Tax Law Updates | New Judicial Opinions
April 21, 2009
Ill District Court: Online Listing Company Not Required to Collect and Remit Amusement Taxes on Ticket Sales
City of Chicago v. StubHub, Inc.
No. 08C3284, U.S. District Court for the Northern District of Illinois, 3/30/2009
The U.S. District Court for the Northern District of Illinois has held that defendant StubHub, Inc., an online listing company, was not required to collect and remit amusement taxes on tickets sold through its online listing service. In ruling against plaintiff City of Chicago (“City”), the district court reasoned that the 2005 amendment to the Ticket Sale and Resale Act explicitly discharged StubHub's state and local tax obligations. The district court wrote that StubHub was only required to put a prompt on its web site to warn ticket sellers of their obligation to pay the amusement tax and provide certain information if requested by municipal authorities. On the basis of the foregoing, the district court granted StubHub’s motion to dismiss.
The issue in this case is whether StubHub is required by law to collect that amusement tax and pass it along to the City when such a sale occurs on its Internet auction listing site.
The City filed this lawsuit against StubHub seeking to collect the City’s 8% amusement tax on tickets to Chicago events that are sold through StubHub’s Internet listing service. The City also wanted to compel StubHub to provide it with information about the sales of tickets to Chicago events made on StubHub’s website from January 1, 2000 to the present.
StubHub is a venue which third parties use to buy and sell tickets. StubHub collects the purchase price from the buyer, keeps a percentage for itself, and remits the balance to the seller. In order to use StubHub’s website, users must first register as sellers. As the complaint alleged, a seller listing an item for sale must fill in numerous fields in order to list an item on the site.
Historically, ticket “scalping”—reselling a ticket at a price above its face value—was generally unlawful in Illinois under the Illinois Ticket Sale and Resale Act. 720 ILCS 375/1.5(a).
For many years, the City of Chicago has imposed a special tax on amusements such as theater performances and sporting events that take place within the city limits (hereinafter “amusement tax”). Opinion, p. 2, citing Chicago Municipal Code section 4 156-020. In 1995, the Chicago Amusement Tax Ordinance was amended to extend the amusement tax to cover secondary ticket sales by persons who resell tickets above face value. Under the amended Chicago amusement tax, ticket resellers are required to pay the 8% amusement tax on the entire amount of any mark-up charged to the ticket purchaser, including any amount the broker may designate as a fee for its brokerage services.
In 2005, the Illinois Ticket Sale and Resale Act, 720 ILCS 375/1.5(c), was amended in a manner that bears directly on the key issues in this case. The amendments added a second exception to the prohibition on ticket scalping. This amendment allows anyone to use certain Internet websites to sell tickets at prices above face value.
The General Assembly made a policy decision that, rather than requiring Internet auction listing services to collect and remit amusement taxes, it would require the operator of such a service to do only two things: 1) to warn resellers of their potential liability for municipal amusement taxes; and 2) to provide certain information in response to a request from law enforcement or taxing officials.
After the 2005 amendments to the Ticket Sale and Resale Act, StubHub registered as an Internet Auction Listing Service under the Illinois Ticket Sale and Resale Act and received a license from the State and a certificate from the Secretary of State evidencing its compliance with the provisions of that Act. In order to register as an Internet auction listing service, StubHub was required to certify (among other things) 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.” Id., p. 5, citing 225 ILCS 407/1027(c)(1).
On September 1, 2006, the City amended its Amusement Tax Ordinance to require not only “resellers,” but also “reseller’s agents” to collect and remit the amusement tax from the ultimate purchaser.
In February 2007, the City’s Department of Revenue sent a letter to StubHub stating that StubHub might be deemed a “reseller’s agent” under the amended Amusement Tax Ordinance and therefore may be required to register for, collect, and remit the Chicago Amusement Tax. Id., p. 6, citing Compl. paragraph 25. The letter requested information and documents with respect to StubHub’s “facilitation” of ticket resales to amusements located in Chicago from January 1, 2000 through the date of the response. Id. StubHub declined to provide any of the information requested, on the ground that the City could not lawfully require StubHub to collect or remit amusement taxes or require it to provide the documents in question. Id. This lawsuit followed.
In granting StubHub’s motion to dismiss, the district court noted that the text and legislative history of the Illinois Ticket Sale and Resale Act make clear that the Act did not intend for Internet auction listing services, such as StubHub, to collect and remit amusement taxes. On the other hand, the district court further noted, the City’s amended Amusement Tax Ordinance requires a business to collect and remit the amusement tax if it acts as a “reseller’s agent”, which is defined as “a person who, for consideration, resells a ticket on behalf of the ticket’s owner or assists the owner in reselling the ticket,” a definition that would seem to apply to StubHub.
The district court wrote that in enacting the 2005 amendments to Ticket Sale and Resale Act, the General Assembly expressly relieved StubHub and other Internet auction listing services from having to collect or remit local amusement taxes. Id., pp. 8-9, citing 720 ILCS 37511.5(c)(6) (exempting an Internet auction listing service from tax collection obligations). Instead, the district court explained, under the 2005 amendments to the Ticket Sale and Resale Act, StubHub’s sole obligation is to: 1) put a prompt on its website warning ticket sellers of their obligation to pay the amusement tax; and 2) provide certain information if requested by municipal authorities.
The district court thus concluded that the City lacks the authority under State law to impose any additional obligation on StubHub to collect and remit the amusement tax. The district court thus granted StubHub’s motion to dismiss as to Count 1 of the complaint.
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