text:
    PEOPLE of the State of Illinois, Plaintiff-Appellee, v. John G. MONTELEONE, Defendant-Appellant.
    No. 2-17-0150
    Appellate Court of Illinois, Second District.
    Opinion filed June 28, 2018
    Richard Dvorak and Christopher A. Tinsley, of Dvorak Law Offices, LLC, of Willowbrook, for appellant.
    Joseph H. McMahon, State's Attorney, of St. Charles (Patrick Delfino, David J. Robinson, and David A. Bernhard, of State's Attorneys Appellate Prosecutor's Office, of counsel), for the People.
   JUSTICE BURKE delivered the judgment of the court, with opinion.

¶ 1 On three separate occasions beginning in July 2013, an undercover police officer purchased commercially packaged products, known as "Mary Joy" and "Mary Joy Dead and Berried," from the King Puff-N-Stuff smoke shop owned by defendant, John G. Monteleone. The ingredient list on the packages did not include any illegal substances, but lab results revealed that the products contained lab-manufactured chemical compounds frequently referred to as synthetic cannabinoids, which are illegal controlled substances. The State charged defendant by indictment with several counts and, following a bench trial, defendant was found guilty of six counts. Defendant appeals his convictions of delivery of a controlled substance and unlawful possession with intent to deliver a controlled substance. To convict a defendant of these offenses, the State must prove, inter alia , that the defendant knew that the substance was illegal. Defendant admits that he possessed and sold the products, but he contends that the State failed to prove beyond a reasonable doubt that he knew that the products contained an illegal substance. We affirm.

¶ 2 I. FACTS

¶ 3 Defendant's charges included three counts of delivery of a controlled substance (counts V, VI, and VII), two counts of possession with intent to deliver a controlled substance (counts I and III), two counts of possession of a controlled substance (counts II and IV), one count of possession of cannabis (count VIII), and one count of possession of drug paraphernalia (count IX). Except for counts VIII and IX, the counts alleged that defendant sold and possessed an amount of a "substance containing 1-Pentyl-3-(2,2,3,3 tetramethylcyclopropyl) indole (UR-144), 1-(5-fluoropentyl)-3-(2,2,3,3 tetramethylcyclopropyl) indole (XLR-11), a controlled substance analog that has a chemical structure substantially similar to that of the controlled substance JWH-018." See 720 ILCS 550/4(b) (West 2012); 720 ILCS 570/401(a)(11), (c)(11), (d), 402(a)(11), (c) (West 2012); 720 ILCS 600/3.5(a) (West 2012).

¶ 4 The following relevant facts were taken from the trial. Scott Torkleson, the undercover police officer, entered defendant's store on July 16, 2013. The store displayed digital scales, smoking pipes, bongs, vaporizers, and tobacco products in glass cases and on the walls. Torkleson asked if defendant had any Mary Joy for sale. Defendant responded that he did and that another person, who had just entered the store, also was there to purchase Mary Joy. Defendant went to an office in the back of the store for a few minutes and then called the other person to the office. After a short period, that person left the store, carrying cash in his hand. Defendant then called Torkleson to the office. Defendant showed him a small green and purple package labeled "Mary Joy" and told Torkleson that it would cost $15. Torkleson paid defendant with a $20 bill. Defendant did not use the cash register or give Torkleson a receipt. Torkleson asked if he could return and buy more if he liked it, and defendant responded "absolutely." Defendant gave him a business card on his way out.

¶ 5 Torkleson later called defendant and told him that he wanted to purchase more Mary Joy and defendant said that he would meet him at the store. When Torkleson returned to the store, on July 25, 2013, defendant stated that he had only one package of Mary Joy but that he also had Mary Joy Dead and Berried. Defendant told Torkleson that he should be careful with it because it was very strong; that it would "knock him on his ass." Defendant and Torkleson walked to the back office. Torkleson saw defendant take the Mary Joy and the Dead and Berried out of an open safe that contained money. Torkleson then purchased the two packages from defendant, with cash. As before, defendant did not ring up the purchase or give Torkleson a receipt. Before he left, Torkleson asked defendant about purchasing cannabis, and defendant said that he could take care of him.

¶ 6 On September 19, 2013, Torkleson conducted another undercover buy from defendant. When he entered the store, defendant asked if he was there to purchase some Mary Joy. Torkleson said yes and they went to the back office. Torkleson saw defendant take the Mary Joy out of the safe before he handed it to him. Defendant did not ring up the $15 purchase or give Torkleson a receipt. Torkleson never saw Mary Joy displayed or advertised in the public area of the store.

¶ 7 Torkleson testified that, based on his training, he knew that none of the ingredients listed on the back of the Mary Joy package was an illegal substance. The ingredient list for Dead and Berried was identical to that for Mary Joy. The package itself was a manufactured container, not a baggie.

¶ 8 Virgil Schroeder, a master sergeant with the Illinois State Police, testified that on September 25, 2013, search and arrest warrants were served on defendant in his store. Defendant gave Schroeder the combination to his safe and told him that there was some "Spice" in it. "Spice" is a generic term for various synthetic cannabinoids. Schroeder found two plastic bag bundles containing both types of Mary Joy in the safe. He found no other packages of either kind of Mary Joy in the rest of the store. He did find a pipe that appeared to have been used to smoke some kind of substance. When Schroeder went to defendant's residence, he saw defendant's wife, Tracy, in her car and noticed two large overflowing tubs of Mary Joy and Dead and Berried in her back seat. In total, there were 3295 packages of Mary Joy.

¶ 9 Master Sergeant William Backus assisted in executing the warrant. Defendant told him "I no longer sell drugs here anymore. I just have a little weed." Another officer searched defendant and found a small amount of cannabis.

¶ 10 Sara Anderson, a forensic drug chemistry expert who worked at the Illinois State Police forensic science laboratory, received a bag of plant material on August 6, 2013. Using several techniques, including a gas chromatograph mass spectrometer, she determined that the plant material contained XLR-11 and UR-144. It did not contain JWH-018.

¶ 11 Martin Skelcy, another forensic drug chemistry expert employed by the State Police, analyzed the material and found that it contained XLR-11 and UR-144. He also weighed and tested the bin full of Mary Joy packages. The bin contained 209 grams of Mary Joy, and the plant material in the packages contained XLR-11 and UR-144.

¶ 12 Greg Endres, who was qualified as an expert in the field of medicinal and forensic chemistry, identified chemical diagrams of both tetrahydrocannabinol (THC), the active ingredient in cannabis, and JWH-018. JWH-018's structure has some similarity to THC, primarily because it binds to cannabinoid receptors in the human body. This binding is responsible for the psychotropic effects of cannabis and synthetic cannabinoids. Synthetic cannabinoids have more serious adverse effects on the body and tend to continually increase in effect with dosage. "K2" and "Spice" are two early and predominant brand names of an herbal mixture that has been sprayed with synthetic cannabinoids. Endres noted that synthetic cannabinoids have dozens of brand names, which are constantly changing. He frequently referred to all synthetic cannabinoids as K2. He also noted that new, slightly distinct compounds are designed and marketed to avoid criminal liability. Endres concluded that UR-144 and XLR-11 are substantially similar to JWH-018, falling within the same subclassification of indole-based synthetic cannabinoids. In drug-discrimination tests, mice were not able to discriminate between XLR-11 or UR-144 and THC or JWH-018. He testified that, within a reasonable degree of scientific certainty, XLR-11 and UR-144 are analogs of JWH-018. Endres testified that new synthetic cannabinoids are created by chemists to be similar to existing ones but not specifically banned by statute. XLR-11 and UR-144 were not specifically banned by federal statute until May 2013. Under Illinois law, they are illegal based on the analog statute, but there are synthetic cannabinoids that are not illegal.

