Illinois – Supreme Court Rules that Online Ticket Reseller is Not Subject to Local Tax

SALT Report 1934 – The Illinois Supreme Court ruled that cities cannot require electronic online ticket resellers to collect and remit taxes on the tickets they resell.  In this case, an online ticket reseller (Taxpayer) registered with the state of Illinois as an Internet auction listing service.  The listing service enabled people to resell unwanted tickets for various events around the country.

The Taxpayer’s service enabled buyers and sellers of tickets to communicate and negotiate a ticket price online. Once a purchase price was agreed on, the Taxpayer processed the sale, charged the buyer a service fee of 10% of the purchase price and the seller a service fee of 15% of the price.  After a sale was completed, the Taxpayer would notify the sellers of their obligation to remit tax to the state.

In 2005, Chicago passed several ordinances regulating ticket sales. Among them were the Ticket Scalping Act and the Ticket Sale and Resale Act. These acts prohibited the scalping of tickets but allowed internet auction listing services to resell tickets. The acts mandated that these services were required to collect and remit tax on the portion of the ticket price that exceeded the amount that the reseller originally paid for the ticket, or notify the seller of their obligation to pay tax to the state.

In 2007, the city of Chicago sent a letter to the Taxpayer stating that it was deemed a reseller’s agent and might be required to collect and remit tax on behalf of its users. The city of Chicago sought a declaration that the Taxpayer was required to do so and ordered the Taxpayer to produce records and submit to an audit. The Taxpayer refused to comply with Chicago’s request to produce records and was fined the amount of the unpaid taxes plus interest and penalties. The Taxpayer appealed.

During the appeal, the Supreme Court ruled that an area that is legislated by the state is not subject to local governmental control in a situation in which the state has a vital interest. Further, the Illinois Ticket Sale and Resale Act gives internet auction services the choice of collecting tax or notifying resellers of their own tax liability.

The Court concluded that Illinois has a vital interest in regulating online auctions and protecting consumers. Therefore, Illinois has a greater interest in collecting local taxes from internet auction services than the city of Chicago. As a result, the Court ruled that internet auction listing services cannot be made liable to collect and remit tax to Chicago.

Further, the Supreme Court noted that the Chicago ordinance taxing Internet auction ticket resellers does not pertain to Chicago’s own government affairs and that Chicago overstepped its home rule authority in passing the ordinance.

For Further Information:

Illinois Supreme Court – Docket Number 111127

SALT Report 1244 – Online Ticket Resellers Not Liable for Local Tax in Illinois