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In an interesting procedural case, and important decision for online intermediaries, the Seventh Circuit Court of Appeals held that the City of Chicago may not require Internet intermediaries to collect and remit the City’s amusement tax on the difference between the original ticket price and resale price of tickets sold online. City of Chicago, Illinois v. StubHub!, Inc., Dkt. No. 09-3432 (7th Cir. Nov. 23, 2011); City of Chicago, Illinois v. eBay, Inc., Dkt. No. 10-1144 (7th Cir. Nov. 23, 2011).

Beginning in 1991, Illinois authorized ticket brokers to resell their tickets at a premium price, provided the broker registered with the State and collected local taxes. The City of Chicago took advantage of this opportunity to tax the incremental price of resold tickets until Illinois amended its ticket scalping laws in 2005. Following the 2005 amendments, an “Internet auction listing service” was relieved of the mandatory collection of local taxes, provided it met certain registration requirements and published a written notice on its website “inform[ing] the ticket reseller of the ticket reseller’s potential legal obligation to pay any applicable local amusement tax.” 720 ILCS 375/1.5(c).Continue Reading Seventh Circuit Not Amused by Chicago’s Amusement Tax

The Seventh Circuit Court of Appeals recently confirmed that a state or local government’s intent to discriminate against railroad carriers is a relevant consideration in analyzing allegations of discriminatory taxation in violation of the federal Railroad Revitalization and Regulatory Reform Act (“4-R Act”). 49 U.S.C. § 11501. The court further clarified the relationship between the 4-R Act and the Tax Injunction Act (“TIA”). 28 U.S.C. § 1341; Kansas City S. Ry. Co. and Norfolk S. Ry. Co. v. Koeller, No. 10-2333 (7th Cir. July 27, 2011). The residual clause of the 4-R Act prohibits states and their subdivisions from imposing discriminatory taxes against railroads.

At issue was a shift in 2009 by the Sny Island Levee Drainage District (an Illinois political subdivision), from its longstanding and uniform, per-acre annual maintenance assessment on all property to an assessment based on differentiating between land owned by railroads, pipelines, and utilities (“RPU”), and non-RPU land. Under the new regime, non-RPU land would continue to be assessed on a per-acre basis while RPU land would be assessed according to the value of the benefit conferred on RPU lands by the District’s levee system. The result: 4,800% and 8,300% increases in assessments for Kansas City Southern and Norfolk Southern railroads, respectively, in the span of one year. At the same time, the District chose to exempt land situated within municipalities, which, according to the District’s commissioners, included all non-RPU commercial and industrial properties. To make matters worse, the District never notified RPU landowners of the change in assessment methodologies, as it was required to do under Illinois law.Continue Reading All Aboard! Seventh Circuit Rails Local Government for Discriminating Against Railroads

The Texas Comptroller of Public Accounts (Comptroller) took a “members only” approach to determine how revenue derived from website access fees should be sourced to Texas for Texas Franchise Tax apportionment purposes. In Letter No. 201102989L (Feb. 2, 2011), the Comptroller considered the sourcing of revenues derived from a company’s social networking website. The social networking website allowed registered users to pay a flat fee to access the website’s database, publish information, communicate with other users, and utilize and interact with the website’s programs. The Comptroller concluded that such fees were akin to membership fees because customers were charged a flat rate for certain benefits and thus should be sourced to the location of the payor.Continue Reading Texas “Tweets” Guidance on Sourcing Social Networking Website Revenue

It appears that the state tax world is not immune to the scandal involving former Illinois Governor Rod Blagojevich. On March 2, 2011, the U.S. Court of Appeals for the Seventh Circuit issued its ruling in Empress Casino Joliet Corp. v. Blagojevich, Nos. 09-3975 and 10-1019 (7th Cir. 2011), holding that the Tax Injunction Act (TIA) does not bar four riverboat casinos from challenging casino surcharges paid into the Illinois Horse Racing Equity Trust Fund because such payments were fees rather than taxes and not subject to the TIA.Continue Reading You’re Not Fired! Tax Injunction Act Does Not Bar Federal Court Review of Blagojevich-Era Legislation

Illinois recently enacted a tax amnesty program that provides a carrot—but carries a big stick. Taxpayers who participate in the program are able to eliminate interest and double penalties for any eligible tax liabilities. However, taxpayers that do not participate in the program will be subject to double interest and penalties on any eligible liability. Ouch! Taxpayers must analyze the pros and cons of the amnesty program and decide quickly because it will run for only a very brief time—from October 1 through November 8, 2010.

Continue Reading Illinois Amnesty: Double Interest, Double Penalties and a Double Edged-Sword