¶ 13 Jeffrey Moran, an expert in the field of synthetic-cannabinoid pharmacology, metabolism, and detection, testified that JWH-018 is a controlled substance under both federal and Illinois law. He stated that XLR-11 and UR-144 are substantially similar to JWH-018, and he opined that they are analogs of JWH-018.

¶ 14 Jeff File, an Illinois State Police officer, searched the King Puff-N-Stuff after other officers executed the search warrant on the business. He did not find any Mary Joy or other illegal substances in the main customer area. He also searched the glass case on the counter and did not find any Mary Joy or empty Mary Joy packages or any sign that it was for sale.

¶ 15 File also interviewed defendant. Defendant stated that he had about 85 packages of Mary Joy and between 35 and 40 packages of Dead and Berried in his safe in the back room of his store. Defendant stated that he had a number of suppliers whose full names he did not know and that people who purchased the product rolled it into blunts and seemed to get addicted to it. Defendant stated that he used it once and got a head rush but that it did not get him high. He believed that Mary Joy was illegal under federal law, though he was not sure about Illinois, and thus he kept it in the back room Defendant also stated that he had just purchased 1000 packets from his supplier "Eric" to get him through the winter and that the officers could go to the house and retrieve them. Defendant had been selling Mary Joy for three or four months before his arrest. Defendant placed his Mary Joy money in his right pocket and his other money in his left pocket to pay vendors.

¶ 16 Defendant gave a written statement, in which he admitted that the Mary Joy and the marijuana found in his house and his wife's car were his. As to whether he sold illegal items at his store, he wrote Mary Joy and Dead and Berried. Defendant also wrote that he knew that people misused the drugs by consuming them and that the five times he used Mary Joy, it made him light-headed. He sold 20 to 60 packages of Mary Joy a day and he did not display it in the store, because he was unsure if it was legal. Defendant stated that, because the effects are short-lived, younger people smoke it more often. Defendant also noted that he had a quarter-pound of marijuana in his house.

¶ 17 At the close of the State's evidence, defendant moved for a directed verdict. The trial court granted the motion only as to the cannabis-related count VIII. Counts III and IV were nolprossed by the State.

¶ 18 Testifying on his own behalf, defendant stated that he had researched the products Mary Joy and Dead and Berried at MaryJoy.com, the website listed on the back of the packages. The site indicated that Mary Joy and Dead and Berried were legal in all 50 states. He also researched every ingredient listed on the back of the packages and found nothing to be illegal. Defendant stated that he displayed his herbal products, including Mary Joy and Dead and Berried, in acrylic cases that sat on the store's counters. He kept one package of each in the case and the rest in a box underneath the counter. Because there was an attempted but failed third burglary at his store, defendant moved the box out of the main area of the store and placed it in a safe in the back room.

¶ 19 When he was arrested on September 25, 2013, for selling illegal drugs, defendant told the officers that he did not sell illegal drugs. There was no money in the safe where the officers found the Mary Joy and the Dead and Berried. Defendant stated that he never referred to the contents of the safe as "Spice." He had never heard that term. He kept the money from Mary Joy sales in a separate pocket because he bought the packages on consignment and needed to pay his supplier for them. Defendant did not find out that Mary Joy was illegal until the officers told him during the interrogation. Defendant identified surveillance videos from September 21 and 23, 2013, in which he sold Mary Joy to customers using credit cards at the register. Defendant denied saying to the officers that he did not sell drugs at the store anymore.

¶ 20 Following the State's rebuttal case and closing arguments, the trial court found defendant guilty on counts I and II, counts V, VI, and VII, and count IX. The trial court denied defendant's motion to reconsider. Thereafter, the court sentenced defendant. It merged count II into count I and sentenced defendant to six years' imprisonment. As to counts V, VI, and VII, the court sentenced defendant to three years' imprisonment to run concurrently with the sentence on count I. It sentenced defendant to pay a mandatory $750 fine on count IX. Defendant timely appeals.

¶ 21 II. ANALYSIS

¶ 22 Defendant appeals his convictions of unlawful delivery of and possession with intent to deliver a controlled substance. Section 401 of the Illinois Controlled Substances Act states, in relevant part, "[e]xcept as authorized by this Act, it is unlawful for any person knowingly to manufacture or deliver, or possess with intent to manufacture or deliver, a controlled substance other than methamphetamine, a counterfeit substance, or a controlled substance analog." (Emphasis added.) 720 ILCS 570/401 (West 2012). Under a charge of either delivery or unlawful possession with intent to deliver, the State must prove that the defendant knew what he or she was delivering or intending to deliver. See People v. Robinson , 167 Ill.2d 397, 407, 212 Ill.Dec. 675, 657 N.E.2d 1020 (1995) (defendant must have knowledge of the presence of the narcotics); People v. Brooks , 271 Ill.App. 3d 570, 575, 207 Ill.Dec. 926, 648 N.E.2d 626 (1995) ("the State was required to prove that defendant knew he was delivering cocaine").

¶ 23 Defendant contests solely whether the State proved beyond a reasonable doubt that he knew that the Mary Joy and the Dead and Berried he delivered or possessed and intended to deliver contained a controlled substance. Because the trial court made a factual determination that defendant knew what he was selling, defendant must establish that the evidence was not sufficient to support this finding.

¶ 24 When a defendant challenges the sufficiency of the evidence, a court of review must determine "whether, [after] viewing the evidence in the light most favorable to the State, ' "any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." ' " (Emphasis in original.) People v. Belknap , 2014 IL 117094, ¶ 67, 387 Ill.Dec. 633, 23 N.E.3d 325 (quoting People v. Collins , 106 Ill.2d 237, 261, 87 Ill.Dec. 910, 478 N.E.2d 267 (1985), quoting Jackson v. Virginia , 443 U.S. 307, 319, 99 S.Ct. 2781, 61 L.Ed.2d 560 (1979) ). It is not the role of the reviewing court to retry the defendant. In re Q.P. , 2015 IL 118569, ¶ 24, 396 Ill.Dec. 356, 40 N.E.3d 9. Rather, it is the responsibility of the trier of fact to resolve conflicts in the testimony, weigh the evidence, and draw reasonable inferences from the facts. People v. Bradford , 2016 IL 118674, ¶ 12, 401 Ill.Dec. 630, 50 N.E.3d 1112. Therefore, a court of review will not substitute its judgment for that of the trier of fact on questions involving the weight of the evidence or the credibility of the witnesses. Id. A criminal conviction will not be reversed for insufficient evidence unless the evidence is so unreasonable, improbable, or unsatisfactory that it justifies a reasonable doubt of the defendant's guilt. Belknap , 2014 IL 117094, ¶ 67, 387 Ill.Dec. 633, 23 N.E.3d 325.

