Illinois Municipalities Cannot Mandate Internet Auction Listing Service to Collect and Remit Taxes on Resold Tickets

In City of Chicago v. StubHub, Inc., 979 N.E.2d 844, the Supreme Court of Illinois discussed whether or not municipalities (such as the Appellant City of Chicago in this case) could ask electronic intermediaries (such as internet auction listing services, StubHub Inc., the Appellee in this case) to collect and remit amusement taxes on resold tickets. 
 
In this case, the Plaintiff Appellant, City of Chicago (“Appellant”) sued an internet auction listing service, StubHub, Inc.(“Appellee”) in state court seeking judgment that the Appellee was responsible for collecting special city amusement tax on ticket sales.  Following removal, the United States District Court for the Northern District of Illinois granted Appellee’s motion to dismiss for failure to state claim.  Consequently, the Appellant appealed to the Seventh Circuit Court of Appeals.  The Court of Appeals certified question to the Illinois Supreme Court.  The Supreme Court of Illinois came to the conclusion that Illinois municipalities may not require electronic intermediaries to collect and remit amusement taxes on resold tickets.
 
The 2002 amendment of the Auction License Act required "Internet Auction Listing Services" either located in Illinois or dealing with persons or property located in Illinois to register with the state's Department of Financial and Professional Regulation. See 225 ILCS 407/10-27(b) (West 2010). City of Chicago, 979 N.E.2d at 846. In light of this amendment, online auctioneers were brought under the same regulatory umbrella that covered more traditional auctioneers. Id. However, the amendment recognized the differences between traditional and online auctioneers as well. Id. 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." 225 ILCS 407/10-27(a)(1) (West 2010). Id. The statute required internet auction listing services to 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" (225 ILCS 407/10-27(c)(1) (West 2010)), and that it retains identification information on its users and their transactions, provides customer support for its users, and suspends users who engage in deliberate fraud. 225 ILCS 407/10-27(c)(2) to (6) (West 2010). Id.
 
In 2005, the General Assembly enacted the Ticket Sale and Resale Act of 2005), featuring extensive and detailed consumer protection measures that had long been an interest of, and regulated by, the State. City of Chicago, 979 N.E.2d at 855. However, the Ticket Sale and Resale Act did not mandate internet auction listing services to collect taxes. Id. Instead, the Act gave such services the choice of collecting and remitting all federal, state, and local taxes, or notifying resellers of their own liabilities for any applicable local amusement taxes and also disclosing any personal information about a reseller requested by municipal tax officials in relation to a criminal investigation. Id.

In 2006, the city amended its amusement tax ordinance to require "reseller's agents" to collect and remit the amusement tax. City of Chicago, 979 N.E.2d at 848. The Supreme Court observed that the City is free to define terms in its code, and need not track common law agency principles. City of Chicago, 979 N.E.2d at 850. Under the ordinance, a reseller's agent is “a person who, for consideration, resells a ticket on behalf of the ticket's owner or assists the owner in reselling the ticket.” Chicago Municipal Code § 4–156–010 (amended May 24, 2006). Id. The court found that the Appellee comes within this definition because it provides services that help users sell their tickets, and it is compensated for those services. See City of Chicago v. StubHub, Inc., 624 F.3d 363, 366-67 (7th Cir.2010) (“intermediaries that take an active role in staging an auction and exchanging goods for money, as StubHub[ ] does, are resellers' agents”). Id. The court further observed that the City has home rule authority to tax pursuant to Ill. Const. 1970, art. VII, § 6(a)), and statutory authority to tax amusements according to 65 ILCS 5/11–42–5. Id. at 853.
 
The Supreme Court of Illinois found that the City has an interest in collecting its amusement tax. City of Chicago, 979 N.E.2d at 853. However, the state has an interest in who does the collecting, which is related to its vital interest in preserving and regulating the emerging market for online ticket resale across Illinois. Id. The Supreme Court noted that, before the City amended its code, the General Assembly had shown a clear and keen understanding that online auctioneers employ a new business model, uniquely suited to statewide regulation. Id.
 
The Supreme Court of Illinois concluded that the state has a greater interest than the City and a more traditional role in addressing the problem of tax collection by internet auctioneers.  City of Chicago, 979 N.E.2d at 855. The court found that the sellers and resellers of tickets may be made to collect the tax but internet auction listing services may not. Id. at 857.