Pin It

So you make a few dollars. StubHub makes a few dollars. Should Chicago get to wet its beak? 

Lawyers from the city of Chicago and StubHub Inc. stood before the Illinois Supreme Court Tuesday and argued a case whose results could transform Chicago’s ticket-selling industry.

The current price of a ticket to a sporting event, concert, or theatrical performance in Chicago includes a 12 percent amusement tax: the city gets 9 percent and Cook County 3 percent. But there’s a large secondary market for these tickets. StubHub, eBay, and Tickets.com are among the cyber-sites that bring buyers and resellers together. StubHub charges those sellers a 15 percent commission and the buyers a 10 percent commission. The company doesn’t collect tax from either.

Ticket “scalpers” in Chicago are supposed to remit to the city an amusement tax of 9 percent of the difference between a ticket’s face value and its higher resale price. Ticket brokers do, but not your average Chicagoan with some extra tickets he decides to peddle. Recently I went on StubHub to sell a couple of Cubs tickets I didn’t need and a notice popped up that said, “Sellers for events in Chicago may need to collect and pay a local amusement tax.” I didn’t know what that meant. I didn’t know what I owed, or if I owed anything, and if I did how to pay it.

There must be a lot of people like me. John Moore, a Chicago attorney who specializes in ticket issues, said the city estimates that in 2005 it lost $14 million in uncollected taxes on resold tickets, about $2 million of that total on tickets sold on StubHub.

How can the city recoup this money? Steve DelBianco, who’s on StubHub’s side in its legal battle with Chicago, says, “The city is probably not going to follow up on one customer who sold one ticket for an additional four damn dollars.” And it can’t possibly follow up on thousands of such customers.

So the city amended the Municipal Code in 2006, adding internet ticket reselling agents to its definition of brokers, for the purpose of collecting amusement tax. The city was following up on a 2005 amendment to the Illinois Ticket Sale and Resale Act, which allowed Internet Auction Listing Services (IALS) to resell tickets just like official brokers do.

But when Chicago insisted StubHub collect the tax and remit it to the city, StubHub refused. (So did smaller agencies doing the same kind of online business.) And in May 2008, Chicago filed one suit against StubHub and another against eBay, which owns it. As StubHub has a bricks-and-mortar presence in Chicago – though StubHub says it’s merely a ticket-pickup location on West Randolph -- Moore says its case is the one that will determine what the law in Chicago requires of online resellers.

Although Chicago sued StubHub in Cook County court, StubHub got the suit shifted to federal court because it’s based in California. Even so, the laws in dispute are state and local. In March 2009, federal judge Wayne Anderson dismissed the city’s lawsuit against StubHub. Anderson said StubHub was in compliance with the state’s Ticket Sale and Resale Act, which simply requires e-commerce ticket resellers to either notify resellers online that they’re obligated to pay an amusement tax when they resell tickets for profit, or else provide certain information about the reseller (name, city, state, telephone number, email address, listing and selling history of resold tickets) to municipal authorities upon request.

The city appealed to the Seventh Circuit Court of Appeals, which last September asked the Illinois Supreme Court for direction on how to interpret state law. As the fate of the suit will almost certainly turn on the supreme court’s response, the court’s reading of the amended Illinois Ticket Sale and Resale Act is all-important. Supporting StubHub is NetChoice, a coalition of e-commerce companies and trade associations that includes AOL, eBay, Expedia, Overstock.com, and the Electronic Retailing Association. NetChoice has submitted its own amicus brief to the court arguing StubHub’s position.

NetChoice says if the city wins, the IALS business model will be shaken to the core. Its brief argues that Chicago is improperly going beyond state law to impose an unworkable tax collection burden on e-commerce providers.

“Chicago is very provincial,” says DelBianco, the executive director of NetChoice. “The city may be used to getting its way, but this is the wrong way. Regulating e-commerce is not the way to do it.”

A 1998 case decided in state courts, Mr. B’s, Inc. v. City of Chicago (Moore represented Mr. B’s), established that ordinary ticket brokers must pay an amusement tax on the revenues from resold tickets. Will StubHub be forced to follow suit? Unable to apply state law until it understands what it is, the Seventh Circuit asked the supreme court three questions: Does the amusement tax function like an occupation tax, meaning a tax on services provided? Does the 2005 state amendment prevent the city from defining online resellers as “agents”? Is the amusement tax a tax on “tangible personal property”?

And to give the supreme court a full opportunity to say whatever is on its mind, the Seventh Circuit also asked it whether municipalities even have the authority to require electronic intermediaries to collect and remit amusement taxes on resold tickets. “We phrase the question this way to ensure maximum flexibility for the state judiciary, which may elect to address any of the three sub-questions we have already identified, or may conclude that some other issue altogether determines the appropriate answer,” wrote the appellate court.

Moore said that if the supreme court tells the Seventh Circuit that amusement taxes are occupation taxes, StubHub benefits, because only the state can levy an occupation tax. And if the supreme court says amusement taxes are a tax on tangible personal property but home-rule municipalities cannot tax tangible personal property, again StubHub benefits. Moore said either ruling would eliminate the amusement tax for all brokers.

“I have plenty of clients who would be very happy if amusement taxes were to go away altogether,” Moore said. “What they don’t like is that eBay and StubHub don’t have to collect, and they do.”

Yet Moore thinks there’s a good chance the city will prevail. The supreme court could tell the Seventh Circuit that Illinois’s amusement tax is not an occupation tax; or that city amusement taxes are valid and nothing in state law preempts them; or that tickets are not tangible personal property and therefore can be taxed by the city.

“What the city is pointing out, and what people tend to ignore, is that the city can tax the markup on the secondary market,” Moore says.

Moore was in Springfield Tuesday listening to the arguments. The city’s position, he said, is, ‘Sure, StubHub posts the message and complies with the state statute -- but all that indicates is that they are not violating the law.’ And StubHub’s is, ‘Oh no, what it actually means is that by complying, the city cannot force us to collect the tax. They should go after the individual reseller.’

But Moore heard something new during testimony Tuesday: “StubHub said they will certainly cooperate with the city [by providing the reseller transaction details described in state law], and they are certainly doing so in other cities.”

He told me, “It could be a couple of months before the supreme court rules. Or they could surprise everyone and rule sooner.”

Find out how you can help

Pin It

Comments

Showing 1-1 of 1

Add a comment

 
Subscribe to this thread:
Showing 1-1 of 1

Add a comment

More by Sarah Louise Klose

Agenda Teaser

Performing Arts
Panic on Cloud 9 Second City
December 04
Galleries & Museums
June 05

Tabbed Event Search

Popular Stories

Follow Us

Sign up for newsletters »

 Early Warnings
 Food & Drink
 Reader Recommends
 Reader Events and Offers
An Entire Alaskan Town Lives In One 14-Story Building