¶ 25 "A person knows, or acts knowingly or with knowledge of:

(a) The nature or attendant circumstances of his or her conduct, described by the statute defining the offense, when he or she is consciously aware that his or her conduct is of that nature or that those circumstances exist. Knowledge of a material fact includes awareness of the substantial probability that the fact exists.
(b) The result of his or her conduct, described by the statute defining the offense, when he or she is consciously aware that that result is practically certain to be caused by his conduct." 720 ILCS 5/4-5 (West 2012).

¶ 26 Knowledge, as an element of a criminal offense, is a question of fact for the trier of fact to decide. People v. Frazier , 2016 IL App (1st) 140911, ¶ 23, 407 Ill.Dec. 159, 62 N.E.3d 1081. Direct proof of a defendant's knowledge is unnecessary, and a defendant's knowledge can be inferred from the surrounding facts and circumstances.

Id. "Knowledge may be, and ordinarily is, proven circumstantially." People v. Ortiz , 196 Ill.2d 236, 260, 256 Ill.Dec. 530, 752 N.E.2d 410 (2001).

¶ 27 In addressing the issue of knowledge, the trial court relied on McFadden v. United States , 576 U.S. ----, 135 S.Ct. 2298, 192 L.Ed.2d 260 (2015), and United States v. Ramos , 814 F.3d 910 (8th Cir. 2016). We find the analyses in McFadden and Ramos instructive.

¶ 28 In McFadden , the United States Supreme Court elucidated two ways the government could prove knowledge in analog cases. The Court explained that the government must either (1) show that the defendant knew that he or she was dealing with some controlled substance, regardless of whether he or she knew the particular identity of the substance, or (2) show that the defendant knew the specific features of the substance that make it a controlled-substance analog, even if he or she did not know its legal status as an analog. Id. at ___, 135 S.Ct. at 2302. These features include (1) having a chemical structure that is substantially similar to the chemical structure of a controlled substance and (2) having a stimulant, depressant, or hallucinogenic effect on the central nervous system that is substantially similar to or greater than the effect on the central nervous system of a controlled substance, or being represented or intended to have that effect with respect to a particular person. Id. at ___, 135 S.Ct. at 2304-05 (citing 21 U.S.C. § 802(32)(A) (2012) ).

¶ 29 The Court found that such knowledge is sufficient because "[a] defendant who possesses a substance with knowledge of those features knows all of the facts that make his conduct illegal, just as a defendant who knows he possesses heroin knows all of the facts that make his conduct illegal." Id. at ___, 135 S.Ct. at 2305. "A defendant need not know of the existence of the [Controlled Substance Analogue Enforcement Act of 1986 ( 21 U.S.C. § 802 (2012) ) ] to know that he was dealing with 'a controlled substance.' " Id. at ___, 135 S.Ct. at 2305. In a footnote, the Court observed that the requisite mental state could be proved by circumstantial evidence, such as a defendant's concealment of his activities, evasive behavior with respect to law enforcement, and knowledge that a particular substance produces a high similar to that produced by controlled substances. Id. at ___n.1, 135 S.Ct. at 2304 n.1.

¶ 30 In Ramos , 814 F.3d 910 (8th Cir. 2016), a case with facts similar to those in the present case, the defendant managed an iWireless store and was convicted of selling synthetic cannabinoids and bath salts. She drove to meet a confidential informant to sell him "Mr. Happy" and bath salts. The defendant sold him one packet of Mr. Happy and one jar of "Blue" for $75. She did not charge sales tax for the purchase and did not process the transaction through her register at the store. A test performed by the United States Drug Enforcement Administration (DEA) later determined that the Blue contained a substance with a chemical structure substantially similar to that of the controlled substance methylenedioxypyrovalerone (MDPV). A search at the defendant's store revealed Blue in a drawer under the register counter and hundreds of packets containing synthetic cannabinoids around the store, including in a drawer under the counter, a back storage room, and the back office. None of the synthetic cannabinoid products were advertised in the store. A majority of these products contained XLR-11 and some contained UR-144. Each jar of Blue contained pyrrolidinopentiophenone (á-PVP). The agents also found smoking paraphernalia, including glass pipes and rolling papers.

Id. at 912-13. The defendant was found guilty on the drug-related counts. She contended that the government failed to prove that she knew that the synthetic cannabinoid products contained XLR-11 or some other controlled substance. Id. at 915.

¶ 31 The court found that the following evidence was sufficient to show the defendant's knowledge that she possessed and sold a controlled substance of some kind. The packets containing synthetic cannabinoid products were not on public display in the store or advertised in any way. A DEA agent who posed as a customer in the defendant's store testified that the defendant produced packets of Mr. Happy and Mr. Nice Guy only after the agent requested "potpourri," a street name for synthetic cannabinoid products. The defendant, unprompted, asked if the agents needed rolling papers with the "Mr. Nice Guy" purchase, although the product label stated that it was not for human consumption. Hundreds of packets found in the defendant's car contained synthetic cannabinoids, stored out of public view.

¶ 32 The court also found that the evidence was sufficient to show that the defendant knew the specific features of á-PVP that made it a controlled substance, under McFadden 's second method of proving knowledge. The evidence suggesting that the defendant knew that she possessed an analog of a controlled substance with a chemical structure similar to a drug listed on the federal drug schedules included that the defendant understood the street term for bath salts, that the defendant attempted to conceal the sale, that the defendant did not charge tax or provide a receipt for the purchase, and that the price for the Blue, labeled as scouring powder, far exceeded the cost of comparable cleaning products. Id. at 917.

¶ 33 Other circumstantial evidence supported the inference that the defendant understood the pharmacological effects of Blue, specifically that it produced a high similar to that of a controlled substance, as the defendant stated that the informant would be "real happy" following the late-night transaction. Id. at 917-18.

¶ 34 Here, as in Ramos , circumstantial evidence supported the inference of the required mental state, such as defendant's concealment of the sales, his evasive behavior with respect to law enforcement, and his knowledge that a particular substance produces a high similar to that produced by controlled substances. The sales took place in a back room, outside public view. The sales were by cash. There was no evidence that defendant charged tax or used a register at the store. Defendant did not provide receipts. The products were not on display or advertised. Hundreds of packages were found in defendant's wife's car. Defendant used cash to purchase the products from suppliers and knew the suppliers only by their first names. Defendant kept the cash from the sales of the products separate from the proceeds of his other store transactions by placing the cash in his right pocket. Defendant also made statements to Torkleson indicating that he knew the specific features of the products that made them controlled substances. Defendant told him not only that his customers misused the products by smoking them, but that younger individuals smoked them more often because the effects wore off quickly. He also said that he had smoked Mary Joy and it had made him feel light-headed, and he told Torkleson that Dead and Berried could "knock him on his ass." Defendant also told Torkleson that he would sell cannabis to him, and defendant had cannabis in his possession when he was arrested.

