since electricity itself consists of the flow of a material object, electricity is physical and material.”
Dr. Fajans further explained that electricity can be felt:
“You feel electricity every time you get a shock. Static shocks, from things like walking across a carpet on a dry day, are annoying, but almost always harmless. Electrical sensations from power lines range from the vibratory feeling that you may experience while gently running your fingertips over an improperly wired lamp, to the tingling feeling that you get if you touch the wires inside an electrical outlet with dry hands, to the strong twitch, pain and weakness you get from touching an outlet with wet hands, to extreme pain in more dangerous circumstances.”
As a sister court observed: “The word ‘intangible’ from its Latin roots means something that cannot be touched or perceived by touch. [Webster’s Third New International Dictionary 1173 (1993).] Electricity can be touched, and when a person does so and thereby completes an electrical circuit, it may be the last earthly sensation he or she feels.” Utilicorp United Inc. v. Director of Revenue,
This court’s dicta in Farrand Coal regarding the tangibility of electricity was based on our scientific knowledge of over half a century ago and was skewed by the true issue presented in that case. Our current understanding of electricity has progressed beyond that time. We need not address the parties’ alternative statutory construction arguments. We now join the several courts that have expressly held in varying contexts that electricity constitutes “tangible personal property.” See, e.g., Searles Valley Minerals Operations, Inc. v. State Board of Equalization,
2. Is Exelon Primarily Engaged in “Retailing”?
The parties agree that if electricity is “tangible personal property,” then Exelon would be engaged in “retailing” as defined by section 201(e). We have held that electricity is “tangible personal property” and, accordingly, hold that Exelon is a retailer as defined by section 201(e). The second tier of the analysis described in Van’s Material concerns whether Exelon satisfies the statutory requirements for a section 201(e) tax credit. See Van’s Material,
In its petition for rehearing, the Department asks us to modify our opinion to render it only prospective to taxes incurred, or tax credits sought, for tax periods after the filing of this opinion. Generally, judicial decisions are given retroactive as well as prospective effect. Deichmueller Construction Co. v. Industrial Comm’n,
First, we are deciding an issue of first impression where the resolution was not clearly foreseen. Albeit in obiter dicta, the above-discussed language in Farrand Coal suggested that electricity was intangible.
Second, retroactive application of our decision is not necessary to advance its purpose. The purpose of our holding is to ensure that the default legal meaning of the statutory phrase “tangible personal property” corresponds to its popularly understood meaning. Prospective application promotes the purpose of our holding by allowing the General Assembly to declare expressly its intent to include electricity if it uses the phrase “tangible personal property” in the future. See
Third, a balance of the equities likewise favors rendering this decision entirely prospective. Retroactive application of this decision could cause uncertainty in state tax law in general and as applied to Exelon. Conversely, limiting this decision to an entirely prospective application permits the legislature to provide direction on the meaning of the statutory phrase “tangible personal property.” Therefore, we hold that this decision will apply only prospectively to taxes incurred, or tax credits sought, for the tax year 2009 and thereafter. See, e.g., Bogseth,
“It remains the mandate of this court that constitutional issues be considered only when the case may not be decided on nonconstitutional grounds.” Mulay v. Mulay,
III. CONCLUSION
We disagree with the appellate court’s conclusion that Exelon did not engage in the sale of “tangible personal property” for purposes of section 201(e) of the Income Tax Act. However, because our holding is to be applied prospectively only, we affirm the judgment of the appellate court.
Affirmed.
JUSTICE BURKE took no part in the consideration or decision of this case.
Notes
Our construction of “tangible personal property” in section 201(e) of the Income Tax Act is based on our current understanding of the tangibility of electricity. Of course, the General
Concurrence Opinion
specially concurring:
My colleagues are firmly convinced that they have the science of this issue correct. Unfortunately, science does not answer the question before the court, and the majority has its history and its law wrong. Consequently, I cannot join its opinion.
Two fundamental misunderstandings underlie and inform the majority opinion. The first is the mistaken belief that the central question we must resolve is whether a majority of this court believes that electricity is tangible at the subatomic level and not whether the legislature intended to include electricity within the meaning of “tangible personal property” when it enacted the tax credit in question. The Department has correctly and persuasively argued that the legislature could not have so intended. The second is a misunderstanding of Farrand Coal so profound that the majority can cast aside as obiter dicta this court’s discussion of an issue that was (a) central to the plaintiff’s case; (b) litigated in the trial court; and (c) fully briefed and argued on appeal. I will demonstrate below that such a position is not only indefensible but directly contrary to this court’s precedents. After demonstrating why Farrand Coal’s discussion of the tangibility of electricity was not obiter dicta, I will set forth both why we should not abandon Farrand Coal and why the majority’s reasons for doing so are wholly invalid.
