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Webster v. City of Chicago

OPINION FILED APRIL 17, 1985.

CHARLES E. WEBSTER ET AL., PLAINTIFFS-APPELLANTS,

v.

THE CITY OF CHICAGO, DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook County; the Hon. Albert S. Porter, Judge, presiding.

JUSTICE MCNAMARA DELIVERED THE OPINION OF THE COURT:

Plaintiffs, Charles Webster and Fredrick Blum, brought this action against defendant city of Chicago seeking a declaration that the Chicago Transaction Tax Ordinance is unconstitutional and an injunction enjoining the collection of the tax. The trial court granted the city's motion to dismiss the action, and plaintiffs appeal.

On December 14, 1973, the city enacted chapter 200.1 of the Municipal Code under its home rule powers. Section 2.A.1 imposes a tax on the lease or rental of personal property at the rate of 6% of the lease or rental price. The ordinance provides, in section 2.A.2, that the ultimate incidence of and liability for the tax is on the lessee. The tax is collected by the lessor and remitted to the city through the purchase of tax stamps. The ordinance also provides for a tax on the transfer of title to real estate, which is not challenged here.

Webster rented automobiles, while Blum rented formal clothing, after January 1, 1974, the effective day of the ordinance. Both plaintiffs were charged the 6% tax by the lessors. On February 10, 1983, they brought this suit as a class action on behalf of all persons who leased personal property and paid the tax. Plaintiffs allege that the leasing tax provision violates article VII, section 6(e) of the Illinois Constitution (Ill. Const. 1970, art. VII, sec. 6(e)), because it is a tax on services or occupations and is measured by income or earnings.

We initially note that the constitutionality of the leasing tax was unsuccessfully challenged in Williams v. City of Chicago (1977), 66 Ill.2d 423, 362 N.E.2d 1030, on equal protection and due process grounds. Williams is not decisive in this appeal, however, since the issues raised here have not been considered heretofore. Fujimura v. Chicago Transit Authority (1977), 67 Ill.2d 506, 368 N.E.2d 105; Heany v. Northeast Park District (1935), 360 Ill. 254, 195 N.E. 649.

The 1970 Illinois Constitution adopted a system of home rule units and granted specific powers to those units. Section 6(a) of article VII provides:

"Except as limited by this Section, a home rule unit may exercise any power and perform any function pertaining to its government and affairs including, but not limited to, the power * * * to tax * * *."

Section 6(e) limits the taxing power as follows:

"A home rule unit shall have only the power that the General Assembly may provide by law * * * to license for revenue or impose taxes upon or measured by income or earnings or upon occupations."

The powers of a home rule unit are construed liberally. Ill. Const. 1970, art. VII, sec. 6(m).

• 1 Plaintiffs contend that the leasing tax is prohibited by section 6(e). Initially they maintain that the leasing of personal property is a service and that any tax on services is an impermissible tax on occupations. Commercial National Bank v. City of Chicago (1982), 89 Ill.2d 45, 432 N.E.2d 227.

In the context of Illinois tax law, the supreme court defined "service" as "all `sales' transactions other than sales of tangible property." (Waukegan Community Unit School District No. 60 v. City of Waukegan (1983), 95 Ill.2d 244, 254, 447 N.E.2d 345.) During the Constitutional Convention debates on paragraph 4.4, which became section 6(e), the delegates indicated that a sales or use tax was permissible (4 Record of Proceedings, Sixth Illinois Constitutional Convention 3154 (hereinafter cited as Proceedings)), but a tax on service providers was prohibited. The types of services which could not be taxed were, for example, those provided by doctors, lawyers, accountants, beauticians, repairmen and travel agents. (4 Proceedings 3160, 3366.) Consequently, a tax on parking spaces and hotel rooms was constitutional (Jacobs v. City of Chicago (1973), 53 Ill.2d 421, 292 N.E.2d 401; Springfield Hotel-Motel Association v. City of Springfield (1983), 119 Ill. App.3d 753, 457 N.E.2d 1017), while a tax on utilities was unconstitutional. Waukegan Community Unit School District No. 60 v. City of Waukegan (1983), 95 Ill.2d 244, 447 N.E.2d 345.

• 2 Although plaintiffs refer us to telephone books and various Federal publications which classify the business of leasing personal property as a service, we are of the opinion that the leasing tax is akin to the parking and hotel taxes. In each instance the consumer is paying for the use and temporary transfer of possession of tangible property. Any intangible activity provided by the lessor is incidental to the transaction. The Chicago Transaction Tax is not an invalid service tax.

• 3 Plaintiffs also maintain that, even if leasing is not a service, the leasing tax is invalid as a tax on the occupation of leasing. They argue that the practical operation of the ordinance, and not the inclusion of the "magic words" that the ultimate incidence ...


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