¶ 35 Although defendant testified that he placed the products out of sight because of an attempted burglary, this raised a question of credibility and we give due consideration to the fact that it was the trial court, as the trier of fact, that saw and heard him testify. We defer to the trial court's credibility assessments, because a court of review is not in a position to observe a witness as he or she testifies. People v. Harris , 297 Ill.App.3d 1073, 1083, 232 Ill.Dec. 108, 697 N.E.2d 850 (1998). Even if we were to believe defendant, the other circumstantial evidence was sufficient to establish beyond a reasonable doubt that defendant knew that he possessed and sold products containing controlled substances.

¶ 36 Defendant relies on People v. Patel , 2013 IL App (4th) 121111, 375 Ill.Dec. 58, 996 N.E.2d 1114, and People v. Chatha , 2015 IL App (4th) 130652, 392 Ill.Dec. 728, 33 N.E.3d 277. Patel and Chatha arose from the same transaction. Patel was a convenience store clerk who sold a controlled substance, and Chatha owned the store where the product was sold. A search of the store took place the same day as the sale. Patel was convicted of unlawful delivery of a controlled substance containing synthetic cannabis. Patel , 2013 IL App (4th) 121111, ¶ 1, 375 Ill.Dec. 58, 996 N.E.2d 1114. Chatha was found guilty of possession with intent to deliver the synthetic cannabis. Chatha , 2015 IL App (4th) 130652, ¶ 2, 392 Ill.Dec. 728, 33 N.E.3d 277.

¶ 37 In reversing Patel's conviction, the Fourth District Appellate Court noted that the transaction was not like a street-corner drug deal, where knowledge is easier to establish considering that the controlled substance is usually not professionally packaged and is sold in a secretive manner for cash. But in Patel's case, he was a clerk at a convenience store selling hundreds of legal products. Patel scanned the item, and a receipt documented the purchase of " 'incense.' " Patel , 2013 IL App (4th) 121111, ¶ 13, 375 Ill.Dec. 58, 996 N.E.2d 1114. The court surmised that it is much more difficult to establish that an employee selling a professionally packaged product from a convenience store, as compared to a street dealer, knew that a product stocked by the store owner contained a controlled substance. Id. ¶ 65.

¶ 38 Defendant asserts that Chatha closely mirrors his case. The issue in Chatha , as here, was whether the evidence was sufficient to prove that the defendant knew that a product, Bulldog Potpourri, he possessed and sold at his store contained a controlled substance. Chatha , 2015 IL App (4th) 130652, ¶ 42, 392 Ill.Dec. 728, 33 N.E.3d 277.

¶ 39 The court reversed Chatha's conviction, finding that the uncontroverted evidence showed that Chatha willingly complied with applicable laws before he started selling Bulldog Potpourri, which demonstrated his concern about the legality of the products offered in his stores. The court noted that Chatha had complied with a city ordinance that prohibited the sale of "incense" and "potpourri" at his other store and that he investigated Bulldog Potpourri to alleviate his concern before offering the product to the public. Id. ¶ 54. The court also found that Chatha's demeanor demonstrated his willingness to comply with police requests during their investigation. The court stated:

"Under these circumstances, defendant's actions and willing cooperation buttressed his steadfast insistence that if he knew the Bulldog Potpourri contained a controlled substance, he would have stopped selling the product. At best, the State's evidence suggested that defendant knew Bulldog Potpourri was packaged and marketed similarly to products containing substances the legislature had previously banned. However, that evidence was insufficient to establish beyond a reasonable doubt that defendant knew Bulldog Potpourri contained AM-2201." Id. ¶ 55.

¶ 40 The court rejected the notion that Chatha's admission that he knew that customers smoked the product put him on notice that the product was presumptively illegal. During his interview, Chatha stated that his knowledge regarding the product's use prompted his store policy banning the sale to minors. The court similarly rejected the State's assertion that the fact that Chatha did not display Bulldog Potpourri was circumstantial evidence of his knowledge that the product contained a controlled substance. The court found that Chatha's actions and demeanor before and after the police began their investigation militated against the State's claim. Id. ¶¶ 52-53. Moreover, although a trier of fact might have questioned the effectiveness of Chatha's investigation of the product's legality, the court noted that, absent scientific testing, Chatha could not conclusively determine whether the otherwise legal product contained a controlled substance. Id. ¶ 54.

¶ 41 In contrast to Chatha and Patel , the present case is more like a "street-corner drug deal," where the sales took place in a back room and the products were kept outside of public view, were never scanned, and were sold on an all-cash basis, without receipts. Defendant kept the cash from the sales of the illegal substances separate from his other store transactions by placing that cash in his right pocket. Defendant also had more knowledge about the products than Chatha. Defendant knew that the products were illegal under federal law and knew the effect the substances had on the central nervous system. Whereas Chatha refused to sell the product illegally at his other store, defendant told Torkleson that he would sell him cannabis. We agree with the trial court that the rational inference to be drawn from all of the evidence was that defendant knew that he possessed and sold products containing illegal substances. Accordingly, a rational fact finder could determine that the State met its burden of proof concerning knowledge.

¶ 42 III. CONCLUSION

¶ 43 For the foregoing reasons, the judgment of the circuit court of Kane County is affirmed. As part of our judgment, we grant the State's request that defendant be assessed $50 as costs for this appeal. 55 ILCS 5/4-2002(a) (West 2016); see also People v. Nicholls , 71 Ill.2d 166, 178, 15 Ill.Dec. 759, 374 N.E.2d 194 (1978).

¶ 44 Affirmed.

Justices Hutchinson and Jorgensen concurred in the judgment and opinion.


source: Caselaw Access Project

license: Public Domain

text:
    HORSEHEAD CORPORATION, Petitioner, v. The DEPARTMENT OF REVENUE and the Illinois Independent Tax Tribunal, Respondents.
    No. 1-17-2802
    Appellate Court of Illinois, First District, FIRST DIVISION.
    September 24, 2018
    Kirkland & Ellis LLP, of Chicago (JoAnne Mulder Nagjee and Steven M. Cantor, of counsel), and Difede Ramsdell Bender PLLC, of Washington, D.C. (Joseph E. Bender, of counsel), for petitioner.
    Lisa Madigan, Attorney General, of Chicago (David L. Franklin, Solicitor General, and John P. Schmidt, Assistant Attorney General, of counsel), for respondents.
   JUSTICE PIERCE delivered the judgment of the court, with opinion.

¶ 1 Respondent Illinois Department of Revenue (IDOR) issued petitioner Horsehead Corporation two notices of tax liability for Horsehead's failure to pay use taxes on its purchases of metallurgical coke between January 2007 and June 2011. Horsehead filed a petition for review with the Illinois Independent Tax Tribunal (tax tribunal), which affirmed the notices of tax liability as well as the imposition of the use tax, interest, late filing penalties, and late payment penalties totaling approximately $1,521,041. Horsehead timely filed a petition for review in this court. For the following reasons, we affirm the tax tribunal's final decision.