I. OBITER DICTA
A. Dicta or Holding?
The majority correctly sets forth the distinction between obiter dictum and judicial dictum. In Cates v. Cates,
The majority, however, gives insufficient consideration to what discussions in opinions may not be considered dicta in the first place. A good summary appears in Corpus Juris Secundum:
“An adjudication on any point within the issues presented by a case is not dictum. This rule applies as to all pertinent questions, although they might be only incidentally involved, which are presented and decided in the regular course of the consideration of the case, and lead to the final conclusion, and to any statement in the opinion as to a matter on which the decision is predicated. Accordingly, a point expressly decided does not lose its value as a precedent becausethe disposition of the case is or might have been made on some other ground. Similarly, if a case presents two or more points, any one of which is determinative of the ultimate issue, but the court actually decides all of them, the case is an authoritative precedent on every point decided, and none of the points may be regarded as dictum. One point should not be denied authority merely because another point was more fully argued and considered, nor does a decision on one proposition make statements of the court regarding other propositions dicta.” 21 C.J.S. Courts §229, at 227 (2006).
With these principles in mind, let us now turn to Far-rand Coal’s discussion of the tangibility of electricity.
At issue in Farrand Coal was the desire of the plaintiff coal company not to pay the retailers’ occupation tax. The coal company was being taxed on its sales of coal to an electric utility. The tax in question was imposed “upon persons engaged in the business of selling tangible personal property to purchasers for use or consumption.” See Farrand Coal,
“For the plaintiff to prevail, it must be determined: First, that energy is tangible personal property; second, that electrical energy is merely a modified form of energy which can be proved to have been extracted from the coal, and third that the transaction between the utility and its customers actually is a sale of electrical energy as tangible personal property and not merely the selling of the work and service which the electrical energy can perform and furnish. Failure by the plaintiff to establish any one (not all, but any one) of these points will defeat the plaintiff’s whole case and make a decision in the defendants’ favor necessary.” (Emphasis added.) Farrand Coal, defendant’s brief at 61.
Consequently, both the plaintiff and the defendants presented extensive scientific testimony on the issues of whether energy and electricity are tangible personal property. The experts for the plaintiff included an associate professor of physics from Purdue University, a Ph.D. in physics in the institute for nuclear studies at the University of Chicago, a second physics professor from the University of Chicago, and the general superintendent for the utility, who was an engineering graduate from Purdue. The defense witnesses included a professor of physics from the University of Illinois and a professor of mining and metallurgical engineering from Washington University. Farrand Coal,
It is not necessary, however, for one to have read the briefs in Farrand Coal to understand that this court’s discussions of the tangibility of energy and electricity were not dicta. After all, Farrand Coal set forth the statute in question. See Farrand Coal,
The Farrand Coal court ultimately addressed all parts of the parties’ claims. The court agreed with the Department that the coal company sells tangible personal property (coal) to the utility and that the coal is used or consumed by the utility. Farrand Coal,
Accordingly, there is no possible basis for casting aside this court’s discussion of any of these issues as merely comments made “by the way” or as asides. Rather, they were points essential to the case, deliberately argued by counsel, and passed upon by the court. Every point that the court discussed in Farrand Coal was directly relevant to whether the exception for tangible personal property resold by the purchaser was applicable. Consequently, no part of the court’s opinion may be considered dicta, even if any one of the points discussed could have alone supported the court’s decision. 21 C.J.S. Courts §229, at 227 (2006); Woods v. Interstate Realty Co.,
The
“What is at stake in distinguishing holding from dictum is that a dictum is not authoritative. It is the part of an opinion that a later court, even if it is an inferior court, is free to reject. So instead of asking what the word ‘dictum’ means we can ask what reasons there are against a court’s giving weight to a passage found in a previous opinion. There are many. One is that the passage was unnecessary to the outcome of the earlier case and therefore perhaps not as fully considered as it would have been if it were essential to the outcome. A closely related reason is that the passage was not an integral part of the earlier opinion — it can be sloughed off without damaging the analytical structure of the opinion, and so it was aredundant part of that opinion and, again, may not have been fully considered. Still another reason is that the passage was not grounded in the facts of the case and the judges may therefore have lacked an adequate experiential basis for it; another, that the issue addressed in the passage was not presented as an issue, hence was not refined by the fires of adversary presentation. All these are reasons for thinking that a particular passage was not a fully measured judicial pronouncement, that it was not likely to be relied on by readers, and indeed that it may not have been part of the decision that resolved the case or controversy on which the court’s jurisdiction depended (if a federal court).” (Emphases added.) Crawley, 837 F.2d at 292-93 .
