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Sta-Ru Corp. v. Mahin, 64 Ill.2d 330, 356 N.E.2d 67, 1 Ill.Dec. 67

Facts

Sta-Ru Corporation operates six Dairy Queen—Brazier restaurants in Decatur, selling food and beverages in disposable paper and plastic containers. The company filed a complaint to prevent the Department of Revenue from collecting taxes on these containers, arguing that the ownership of the containers transferred to customers at the time of sale, thus qualifying as a purchase for resale and exempt from taxation. The Circuit Court ruled in favor of Sta-Ru, declaring the Department's Rule 51 illegal.

Sta-Ru operates six Dairy Queen—Brazier restaurants in Decatur which sell varieties of ice cream, custard, beverages, hamburgers and other foods. Sta-Ru brought an action in the circuit court of Macon County to enjoin the Department of Revenue from imposing and collecting the retailers' occupation and use taxes on Sta-Ru's purchases of disposable paper and plastic food and beverage containers.

Issue

Whether the sales to Sta-Ru Corporation of paper and plastic containers used for on-premises consumption are considered 'sales at retail' and thus taxable under the Illinois Retailers' Occupation Tax Act.

The principal question on this appeal is whether sales to the plaintiff, the Sta-Ru Corporation, of paper and plastic containers used by it to contain foods and beverages consumed by the plaintiff's customers on its premises are ‘sale(s) at retail’ and thus taxable under the Illinois Retailers' Occupation Tax Act (hereafter ROTA) ( Ill.Rev.Stat.1975, ch. 120, par. 440 Et seq.) and the Illinois Use Tax Act (Ill.Rev.Stat.1975, ch. 120, par. 439.1 Et seq.).

Rule

The Retailers' Occupation Tax Act defines 'sale at retail' as any transfer of ownership of tangible personal property to a purchaser for use or consumption, not for resale.

The ROTA provides: “Sale at retail' means any transfer of the ownership of or title to tangible personal property to a purchaser, for the purpose of use or consumption, and not for the purpose of resale in any form as tangible personal property to the extent not first subjected to a use for which it was purchased, for a valuable consideration: * * *.' (Ill.Rev.Stat.1975, ch. 120, par. 440.)

Analysis

The court determined that Sta-Ru's purchase of disposable containers for on-premises use constituted a 'sale at retail' under the Retailers' Occupation Tax Act. The court reasoned that since Sta-Ru did not charge separately for the containers and they were treated as part of the operating costs, the containers were not resold but were instead part of the service provided to customers. The court referenced similar cases to support its conclusion that the containers were not sold for a direct and specific consideration.

We consider that there is a ‘sale at retail’ when Sta-Ru purchases disposable containers from its suppliers for on-premises use by its customers and that the taxes assessed pursuant to Rule 51 are authorized under the ROTA and the Use Tax Act.

Conclusion

The Supreme Court reversed the lower court's decision, ruling that the sales of containers to Sta-Ru were taxable under the Retailers' Occupation Tax Act.

For the reasons given, the judgments of the circuit and appellate courts are reversed.

Who won?

The Director of the Department of Revenue and the Attorney General prevailed in the case because the Supreme Court found that the sales of containers were taxable under the Retailers' Occupation Tax Act.

The appellate court's reliance on Belleville Dr. Pepper v. Korshak, 36 Ill.2d 352, 221 N.E.2d 635, in holding that the disposable containers were resold within the meaning of the statute was erroneous.

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