¶ 2 BACKGROUND

¶ 3 Illinois imposes a use tax "upon the privilege of using in this State tangible personal property purchased at retail from a retailer." 35 ILCS 105/3 (West 2016). Relevant to the issues in this appeal, section 3-5(18) of the Use Tax Act contains an exemption from the use tax for the following manufacturing and assembling machinery and equipment:

"Manufacturing and assembling machinery and equipment used primarily in the process of manufacturing or assembling tangible personal property for wholesale or retail sale or lease, whether that sale or lease is made directly by the manufacturer or by some other person, whether the materials used in the process are owned by the manufacturer or some other person, or whether that sale or lease is made apart from or as an incident to the seller's engaging in the service occupation of producing machines, tools, dies, jigs, patterns, gauges, or other similar items of no commercial value on special order for a particular purchaser." Id. § 3-5(18).

¶ 4 Section 3-50 of the Use Tax Act contains a definition of "equipment" that includes certain "chemicals and chemicals acting as catalysts":

"§ 3-50. Manufacturing and assembly exemption. The manufacturing and assembling machinery and equipment exemption includes machinery and equipment that replaces machinery and equipment in an existing manufacturing facility as well as machinery and equipment that are for use in an expanded or new manufacturing facility. * * * For the purposes of this exemption, terms have the following meanings:
* * *
(4) 'Equipment' includes an independent device or tool separate from machinery but essential to an integrated manufacturing or assembly process * * *. * * * Equipment includes chemicals or chemicals acting as catalysts but only if the chemicals or chemicals acting as catalysts effect a direct and immediate change upon a product being manufactured or assembled for wholesale or retail sale or lease ." (Emphasis added.) Id. § 3-50(4).

¶ 5 Horsehead recycles electric arc furnace dust (EAF Dust) generated by steel producers. EAF Dust contains zinc oxide, iron oxide, and other impurities that may include chlorides, lead, and cadmium. Horsehead reclaims zinc and metallic oxides from EAF Dust through a recycling process that strips impurities from the zinc oxide to extract pure zinc, which is collected in powder form and sold directly to third parties. The remaining EAF Dust is heated to a higher temperature to separate impurities from the iron oxide to produce iron-rich material, which is sold to third parties for their own manufacturing processes.

¶ 6 Horsehead operates a recycling facility in Calumet City, Illinois. It employs a "Waelzing process," using a rotary Waelz kiln-a long, rotating, cylindrical oven situated at a slight angle-to "reduce" and recover the zinc as crude zinc oxide from EAF Dust. Horsehead purchases metallurgical coke-a solid material consisting almost entirely of carbon-for use in the Waelzing process. Horsehead combines EAF Dust with metallurgical coke "breeze" (i.e. , metallurgical coke in fine dust form) and water to create pellets. The pellets are then fed into one end of the kiln, and oxygen from the outside air is drawn into the kiln from the opposite side. The air inside the kiln is heated by external gas burners to between 600 and 700 degrees centigrade to dry the pellets. At this temperature, a chemical reaction starts to occur.

¶ 7 When the pellets reach the desired temperature, the metallurgical coke reacts with the carbon dioxide, creating carbon monoxide. As the carbon monoxide seeps into the heated pellets on the kiln bed, the carbon monoxide acts as a reducing agent to strip away oxygen from the zinc oxide and iron oxide in the EAF Dust, resulting in metallic zinc vapor and metallic iron. The process results in additional carbon dioxide, which then reacts with the heated pellets to produce additional carbon monoxide, which then seeps into the heated pellets on the kiln bed, stripping away more oxygen from the zinc oxide and iron oxide in the EAF Dust, resulting in a continuous, self-sustaining cycle of reactions. The metallic zinc vapor rises from the kiln bed and reacts with oxygen inside the kiln, producing fine particles of crude zinc oxide. The metallic iron also reacts with the oxygen inside the kiln, producing iron oxide rich material. These reoxidation processes generate heat within the kiln, making the Waelzing process self-sustaining.

¶ 8 After the Waelzing process is completed, Horsehead either sells the crude zinc oxide directly to third parties (as "Waelz oxide") or sends it to another Horsehead facility for further refining, where it is then sold to third parties. The iron oxide rich material is also sold to third parties. Virtually all of the metallurgical coke is consumed during the Waelzing process.

¶ 9 On October 3, 2014, IDOR issued Horsehead two "Notices of Tax Liability" for the period of January 1, 2007, through June 30, 2011. IDOR's notices informed Horsehead that it was liable for approximately $1,521,041 in use taxes, interest, late payment penalties, and late filing penalties under the Use Tax Act ( 35 ILCS 105/1 et seq. (West 2012) ) for Horsehead's out-of-state purchases of metallurgical coke used in the Waelzing processes, for which it had not paid any use tax. Horsehead filed a petition for hearing with the tax tribunal, contending that the purchases of metallurgical coke were exempt from the use tax under section 3-50(4) of the Use Tax Act because the metallurgical coke, as part of the Waelzing processes, met the definition of a chemical or a chemical acting as a catalyst to effect a direct and immediate change upon the zinc and iron in the EAF Dust. IDOR answered the petition, and the parties engaged in discovery. The tax tribunal conducted a hearing, where it heard testimony from numerous witnesses, and considered posthearing briefs from the parties.

¶ 10 The tax tribunal considered the plain meaning of the terms "direct" and "immediate," as used in section 3-50(4) of the Use Tax Act, and found those terms to be clear and unambiguous. The tax tribunal also considered IDOR's administrative regulations in section 130.330(c)(6) of Title 86 of the Illinois Administrative Code (Title 86) ( 86 Ill. Adm. Code 130.330(c)(6) (2016) ), which provides two examples of reactions that are direct and immediate. The tax tribunal's written decision concluded that the carbon monoxide acts as the reducing agent and causes a direct and immediate change on the zinc oxide and iron oxide, the product being sold by Horsehead. The tax tribunal concluded that in the Waelzing process, metallurgical coke does not directly and immediately cause a change to the zinc and iron in the EAF Dust because "[s]imply placing [metallurgical] coke next to zinc oxide or zinc does not create any chemical reaction whatsoever, a point conceded by Horsehead's own witnesses." The tax tribunal found that Horsehead was attempting to condense all of the separate chemical reactions in the Waelzing process into a continuous and single chemical reaction and that Horsehead's position "renders the language 'direct and immediate' void." The tax tribunal observed that it was the carbon monoxide-not the carbon in the metallurgical coke alone-that reacts with the zinc oxide and iron oxide. The tax tribunal further observed that none of Horsehead's witnesses were asked to define the term "catalyst" or testified that the metallurgical coke acted as a catalyst. Therefore, the tax tribunal concluded that Horsehead's out-of-state purchases of metallurgical coke did not qualify for the exemption set forth in section 3-50(4) of the Use Tax Act and that Horsehead was liable for the tax.