The court ultimately concluded that Yancey’s statement about the preponderance standard was dicta because the issue of the proper standard had not been raised in that case and, since the evidence satisfied the higher preponderance standard, the court had no occasion to consider whether the defendant’s probation should have been revoked based on the lower “reasonably satisfied” standard. Thus, the court was dealing with a single sentence on an issue that had not been briefed or argued. What in the above discussion suggests that the Seventh Circuit would consider as dicta a discussion that was not only the longest discussion in an opinion but also addressed an issue that was (1) fully briefed by the parties (even more extensively than in the present case); (2) directly relevant to whether the statute applied; (3) essential to the plaintiff’s case; and (4) the only part of the discussion that grounded the court’s analysis in the court’s precedents? The discussion to which the majority refers was not redundant and removing it absolutely would have damaged the analytical structure of the opinion. If we ignore for the moment the fact that “sloughing off” this analysis would still leave the holdings that energy is intangible and that electric utilities are not retailers of tangible personal property intact, without this analysis, none of the court’s precedents would have been discussed. The court obviously considered it important to point out that the coal company’s arguments had no support in this court’s precedents and that all contrary out-of-state authority on the issue was distinguishable.
Moreover, the majority’s view of what it means for something to be “necessary” for a court’s decision would necessarily render vast amounts of supreme and appellate court case law mere dicta. According to the majority, the discussion of the tangibility of electricity or electrical energy was dicta because the court had already given another reason for holding that the statutory exception did not apply.
It appears that the majority might be confusing the analysis in Farrand Coal with the situation in which the resolution of one issue substantively precludes resolution of the other. Corpus Juris Secundum gives two examples of what it means for a court’s discussion to be unnecessary to the decision:
“For instance, once a court determines that a statute does not apply to a case, any statement concerning the statute’s constitutionality is dictum. Similarly, when a court dismisses a case for lack of jurisdiction, any further discussion of the merits is dictum.” 21 C.J.S. Courts §227, at 225 (2006).
This makes perfect sense. A court cannot rule on the constitutionality of a statute that is not before it, nor can the court rule on the merits of a case over which it lacks jurisdiction. But there is no reason why a court may not give several reasons why a statute does not apply to a case, and there is no “one and done” rule rendering every reason after the first one obiter dicta. The majority bases its dicta holding not on any legitimate substantive reason, but simply on the manner in which Justice Bristow chose to structure his opinion.
In sum, there is no dicta in Farrand Coal. The court’s opinion in that case is a concise, to-the-point analysis, giving several reasons why the statutory exception for tangible personal property resold by the purchaser does not apply. Every sentence in the court’s opinion is directly relevant to that issue and is responsive to a point put in contention by the parties.
B. Judicial Dicta or Obiter Dicta?
Even if we assume for the sake of argument that the court’s discussion of the tangibility of electricity was dicta, for all of the reasons set forth above, it could only be judicial dicta. As this court explained in People v. Williams,
“Dicta normally comes in two varieties: obiter dicta and judicial dicta. Obiter dicta are comments in a judicial opinion that are unnecessary to the disposition of the case. Black’s Law Dictionary 1100 (7th ed. 1999). Judicial dicta are comments in a judicial opinion that are unnecessary to the disposition of the case, but involve an issue briefed and argued by the parties. Black’s Law Dictionary 465 (7th ed. 1999).”
Or, as stated in Cates, the relevant question in determining whether dicta is obiter dicta or judicial dicta is to what extent the issue was before the court. Cates,
The majority does not attempt to argue that this issue was not before the court in Farrand Coal. Instead, the majority seizes on the statement in Cates that judicial dicta is an expression of an opinion on a point argued by the parties and deliberately passed upon by the court, but not essential to the disposition of the case. Cates,
Because there is no legitimate debate as to whether this court’s discussion of the tangibility of electricity was “an expression of opinion upon a point in a case argued by counsel and deliberately passed upon by the court” (Cates,
C. What Farrand Coal Was Not About
Next, I must briefly point out what was not the issue in Farrand Coal. The majority notes that Exelon argues that Farrand Coal concerned the tangibility of coal, not electricity.
