Chicago demanding amusement taxes
from online resellers

Online entities are becoming the preferred avenue for states and localities to collect much-needed tax revenue.

As I blogged about here, Amazon is battling it out with various jurisdictions over sales taxes on its Internet transactions.

Now, Chicago says eBay and StubHub owe the city amusement taxes on tickets to Chicago-based events that were sold or resold through the popular Web sites. Technically, Chicago officials are trying to get the money from just one company, since eBay bought StubHub last year.

Either way, contends the city in complaints filed in Cook County Circuit Court, eBay and StubHub are "reseller’s agents" and are therefore required to pay Chicago’s 8 percent amusement tax.

In addition to collecting the allegedly unpaid taxes, interest and penalties from each company, Chicago is seeking:

• A declaratory judgment that eBay and StubHub are required
  to collect and remit the tax.
• A court order that the companies allow the Chicago Department of Revenue
  to audit the companies’ books and records.
• Fines against the firms for failing to produce their books and
  records.

The city charges that eBay and StubHub have refused to
comply with a request for ticket sales’ records since last year, which
triggered the imposition of fines set at $500 per day until the matter
is settled.

Jenny Hoyle, a
spokeswoman for the city’s Law Department, told the Chicago Tribune that while the city believes thousands of tickets to events at Chicago venues have been sold through the Web sites, it’s unclear what the total sales are, which
is why the city wants access to the brokers’ books.

Expected response from online companies: Both online outlets plan to fight the suit.

"We do not believe that the City’s Amusement Tax applies to either eBay’s or
StubHub’s business models, nor do we believe that the Amusement Tax can properly
be assessed here," said identical statements issued by spokesmen for both
companies.

eBay and StubHub subsequently filed papers to have the cases moved from the original Cook County Circuit Court to the United States District Court for the Northern District of Illinois because of the amount of money in question and the "diversity of citizenship," i.e. "… political subdivisions are citizens of their respective States."

You can read the removal to federal court filings, which recount the city’s original claims, at City of Chicago v. eBay, Inc. (No. 2008-L-050524) and City of Chicago v. StubHub!, Inc. (No. 2008-L-050525).

Chicago loves its lawsuits: This isn’t the first time Chicago has gone after resellers. In October 2005 the city filed a lawsuit seeking unpaid taxes against 17 companies that
sell Chicago hotel rooms over the Internet, including Hotels.com, Orbitz.com, Priceline.com and Travelocity.com. That suit is still pending.