¶ 11 Before the tax tribunal, Horsehead argued that, if it were liable for the use tax, it should not have to pay the late filing and late payment penalties. Horsehead did not challenge the amount of the penalties, but instead argued that the penalties should be abated under section 700.400 of Title 86 ( 86 Ill. Adm. Code 700.400(b), (c) (2001) ). It contended that section 3-50(4) of the Use Tax Act lacks a specific definition of the term "direct and immediate change" and that it had a history of complying with its other state tax obligations. The tax tribunal agreed that Horsehead had shown compliance with its other tax obligations but observed that Horsehead failed to present any evidence of good faith with respect to the position it took toward the chemical exemption. Thus, there was no evidence as to "what or who [Horsehead] relied upon in choosing to claim its [metallurgical] coke purchases as catalysts when it chose not to pay the use tax in question, other than [Horsehead's] claim that the term 'direct and immediate' is undefined, leaving the chemical exemption statute unclear." The tax tribunal upheld IDOR's imposition of late filing penalties and late payment penalties under section 12 of Use Tax Act ( 35 ILCS 105/12 (West 2016) ), which incorporates portions of the Uniform Penalty and Interest Act ( 35 ILCS 735/3-1 et seq. (West 2016) ).

¶ 12 Horsehead timely filed a petition for review in this court from the tax tribunal's final decision. 35 ILCS 1010/1-75 (West 2016) ;

735 ILCS 5/3-113 (West 2016) ; Ill. S. Ct. R. 335 (eff. July 1, 2017).

¶ 13 ANALYSIS

¶ 14 On appeal, Horsehead raises the same two principal arguments that it advanced before the tax tribunal. First, it argues that its purchases of metallurgical coke were exempt under section 3-50(4) of the Use Tax Act because the metallurgical coke effects a direct and immediate change on the zinc oxide and iron oxide sold by Horsehead and that the tax tribunal's decision elevates form over substance. Second, Horsehead argues that, even if it is liable for the use tax, it had reasonable cause to take the position that these purchases were exempt and the tax tribunal's decision to uphold the late payment and late filing penalties was against the manifest weight of the evidence.

¶ 15 The parties disagree on the appropriate standard of review for Horsehead's challenge to the tax tribunal's order finding that the chemical exemption does not apply. Horsehead contends that there are no factual challenges at issue and therefore the tax tribunal's determination of whether the exemption applies is a question of law reviewed de novo . See Zenith Electronics Corp. v. Department of Revenue , 293 Ill. App. 3d 651, 654, 228 Ill.Dec. 49, 688 N.E.2d 747 (1997) ("Where no factual dispute exists, and the question raised on review is purely legal, such as statutory construction, our review is de novo ."). IDOR argues that the clearly erroneous standard applies because the historical facts are not in dispute, and the question is whether those facts meet a statutory definition. See Goodman v. Ward , 241 Ill. 2d 398, 406, 350 Ill.Dec. 300, 948 N.E.2d 580 (2011). We agree with IDOR that the clearly erroneous standard applies, as this case involves a mixed question of law and fact. See AFM Messenger Service, Inc. v. Department of Employment Security , 198 Ill. 2d 380, 391, 261 Ill.Dec. 302, 763 N.E.2d 272 (2001) (stating that a mixed question of law and fact is one involving an examination of the legal effect of a given set of facts). An administrative agency's decision "will be deemed 'clearly erroneous' only where the reviewing court, on the entire record, is 'left with the definite and firm conviction that a mistake has been committed.' " Id. at 395, 261 Ill.Dec. 302, 763 N.E.2d 272 (quoting United States v. United States Gypsum Co. , 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948) ).

¶ 16 Horsehead insists, however, that the tax tribunal's decision should be afforded no deference at all because it "is not charged with either enforcing the Use Tax Act or promulgating the regulations thereunder, but rather is an independent State agency charged with resolving disputes between taxpayers and [IDOR]." Horsehead relies on Salt Creek Rural Park District v. Department of Revenue , 334 Ill. App. 3d 67, 70-71, 267 Ill.Dec. 712, 777 N.E.2d 515 (2002), for the proposition that the de novo standard applies where an administrative agency's decision does not implicate that agency's unique expertise. We disagree with Horsehead's conclusion. In enacting the Illinois Independent Tax Tribunal Act of 2012, the legislature declared the purpose of the tax tribunal:

"To increase public confidence in the fairness of the State tax system, the State shall provide an independent administrative tribunal with tax expertise to resolve tax disputes between the Department of Revenue and taxpayers prior to requiring the taxpayer to pay the amounts in issue. By establishing an independent tax tribunal, this Act provides taxpayers with a means of resolving controversies that ensures both the appearance and the reality of due process and fundamental fairness." (Emphasis added.) 35 ILCS 1010/1-5(a) (West 2016).

The statutory language reflects an express legislative mandate that the tax tribunal possess and employ tax expertise in resolving tax disputes. Horsehead offers no argument that the tax tribunal in this case did not possess the requisite tax expertise to interpret the Use Tax Act or that it failed to meaningfully employ that expertise when determining whether Horsehead's out-of-state metallurgical coke purchases qualify for an exemption under Use Tax Act. That stated, our supreme court "has frequently acknowledged the wisdom of judicial deference to an agency's experience and expertise." AFM Messenger , 198 Ill. 2d at 394-95, 261 Ill.Dec. 302, 763 N.E.2d 272 (collecting cases). We therefore reject Horsehead's contention that the tax tribunal lacks expertise in interpreting the Use Tax Act such that we must apply a de novo standard of review. This does not mean, however, that we must blindly defer to the tax tribunal's decision. Id. at 395, 261 Ill.Dec. 302, 763 N.E.2d 272.

¶ 17 We now turn to Horsehead's arguments and the tax tribunal's decision. Horsehead's first argument on appeal is that its purchases of metallurgical coke were exempt under section 3-50(4) of the Use Tax Act because, in its recycling process, metallurgical coke effects a direct and immediate change on the zinc oxide and iron oxide. Horsehead attempts to frame the issue on appeal as "whether the [metallurgical] coke is somehow ineligible for the chemical exemption because in order to effect [a] direct and immediate change[ ], the [metallurgical] coke must first be heated to its reactive temperature." We observe, however, that the tax tribunal did not find the process of heating metallurgical coke to be a determinative factor in assessing whether the chemical exemption applied but, instead, considered whether it was the metallurgical coke or the carbon monoxide that effected a direct and immediate change on the zinc oxide and iron oxide.

¶ 18 Horsehead contends that the phrase "direct and immediate" as used in section 3-50(4) of the Use Tax Act must be afforded its "plain, everyday meaning" but that the tax tribunal gave the term an "overly literal interpretation [that] precludes both activating forces (such as heat) and the concurrent involvement of other chemicals or agents (such as oxygen)." In other words, Horsehead argues that the plain and ordinary meaning of express statutory terms should be given "common-sense" meanings rather than overly literal meanings to avoid excluding too many chemicals from the exemption. Horsehead does not, however, advance any argument on appeal as to what, in the context of the Use Tax Act, the phrase "direct and immediate" means.