Second, why would anyone have argued that coal is intangible? Such a position would have been fatal to both parties’ cases. Both parties needed coal to be tangible for their arguments to succeed. The Department wanted to tax the plaintiff on the basis that its sale of coal was a sale of tangible personal property. In the coal company’s effort to avoid paying this tax, it argued that its sale of tangible personal property was actually a sale of the energy in the coal. The coal company argued that if we start out with something tangible — coal—then whatever makes up the coal must also be tangible. Thus, the energy in the coal is tangible. Farrand Coal, plaintiffs brief at 25. The tangibility of coal was assumed and conceded by both parties as a necessary component of their respective positions, and the issue before the court was not whether coal is tangible. If this was indeed the true issue in Farrand Coal, it is interesting that it was never discussed in the opinion. See Farrand Coal,
Regardless of whether Farrand Coal’s discussion of the tangibility of electricity was a holding or judicial dicta, it is entitled to much weight and any departure therefrom requires a discussion of stare decisis. I will next discuss why compelling reasons exist not to depart from this court’s precedents, following which I will demonstrate that the majority’s reasons for doing so cannot survive a moment’s scrutiny.
II. STARE DECISIS
The principles underlying stare decisis were well stated by Justice Freeman in his impassioned dissent in People v. Mitchell,
“The term stare decisis is derived from the Latin phrase stare decisis et non quieta moevre, which translates ‘ “to stand by matters that have been decided and not to disturb what is tranquil.” ’ J. Wallace, Stare Decisis and the Rehnquist Court: The Collision of Activism, Passivism and Politics in Casey, 42 Buff. L. Rev. 187, 189 (1994), quoting Dictionary of Foreign Phrases and Abbreviations 187 (K. Guinach trans., 3d ed. 1983). This principle was engrafted in English jurisprudence, having been recognized by Sir William Blackstone, who acknowledged that ‘ “precedents and rules must be followed, unless flatly absurd or unjust.” ’ J. Stein, The Hobgoblin Doctrine: Identifying ‘Foolish’ Consistency in the Law, 29 Tex. Tech. L. Rev. 1017, 1019 (1998) quoting 1 W. Blackstone, Commentaries *70. In American jurisprudence, stare decisis reflects a ‘ “policy judgment that ‘in most matters it is more important that the applicable rule of law be settled than that it be settled right.’ ” ’ State Oil Co. v. Khan,522 U.S. 3 , 20,139 L. Ed. 2d 199 , 212-13,118 S. Ct. 275 , 284 (1997), quoting Agostini v. Felton,521 U.S. 203 , 235,138 L. Ed. 2d 391 , 422,117 S. Ct. 1997 , 2016 (1997), quoting Burnet v. Coronado Oil & Gas Co.,285 U.S. 393 , 406,76 L. Ed. 815 , 823,52 S. Ct. 443 , 447 (1932) (Brandeis, J., dissenting, joined by Roberts and Cardozo, JJ.). As the United States Supreme Court has observed, the judiciary prefers this doctrine because it‘promotes the evenhanded, predictable, and consistent development of legal principles, fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial process.’ Payne v. Tennessee, 501 U.S. 808 , 827,115 L. Ed. 2d 720 , 737,111 S. Ct. 2597 , 2609 (1991).
This court, too, has voiced similar sentiments. Long ago in Prall v. Burckhartt, the court observed that the rule of stare decisis
‘is founded largely on considerations of expediency and sound principles of public policy, it being indispensable to the due administration of justice, especially by a court of last resort, that a question once deliberately examined and decided should be considered as settled and closed to further argument, and the courts are slow to interfere with the principle announced by the decision and it may be upheld even though they would decide otherwise were the question a new one.’ Prall v. Burckhartt,299 Ill. 19 , 41 (1921).
In light of the foregoing, this court has recognized that the doctrine, while not inviolable, demands that it be overturned ‘only on the showing of good cause.’ Heimgaertner v. Benjamin Electric Manufacturing Co.,6 Ill. 2d 152 , 167 (1955).” Mitchell,189 Ill. 2d at 363-64 (Freeman, J., dissenting, joined by Harrison, C.J., and McMorrow, J.).
