Ill. SC rules for StubHub in tax issue

By Jessica M. Karmasek | Oct 11, 2011


SPRINGFIELD, Ill. (Legal Newsline) - The Illinois Supreme Court ruled last week that the city of Chicago went beyond its home rule powers in trying to require electronic intermediaries, like StubHub, to collect and remit amusement taxes on resold tickets.

In 1923, the Illinois General Assembly passed the Ticket Scalping Act, which prohibited owners of public entertainment venues from selling admission tickets anywhere other than the venues' box offices.

In 1935, the legislature broadened that statute beyond venue owners, and outlawed the sale of such tickets for more than face value.

This statute remained unchanged until 1991, when the legislature rewrote it to provide an exception for ticket brokers, who could avoid any penalties for selling tickets above the box office price by meeting several requirements, including registering with the Secretary of State and paying all applicable state and local taxes. The legislature amended and expanded upon these requirements in 1995.

That year, the city of Chicago also amended its municipal code to extend its existing amusement tax, which applied to admission fees for entertainment events in the city, to ticket resales. Under this amendment, "every reseller" was required to pay the amusement tax on "that portion of the ticket price that exceeds the amount that the reseller paid for the tickets."

In 2002, the legislature amended the Auction License Act, requiring Internet auction listing services either located in Illinois or dealing with persons or property located in Illinois to register with the state's Office of Banks and Real Estate. This amendment brought online auctioneers under the same regulatory umbrella that covered more traditional auctioneers, but the amendment also recognized the significant differences between them.

Specifically, the statute defined an Internet auction listing service as a website or other interactive computer service that brings together prospective sellers and buyers of personal property, but "does not examine, set the price, or prepare the description of the personal property, or in any way utilize the services of a natural person as an auctioneer."

The statute mandated that an Internet auction listing service must certify that it "does not act as the agent of users who sell items on its website, and acts only as a venue for user transactions," and that it retains identification information on its users and provides customer support for its users.

As tickets to entertainment events began to appear on such websites, the legislature replaced the Ticket Scalping Act with the Ticket Sale and Resale Act. The statute still prohibited the sale of tickets for more than face value, but contained more exceptions, including one for Internet auction listing services.

In 2006, Chicago amended its amusement tax ordinance again to require not only "resellers," but also "reseller's agents" to collect and remit the amusement tax.

In 2007, the city sent a letter to StubHub, considered "the world's largest online ticket marketplace," stating that it might be deemed a reseller's agent under the ordinance and might be required to collect and remit the amusement tax on behalf of its users. The letter requested information and documents with respect to the company's "facilitation" of ticket resales to entertainment events located in Chicago since Jan. 1, 2000.

StubHub declined to provide any of the information. In 2008, Chicago filed a four-count complaint against the company.

The city alleged that StubHub was a reseller's agent under the ordinance because it "resold and/or facilitated the resale" of tickets. It also claimed that StubHub had a joint and several duty to collect and remit the amusement tax on thousands of ticket resales from 2000 to the present.

As a diversity matter, the suit was removed to the U.S. District Court for the Northern District of Illinois, which dismissed it.

The city's appeal to the U.S. Court of Appeals for the Seventh Circuit then resulted in a certified question brought before the state Supreme Court.

The federal court wanted to know if, as a matter of Illinois law, municipalities may require electronic intermediaries to collect and remit amusement taxes on resold tickets.

The state's high court, in an opinion filed Thursday, concluded that Illinois municipalities may not require electronic intermediaries to collect and remit amusement taxes on resold tickets.

Justice Mary Jane Theis authored the Court's 14-page opinion.

"Here, the City claims that the problem is one of revenue, and more specifically revenue sufficient to provide municipal services for entertainment events. The City imposes its amusement tax on initial sales of tickets, as well as resales. Presumably, it budgets for municipal services based in part upon the number of events and the number of likely attendees," Theis wrote. "These considerations remain constant, regardless of whether tickets are resold at prices above face value.

"What the City has attempted in amending its code is not to generate revenue with a new tax, but to generate revenue through an existing tax by changing the mechanics of its collection and enlisting StubHub and other Internet auctioneers to gather it from diasporic sources."

The State, the Court said, has a greater interest than any municipality in regulating "this emerging business model" and protecting consumers.

"The statutory scheme, and the debates which produced the (Consumer Fraud and Deceptive Business Practices) Act, evince an intent by the legislature to allow Internet auction listing services to opt out of any obligation regarding local tax collection," Theis wrote. "That is a policy decision this court is ill-advised to ignore.

"The City's ordinance -- specifically the imposition of a joint and several duty on Internet auction listing services to collect and remit its amusement tax and the requirement that Internet auction listing services are primarily responsible for collecting and remitting this tax -- does not pertain to its own government and affairs."

The Court said, in this case, Chicago has "overstepped" its home rule authority.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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