¶ 19 It is a fundamental rule of statutory interpretation to determine and give effect to the intent of the legislature, and the best indicator of that intent is the statutory language, which is to be given its plain and ordinary meaning. Shared Imaging, LLC v. Hamer , 2017 IL App (1st) 152817, ¶ 25, 416 Ill.Dec. 416, 84 N.E.3d 398. Horsehead did not argue before the tax tribunal, and does not argue on appeal, that the term "direct and immediate" is ambiguous, nor does it quarrel with the tax tribunal's decision to consult a dictionary for the definitions of "direct" and "immediate." The tax tribunal stated that the plain and ordinary meaning of "direct" includes "[e]xtending or moving from one place to another without changing direction or stopping" and "[w]ithout intervening factors or intermediaries." English Oxford Living Dictionaries, https://en.oxforddictionaries.com/definition/direct (last visited Sept. 19, 2018) [https://perma.cc/8CEN-V8AG

]; see also Black's Law Dictionary 471 (7th ed. 1999) (defining "direct" as "straight; undeviating," and "[f]ree from extraneous influence; immediate"). The tax tribunal defined "immediate" as "[o]ccurring or done at once; instant." English Oxford Living Dictionaries, https://en.oxforddictionaries.com/definition/immediate (last visited Sept. 19, 2018) [https://perma.cc/338T-GSYF]; see also Black's Law Dictionary 751 (7th ed. 1999) (defining "immediate" as "[o]ccurring without delay; instant" and "[h]aving a direct impact; without an intervening agency"). Taken together, a direct and immediate change on a product being manufactured for sale is one that occurs at once without any intervening factors or intermediate steps. As noted above, the chemical exemption provides, "Equipment includes chemicals or chemicals acting as catalysts but only if the chemicals or chemicals acting as catalysts effect a direct and immediate change upon a product being manufactured or assembled for wholesale or retail sale or lease." 35 ILCS 105/3-50(4) (West 2016). The plain language of the exemption, therefore, means exactly what it says: to be eligible under the chemical exemption, the metallurgical coke must effect a change on the zinc and iron in the EAF Dust that occurs at once without an intermediate step.

¶ 20 Here, the tax tribunal concluded that the metallurgical coke did not effect a direct and immediate change on the zinc and iron in the EAF Dust. During the Waelzing processes, the metallurgical coke combines with the carbon dioxide in the kiln to create carbon monoxide. The created carbon monoxide then strips oxygen from the zinc oxide and iron oxide in the EAF Dust, resulting in metallic zinc vapor and metallic iron, which in turn reacts with oxygen, resulting in crude zinc oxide and iron oxide rich material. While the metallurgical coke is an integral part of achieving the desired chemical reactions, the metallurgical coke itself does not effect a direct and immediate change on the products being manufactured: zinc and iron. Before the tax tribunal, one of Horsehead's witnesses acknowledged that "the [metallurgical] coke or carbon [does] not react directly with either the zinc oxide or the iron oxide to reduce them to zinc and iron." As the tax tribunal observed in its final order, "the lack of a direct and immediate reaction dooms [Horsehead's] argument to the contrary."

¶ 21 Furthermore, IDOR's administrative rules provide two examples of chemicals effecting a direct and immediate change.

"A) Example 1. A chemical acid is used to etch copper off the surface of a printed circuit board during the manufacturing process. The acid causes a direct and immediate change upon the product. The acid qualifies for the exemption.
B) Example 2. An aluminum oxide catalyst is used in a catalytic cracking process to refine heavy gas oil into gasoline. In this process, large molecules of gas oil or feed are broken up into smaller molecules. After the catalyst is injected into the feed and used in the cracking process, it is drawn off and reused in subsequent manufacturing processes. The catalyst qualifies for the exemption." 86 Ill. Adm. Code 130.330(c)(6)(A), (B) (2016).

¶ 22 In the first example, the acid, without first going through any intermediate chemical changes, directly and immediately etches copper from the circuit board. In the second example, the aluminum oxide is introduced to heavy gas oil and, without going through any intermediate chemical changes, cracks the large molecules of gas oil and feeds into smaller molecules. Here, the carbon from the metallurgical coke combines with carbon dioxide to create carbon monoxide, which then strips away oxygen from the zinc oxide and iron oxide in the EAF Dust. Horsehead's use of metallurgical coke, therefore, is part of a series of intermediate steps in the Waelzing process to create the carbon monoxide gas that causes a direct and immediate change to the zinc and iron in the EAF Dust, and it bears little resemblance to the acid and aluminum oxide described in IDOR's two examples. With respect to IDOR's second example, Horsehead argues that cracking heavy gas oil through the use of aluminum oxide requires the introduction of heat, just like Horsehead's metallurgical coke being heated. But even accepting that aluminum oxide is heated during the cracking process, IDOR's second example contemplates that the heated aluminum oxide causes the cracking of heavy gas oil, as opposed to the heated aluminum oxide causing an intermediate chemical change that in turn causes the cracking. It is clear from IDOR's second example that the mere introduction of heat to a chemical would not cause that chemical to become ineligible for the exemption in section 3-50(4) of the Use Tax Act.

¶ 23 Horsehead argues that construing section 3-50(4) in a manner that does not exempt Horsehead's metallurgical coke purchases defeats the purpose of the exemption, which is "to attract new manufacturing facilities to our State and to discourage existing ones from relocating outside Illinois." Chicago Tribune Co. v. Johnson , 106 Ill. 2d 63, 72, 87 Ill.Dec. 505, 477 N.E.2d 482 (1985). It contends that giving the term "direct and immediate effect" an overly literal interpretation "would virtually gut the chemical exemption by excluding any chemicals that must first undergo any process before reacting with the products being manufactured." That is simply not true; as long as the chemical itself, whether heated or diluted, effects the direct and immediate change on the product being manufactured or assembled for sale, it qualifies for the chemical use tax exemption. Furthermore, we are not in a position to extend the chemical exemption in a manner that would be inconsistent with the plain and ordinary meaning of the terms employed by our legislature in crafting this exemption. It is clear from the plain language of section 3-50(4) of the Use Tax Act that the legislature intended to provide a use tax exemption limited to chemicals or chemicals acting as catalysts that effect a direct and immediate change on the products being manufactured or assembled for sale or lease, and not for all chemicals or chemical catalysts used during the manufacturing process. The legislature is, of course, free to amend or revise the chemical exemption to include chemicals that are used to create other chemicals that effect direct and immediate changes on the products being manufactured. Until it does so, however, we must give the legislature's words their plain and ordinary meaning.

¶ 24 In sum, we cannot say that the tax tribunal committed clear error in determining that Horsehead's purchases of metallurgical coke for use during the Waelzing process did not qualify for an exemption under section 3-50(4) of the Use Tax Act. Therefore, we affirm the tax tribunal's order affirming IDOR's determination of use tax liability for Horsehead's out-of-state purchases of metallurgical coke.