Moreover, as both the United States Supreme Court and this court have explained, stare decisis considerations are at their apex in statutory construction cases. In Neal v. United States,
“Our reluctance to overturn precedents derives in part from institutional concerns about the relationship of the Judiciary to Congress. One reason that we give great weight to stare decisis in the area of statutory construction is that ‘Congress is free to change this Court’s interpretation of its legislation.’ Illinois Brick Co. v. Illinois,431 U.S. 720 , 736 (1977). We have overruled our precedents when the intervening development of the law has ‘removed or weakened the conceptual underpinnings from the prior decision, or where the later law has rendered the decision irreconcilable with competing legal doctrines or policies.’ Patterson v. McLean Credit Union,491 U.S. 164 , 173 (1989) (citations omitted). Absent those changes or compelling evidence bearing on Congress’ original intent, NLRB v. Longshoremen,473 U.S. 61 , 84 (1985), our system demands that we adhere to our prior interpretations of statutes. *** True, there may be little in logic to defend [the statutory construction] ***. Even so, Congress, not this Court, has the responsibility for revising its statutes. Were we to alter our statutory interpretations from case to case, Congress would have less reason to exercise its responsibility to correct statutes that are thought to be unwise or unfair. ”
In Froud v. Celotex Corp.,
This case presents a textbook example of when a court should follow stare decisis. As the Department explained in its brief:
“The transfer or sale of tangible personal property has been a term of art in Illinois tax law for seventy-five years. When the Illinois legislature passed the Retailers’ Occupation Tax Act (ROTA) in 1933, it defined a retail sale as the ‘transfer of the ownership of ... tangible personal property ... for use or consumption ... for a valuable consideration.’ Laws 1933, p. 924 §1 (presently codified, as amended, at 35 ILCS 120/1 (2006)). This definition remains substantively unchanged. Id. When the legislature subsequently defined ‘retailing’ in the Investment Tax Credit as the sale of tangible personal property, it used an operative phrase that has been included in the definition of retailing for over seven decades, compare 35 ILCS 120/1 (2006) with 35 ILCS 5/201(e)(3) (2006), and which has an established legal meaning in Illinois tax law. See, e.g., Schwak v. Zehnder,326 Ill. App. 3d 752 , 756,761 N.E.2d 192 (1st Dist. 2001) (holding that terms used in Investment Tax Credit had same meaning as same terms used in Use Tax and Retailers Occupation Tax Acts).
* * *
In short, the tax treatment of electricity is a well-trod area of Illinois law. In a series of cases dating back decades and extending to the present, this court and the Illinois Appellate Court have established that although electricity is property, it is not sold at retail as ‘tangible personal property,’ but rather provided as part of a service. Consequently, those who provide electricity services are not subject to taxes imposed on retailers and retail sales, nor are they entitled to credits and exemptions reserved for retailers. The appellate court correctly presumed ‘that the legislature acted with knowledge of this prevailing case law’ when it used the well-established definition of retailer in the Investment Tax Credit.” Defendants’ brief at 9-10, 14.
In addition to the fact that the Illinois courts’ treatment of this issue has been consistent for decades, the Department also points out that we have clear evidence that the legislature knows that the courts have declared that electricity is not included within the term “tangible personal property” and that therefore electricity must be specifically mentioned if the legislature intends to include it. Farrand Coal was decided in 1957. In 1969, the legislature amended section 5 of the Public Utilities Revenue Act (Pub. Act 76 — 964, approved August 26, 1969 (now 35 ILCS 620/5 (West 2006))). This section incorporates portions of the Retailers’ Occupation Tax Act into the Public Utilities Revenue Act. Because under Peoples Gas Light & Coke Co. and Farrand Coal electric utilities were not retailers as a matter of law, the legislature explained that “[r]eferences in such incorporated Sections of the Retailers’ Occupation Tax Act to sales of tangible personal property mean the distributing of electricity when used in this Act.” (Emphasis added.) 35 ILCS 620/5 (West 2006). In contrast, when the legislature enacted the tax credit in question in 1982, the legislature simply used the term “tangible personal property” without any additional language incorporating electricity. See 35 ILCS 5/201(e) (West 2006). Consequently, we must presume that the legislature did not intend for the term “tangible personal property” to include electricity when it enacted the investment tax credit.
