Illinois Supreme Court Holds Online Ticket Resellers are Not Liable for Local Amusement Tax
In 1995, following the Illinois Legislature’s amendments to the States Ticket Scalping Act, the City of Chicago amended its municipal code to extend its existing amusement tax law, which applied to admission fees for entertainment events in the City, to ticket resales.
In 2002, Illinois amended its law prohibiting the resale of tickets for more than face value to create additional exceptions, including one for internet auction listing services. An “internet auction listing service” is registered under the law and provides an online venue where third parties may buy and sell tickets to events. The internet auction listing service receives fees from both the ticket buyers and sellers.
In 2006, the City of 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, Inc. stating that StubHub might be deemed a reseller under the Chicago ordinance and, therefore, might be required to collect and remit the amusement tax on behalf of its users.
StubHub is registered as an internet auction service and describes itself as “the world’s largest online ticket marketplace.” All users register by providing personal information on StubHub’s website. A user who wants to sell a ticket may list it on the website by submitting information about the event, including the venue, date, time, and location of the ticket, as well as choosing a method and period for the sale, through a series of interactive prompts on the site. A user who wants to buy a ticket may search based on event, date, or venue. Prospective buyers and sellers can communicate with each other only via the website. Once the parties agree on a price, StubHub processes the sale.
The Supreme Court of Illinois agreed with the City that internet auction listing services, like StubHub, Inc., should be classified as “reseller’s agents.” Under Illinois constitutional law, however, if a municipality that is a home rule unit attempts to take an action that does not pertain to the government and affairs of the municipality, then the exercise or performance of that action is void unless authorized by statute or another constitutional provision. To determine whether the imposition of the amusement tax pertained to local government and affairs, the Court considered three factors: (1) the nature and extent of the problem; (2) the units of government that have the most vital interest in its solution; and (3) the role local and statewide authorities traditionally play in dealing with the problem. Here, Chicago claimed that imposition of the amusement tax was proper because the City had a vital interest in maximizing revenue.
The Court disagreed with the City and found that: (1) the nature of the problem was two-fold and included opening a new market and protecting consumers; (2) the state has a greater interest than any municipality in regulating this emerging business model and protecting consumers; and (3) the state traditionally has played a greater role in addressing the problems in this area. As a result, the Court concluded that Illinois municipalities, like the City of Chicago, could not require electronic intermediaries, like StubHub, to collect and remit taxes on resold tickets.
If you have any questions regarding the contents of this newsletter, please contact the following attorneys in the firm’s State and Local Tax Practice Group.
| Chicago (312) 558-5600 | San Francisco (415) 591-1000 |
| Robert F. Denvir | Charles J. Moll III |
| Alan Lindquist | Troy M. Van Dongen |
| Bradley R. Marsh | |
| Jocelyn M. Wang | |
| Dina M. Bronshtein | |
| Jasmine I. Tollette |