¶ 25 Next, Horsehead argues that, should we affirm the tax tribunal's decision on Horsehead's use tax liability, the late payment penalties and late filing penalties should be abated because it satisfies the "reasonable cause" exception in section 3-8 of the Uniform Penalty and Interest Act ( 35 ILCS 735/3-8 (West 2016) ) and section 700.400 of Title 86 ( 86 Ill. Adm. Code 700.400(b), (c) (2016) ). It argues that the tax tribunal, in upholding the penalties, failed to account for the lack of controlling authority regarding the "unclear" chemical exemption, and instead relied on "its own novel interpretation of the statutory language."

¶ 26 The parties agree that our review of the tax tribunal's determination that Horsehead was not entitled to abatement of penalties is governed by the manifest weight of the evidence standard. It is well settled that an agency's determination of whether reasonable cause exists "will be reversed only if the agency's decision was against the manifest weight of the evidence and only if the opposite conclusion was clearly evident." Hollinger International, Inc. v. Bower , 363 Ill. App. 3d 313, 315, 299 Ill.Dec. 35, 841 N.E.2d 447 (2005). "The existence of reasonable cause justifying abatement of a tax penalty is a factual determination that is to be decided only on a case-by-case basis." Id. at 315-16, 299 Ill.Dec. 35, 841 N.E.2d 447. Horsehead argues, however, that must review de novo the tax tribunal's finding that the chemical exemption is clear because the tax tribunal's determination as to the clarity of the chemical exemption is entitled to no deference where the tax tribunal does not enforce the Use Tax Act or promulgate any regulations under that act. We have already rejected this argument. See supra ¶ 16.

¶ 27 Under the Uniform Penalty and Interest Act, a taxpayer is not subject to penalties if the "failure to file a return or pay tax at the required time was due to reasonable cause." 35 ILCS 735/3-8 (West 2016). Section 700.400 of Title 86 provides:

"b) The determination of whether a taxpayer acted with reasonable cause shall be made on a case by case basis taking into account all pertinent facts and circumstances. The most important factor to be considered in making a determination to abate a penalty will be the extent to which the taxpayer made a good faith effort to determine his proper tax liability and to file and pay his proper liability in a timely fashion.
(c) A taxpayer will be considered to have made a good faith effort to determine and file and pay his proper tax liability if he exercised ordinary business care and prudence in doing so. A determination of whether a taxpayer exercised ordinary business care and prudence is dependent upon the clarity of the law or its interpretation and the taxpayer's experience, knowledge, and education. Accordingly, reliance on the advice of a professional does not necessarily establish that a taxpayer exercised ordinary business care and prudence, nor does reliance on incorrect facts such as an erroneous information return." 86 Ill. Adm. Code 700.400(b), (c) (2001).

¶ 28 We conclude that the tax tribunal's decision to uphold the penalties is not against the manifest weight of the evidence. To determine whether Horsehead acted with reasonable cause, the tax tribunal considered whether Horsehead exercised ordinary business care and prudence, which is in part guided by the clarity of the law or interpretations of that law. The tax tribunal acknowledged that the term "direct and immediate change" in the chemical exemption had no statutory or regulatory definition and that there was no controlling case law as to how the chemical exemption should be interpreted. But the tax tribunal correctly found that "the terms 'direct' and 'immediate' have their simple every day meaning as used in the statute, and those meanings provide clarity to the statute, as opposed to a lack of clarity as argued by [Horsehead]." It is well settled that the best indicator of legislative intent is the language of the statute when given its plain and ordinary meaning. Shared Imaging , 2017 IL App (1st) 152817, ¶ 25, 416 Ill.Dec. 416, 84 N.E.3d 398. While it is true that there was no controlling case law on how those terms should be interpreted within the context of the chemical exemption, the plain language of the exemption is clear and unambiguous that only those chemicals that have a direct and immediate effect on the product being manufactured are exempt from the use tax. See id. ¶ 78 (upholding the imposition of late filing and late payment penalties where the taxpayer's obligations "should have been clear * * * from the language of the [Use Tax Act] and [IDOR's] regulations"). As we explained above, Horsehead does not argue that the statutory language was ambiguous and does not challenge the tax tribunal's definitions of the terms "direct" and "immediate." The language of the chemical exemption was clear, and Horsehead cannot rely on its own erroneous interpretation of the statute to argue that it exercised ordinary business care and prudence in failing to file and pay the use tax.

¶ 29 Also relevant to the inquiry as to whether Horsehead made a good-faith effort to determine its tax liability is its experience and knowledge. Horsehead does not make any express argument on this point but does insist that its prior history of tax compliance is evidence of a good-faith effort. The tax tribunal considered this argument and gave it "some, but not a great deal of, weight." The tax tribunal noted that Horsehead presented no evidence "to support its claim of good faith in taking the position it did on the chemical exemption issue, although it had the opportunity to do so." Horsehead presented no evidence at the hearing as to any previous audits by IDOR where its out-of-state purchases of metallurgical coke were identified or discussed or that the chemical exemption had ever been raised in a prior audit. Nor was there any evidence that Horsehead sought any professional guidance on its potential use tax liability, which, while not determinative, may have persuaded the tax tribunal of Horsehead's good-faith efforts to comply with the Use Tax Act. In sum, Horsehead's argument that it made a good-faith effort to comply with its use tax obligations because the law surrounding the chemical exemption was unclear, that there was no controlling authority available, and that it had paid all of its other taxes is unavailing. Had Horsehead reasonably believed it was exempt from paying a use tax on its out-of-state purchases of metallurgical coke, it would have presented testimony evidencing a business decision that acknowledged a good-faith effort to determine its appropriate tax liability and the reasons why it failed to pay. The absence of any testimony at the hearing in this vein, coupled with its own witness conceding that "the [metallurgical] coke or carbon [does] not react directly with either the zinc oxide or the iron oxide to reduce them to zinc and iron," supports the tax tribunal's finding that "reasonable cause" to abate statutory penalties did not exist. Horsehead's unilateral interpretation of the chemical exemption did not comport with the plain language of the exemption, and it presented no evidence of any other reliance to support its decision to not pay the use tax. Based on the record before the tax tribunal and this court, we cannot say that the tax tribunal's decision to uphold the imposition of the late payment penalties and late filing penalties was against the manifest weight of the evidence.

¶ 30 CONCLUSION

¶ 31 For the foregoing reasons, the final order of the tax tribunal is affirmed.

¶ 32 Tax tribunal decision affirmed.

Presiding Justice Mikva and Justice Walker concurred in the judgment and opinion.

      Horsehead Corporation is now known as American Zinc Recycling Corporation. We will, however, refer to petitioner as "Horsehead."

      Expressed as a chemical formula, C+CO2=2CO. In other words, the reaction between carbon and the carbon dioxide in an oxygen-poor environment such as the kiln produces carbon monoxide.

      The first notice covered the period of January 1, 2007, through June 30, 2009, and the second notice covered the period of July 1, 2009, through June 30, 2011.