In sum, given the Illinois courts’ consistent holdings that electric utilities are not retailers of tangible personal property, and given the evidence that the legislature is aware of this case law and has acted in rebanee on it, we should adhere to our precedent even if five members of this court now disagree with it and wish that those cases had been decided differently. The legislature already has its definition and it has been free to include electricity as it sees fit. This is a clear example of a situation in which it is more important that the law be settled than that it be settled right.
Let us now turn to the majority’s reasons for abandoning Farrand Coal.
III. THE MAJORITY’S NOT-SO-NEW SCIENCE
Although the majority does not acknowledge that it is bound by stare decisis, it does give reasons for abandoning this court’s previous decisions. The majority has chosen to overturn decades of this court’s precedents on the basis of the affidavit filed by Dr. Fajans. According to the majority, Dr. Fajans’ affidavit reflects the “currently understood electron theory of electricity.”
The electron in its present-day sense was discovered by the English physicist J.J. Thomson in 1897. 8 Collier’s Encyclopedia 788 (1997). However, even before Thomson’s discovery, Michael Farrady had discovered by 1833 that electricity was not a continuous fluid but was carried in discrete pieces. 8 Collier’s Encyclopedia 787-88 (1997). Other important discoveries about electrons continued throughout the next few decades:
“The Bohr atom (1913) was the first attempt to describe the behavior of an electron in an atom. Louis Victor de Broglie’s idea (1924) on the wave nature of the electron (verified experimentally by Clinton Joseph Davisson and Lester Halbert Germer in 1927) was developed into wave mechanics by Erwin Schrodinger in 1926. Simultaneously, the spin of the electron was deduced by Samuel A. Goudsmit and George E. Uhlenbeck (1925) from various features of atomic spectra. The correct wave equation for the electron was given by Paul A.M. Dirac (1928). The Dirac equation is consistent with special relativity and correctly describes the electron’s spin and magnetic moment (aside from radiative corrections).” 8 Collier’s Encyclopedia 788 (1997).
The Dirac equation predicted the existence of positive electrons, or positrons, and positrons were found in cosmic rays by Carl D. Anderson in 1932. 8 Collier’s Encyclopedia 788 (1997).
Shortly after these discoveries, the question of the tangibility of electricity began to be litigated in Illinois courtrooms and elsewhere. In 1934, Time magazine reported on the trial court proceedings that would form the basis for this court’s decision in Peoples Gas Light & Coke Co. v. Ames,
“In his Chicago courtroom last week Circuit Judge Harry M. Fisher stared at a voltmeter which had been placed before him on the bench. The voltmeter was connected to a switch, and theswitch was connected with the courtroom lights. When the switch was closed Judge Fisher saw the voltmeter needle leap from 0 to 110 on the dial. What he had to decide was whether the thing that made the needle leap was tangible or intangible. There to help him, but arguing on opposite sides of the dispute, were two distinguished Nobel Prizemen.
Point at issue was whether electric current was subject to Illinois 2% Occupation tax. Twenty power companies headed by Commonwealth Edison, Peoples Gas Light & Coke, and Central Illinois Public Service contended that current was an intangible, hence nontaxable. The State contended that current was a tangible and taxable commodity. The companies stood to lose in taxes, the State to gain in revenue, some $5,000,000 annually.
No one attacked the orthodox teaching of physics that electric current is a flow of matter having mass. A current of one ampere is a flow of 6,281 billion billion electrons per second past a given point. An electron is a particle of matter weighing 0.8999 billionths of a billionth of a billionth of a gram. But was electric current tangible?
Up rose beetle-browed Dr. Arthur Holly Compton (Nobel Prize, physics, 1927). Electricity was tangible, said he, because it could be seen, heard, felt, tasted.
Up rose wiry, tousle-haired Dr. Irving Langmuir (Nobel Prize, chemistry, 1932). Electricity was intangible, said he, because it could not be seen, heard, felt, tasted.
Circuit Judge Fisher watched, listened, pondered. Then, he solemnly pronounced electricity a tangible, taxable commodity.” Electricity in Court, Time (July 30, 1934).
