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Keywords

plaintiffdefendantleasecorporationnonprofitlegislative intent
plaintiffleasecorporation

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Telco Leasing, Inc. v. Allphin, 63 Ill.2d 305, 347 N.E.2d 729

Facts

The plaintiff, a corporation leasing medical and scientific equipment to nonprofit institutions, was assessed use taxes totaling $77,741 by the State Director of Revenue for the leased equipment. The plaintiff contested the assessment, arguing that it should be exempt from the use tax because the equipment was leased to charitable institutions. The plaintiff had previously paid the assessed taxes under protest and sought declaratory and injunctive relief against the defendants, claiming the Illinois Use Tax Act was unconstitutional as applied to them.

The plaintiff is a corporation engaged in the business of leasing medical and scientific equipment and computers to hospitals, universities, laboratories and other institutions which provide health care services and research.

Issue

Whether the lessor of medical and scientific equipment is considered a 'user' of the leased property under the Illinois Use Tax Act and whether the imposition of use tax constitutes a violation of equal protection.

Whether the lessor of medical and scientific equipment is considered a 'user' of the leased property under the Illinois Use Tax Act and whether the imposition of use tax constitutes a violation of equal protection.

Rule

The Use Tax Act defines 'use' as the exercise of any right or power over tangible personal property incident to ownership, and the lessor retains legal title and is thus considered the user of the property for tax purposes.

The Use Tax Act defines 'use' as the exercise by any person of any right or power over tangible personal property incident to the ownership of that property.

Analysis

The court analyzed the statutory definition of 'use' and concluded that the lessor, as the owner of the property, is the user within the meaning of the Use Tax Act. The court distinguished between the rights of a lessor and a lessee, emphasizing that the lessor's ownership and the right to lease the property for profit constituted the exercise of use. The court also noted that the legislative intent behind the charitable exemption did not extend to profit-making lessors.

An analysis of the statutory definition of ‘use’ leads us to the conclusion that the owner and lessor of property is the ‘user’ of the property within the meaning of the Use Tax Act.

Conclusion

The court affirmed the circuit court's decision, holding that the plaintiff was the user of the property and not exempt from the use tax. The court found the tax classification reasonable and upheld the imposition of the tax.

Accordingly, we hold that the plaintiff is the ‘user’ of the property in question and that the plaintiff is not exempt from payment of use tax on that property.

Who won?

The State Director of Revenue prevailed in the case because the court determined that the lessor was the user of the property and thus liable for the use tax under the Illinois Use Tax Act.

The State Director of Revenue prevailed in the case because the court determined that the lessor was the user of the property and thus liable for the use tax under the Illinois Use Tax Act.

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