When the case ultimately reached the supreme court, this court decided that it did not have to determine whether or not electricity was tangible because public utilities are in the business of rendering a service. Peoples Gas Light & Coke Co.,
In People v. Menagas,
In 1942, the Supreme Court of Alabama took up the question of whether electricity is tangible personal property. In Curry v. Alabama Power Co.,
In 1957, this court decided Farrand Coal. As noted earlier, the briefs in that case contain page after page of scientific argument on the tangibility of electricity. The plaintiff argued, inter alia, that electricity can be touched, as when a person receives an electric shock. Moreover, it was perceptible to other senses in that it could be seen and tasted. Further, energy is tangible because it is measurable, real, objective, and corporeal. Farrand Coal, plaintiff’s brief at 22. Electricity can also be measured and weighed, and it is carried to the customer though a wire by the use of electrons. Farrand Coal, plaintiff’s brief at 23. The plaintiff discussed Curry, and noted that it held that electricity was tangible because it was made up of electrons and was perceptible to the senses. Farrand Coal, plaintiffs brief at 29-30.
In response, the defendants reviewed the scientific testimony and argued that the plaintiffs witnesses were not convincing because they viewed almost everything
This court agreed with the parties that the definition of “tangible” is “ ‘[c]apable of being touched; also, perceptible to the touch; tactile; palpable.’ ” Farrand Coal,
Several things should be apparent to the reader at this point. First, the highlighted points in Dr. Fajans’ affidavit are not at all new, and, in fact, predate Farrand Coal. We are not departing from Farrand Coal because that case was based on our scientific understanding of over half a century ago and our scientific understanding has progressed beyond that time.
Second, the irrelevance of the majority’s citation to three electricity texts with the parenthetical “tracing understanding of electricity from mysterious force to flowing electrons” should now be apparent. This is not something that has happened since 1957. It is not the case that the Farrand Coal court was in a benighted state of scientific understanding, believing that electricity was a mysterious force, but the present court understands that electricity is a flow of electrons. Rather, the Farrand Coal court understood perfectly well that electricity is a flow of electrons. Moreover, as Time magazine reported in 1934, in the trial court proceedings that led to this court’s decision in Peoples Gas Light & Coke Co.,
“[n]o one attacked the orthodox teaching of physics that electric current is a flow of matter having mass. A current of one ampere is a flow of 6,281 billion billion electrons per second past a given point. An electron is a particle of matter weighing 0.8999 billionths of a billionth of a billionth of a gram.” Electricity in Court, Time (July 30, 1934).
Similarly irrelevant is the majority’s citation to Teach Yourself Electricity and Electronics for the proposition that one must understand general physics principles
The only thing in Dr. Fajans’ affidavit that the majority points to that postdates Farrand Coal would be his assertion that scientists have recently been able to see the density of electrons with scanning tunneling microscopes.
Fourth, when the majority states that Farrand Coal was based on our scientific understanding of over half a century ago, the majority fails to contemplate the extent to which Farrand Coal declined to weigh in on the battle of scientific experts in that case. Thus, as soon as one begins searching for the answers to the legal questions raised in this appeal in Teach Yourself Electricity and Electronics or Electric Universe: The Shocking True Story of Electricity, that person has missed entirely the point of Farrand Coal. The experts gave extensive, detailed arguments in Farrand Coal, and the parties expounded on these points at great length in their briefs. But, as the Department
At oral argument, one of the justices asked the Department’s attorney if the question before this court is a scientific one. The simple answer to that question is “no.” If Farrand Coal would have settled the battle of experts and based its conclusion on who had the science of the issue correct, and if there was no evidence that the legislature had relied on that conclusion, and if the science had in fact changed since that time, then perhaps the question before this court would be a scientific one. But none of those things are true. Perhaps because the Farrand Coal court realized that this body is ill equipped to resolve disputes among physicists, it relied simply on what it believed the legislature intended when it used the term “tangible personal property.” The question before this court is not a scientific one, but a legal one that this court is well equipped to answer: Should 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? That is the question before the court, and the majority never answers it.
Instead, the majority makes a scientific determination after having heard only one side of the argument. Dr. Fajans stated that electricity is tangible as a matter of irrefutable scientific fact, but our cases show that scientists — even Nobel prize winners — dispute this fact every time the question is litigated. In this case, the Department asked for time to get its own expert if the question were determined to be a factual one, but the Department prevailed on its claim that this question has been decided by this court as a matter of law, and the Department can hardly be faulted for grounding its position in this court’s precedents. If distinguished scientists cannot agree on this question, should the justices of this court not be leery of believing that they can solve the question by reading Teach Yourself Electricity and Electronics? Moreover, if the majority now wants to make this a factual issue, it oversimplifies the question when it determines that all we need to know is that electrons are matter — a fact that was not contested even in 1934. Also relevant is whether electrons are what is sold by the utility to the customer. In other words, are electric utilities retailers of electrons or of the work that electrons do? The argument was made in Farrand Coal that because the electrons flow from the utility to the customer and then back to the utility, the customer never purchases electrons from the utility. Rather, the customer is simply purchasing the work that electrons do — something that is unquestionably intangible. This conclusion is
Fifth, the majority also fails to comprehend the extent to which Farrand Coal was grounded in this court’s precedents, particularly Peoples Gas Light & Coke Co., which held that electric utilities are in the business of rendering a service and are not retailers of tangible personal property. The only significance the majority sees in Peoples Gas Light & Coke Co. is that the court deemed it unnecessary to determine whether electricity was tangible personal property.
Finally, as to the majority’s statement that the discussion of the tangibility of electricity was “skewed by the true issue presented in that case” (
The majority trumpets as a benefit of its holding that Illinois will now be brought into line with California, Rhode Island, Alabama, and Florida, which have all held electricity to be tangible personal property in different contexts.
IV CONCLUSION
I agree with my colleagues that the appellate court’s decision should be affirmed, but I would do so for the reason that the appellate court’s decision was correct as a matter of law. This court has consistently held that electric utilities are engaged in rendering service, not in retailing tangible personal property. The legislature has understood for decades that, for purposes of Illinois tax law, the term “tangible personal property” does not include electricity, and has acted accordingly. It is now the proper role of the judiciary to stay out. The majority has demonstrated a surprising indifference to this court’s established precedent, first violating Cates by casting aside this court’s discussion of an issue central to a plaintiff’s claim and fully briefed by the parties as obiter dicta, and then overturning 75 years of consistent, established precedent on the basis of ancient science that predates that precedent. One senses in the majority opinion a sincere desire to demonstrate that the Illinois Supreme Court is on the cutting edge of the latest science. Unfortunately, the relevant science has not changed in the past 75 years, and there is no evidence that the legislature’s intent has either.
Dissent Upon Denial of Rehearing
The majority states that it agrees with Exelon that this court’s references to the tangibility of electricity in Farrand Coal were obiter dicta.
The majority attempts to downplay the significance of the tangibility of electricity discussion by twice referring to it as a “three-paragraph passage.”
This is the principal argument raised by the Department before this court, and the majority has chosen not even to acknowledge it, let alone address it.
That this is a question that can ever be settled “right” is certainly debatable, as courts are still holding to this day that electricity is not tangible personal property. See, e.g., XO New York, Inc. v. Commissioner of Taxation & Finance,
The Menagas court twice referred to electrical energy as intangible and never stated that it was simply “assuming” it to be so, and the record before the court contained expert testimony explaining that electricity is the flow of a material entity— electrons. However, even if this was just an assumption, that hardly seems problematic in light of Farrand Coal’s express holding that energy is intangible.
This court’s categorization of electricity as intangible for purposes of theft statutes would remain just as consistent as our categorization of electricity as intangible for purposes of tax statutes. In 2007, this court, in discussing the reach of the theft statute, stated that “the legislature intended to expand the definition of property to include not only items of tangible personal property hut also other things of value such as real estate, electricity, and telecommunications services.” (Emphases added.) People v. Perry,
The Supreme Court of Alabama’s discussion of this issue is what had been — until today — characterized as judicial dicta: the resolution of an issue presented by the parties but not necessary for the disposition. In this instance, however, the majority does not recharacterize it as obiter dicta and brush it aside. Rather, it describes it as an express holding of the court, which the majority chooses to join.
Exelon claims that the court was only speaking about the energy in coal in this portion of the opinion, but the opinion does not state this. Moreover, the defendants in Farrand Coal, when arguing that electric energy is intangible, incorporated by reference their arguments about energy in general, noting that “if energy is intangible, electric energy (which is just a form of energy) is necessarily intangible.” Farrand Coal, defendants’ brief at 35-36.
In its brief, Exelon does not rely on this portion of Dr. Fajans’ affidavit.
On a side point, the majority refers to Dr. Fajans’ affidavit and report as being “unrebutted.”
Dissenting Opinion
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
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,
“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)
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),
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
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.,
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.,
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
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.”
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
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).”
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
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,
“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.”
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
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” (
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.”
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,
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 (
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,
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.”