APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, SECOND DIVISION
540 N.E.2d 973, 184 Ill. App. 3d 887, 133 Ill. Dec. 107 1989.IL.935
Appeal from the Circuit Court of Cook County; the Hon. Earl Arkiss, Judge, presiding.
JUSTICE SCARIANO delivered the opinion of the court. DiVITO and EGAN, JJ., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE SCARIANO
This appeal arises from an unsuccessful challenge in the circuit court to the City of Chicago's transaction tax as imposed on online database searches on the Nexis/Lexis computerized legal library system operated by Mead Data Central, Inc. Plaintiff appeals, raising the following issues on appeal: (1) whether the Chicago transaction tax ordinance authorizes the imposition of tax on all charges made for the use of a computer and its software, including database search charges; and (2) whether such a tax is a tax upon occupations, in violation of section 6(e) of article VII of the Illinois Constitution.
Plaintiff, a law partnership, subscribes to the Lexis/Nexis databases maintained by Mead. It is challenging the City of Chicago's collection of a transaction tax on charges billed for database searches, arguing that the transaction tax ordinance does not authorize the tax on such charges and that the city's Department of Revenue's Ruling No. 9, which interprets the ordinance, is overly broad and invalid.
Count I of plaintiff's amended complaint alleges that the Chicago transaction tax ordinance is not broad enough to cover the imposition of the tax upon charges made for online database searches where those charges are not time based. Count II, which plaintiff subsequently dismissed, asserts a violation of equal protection. Count III alleges that if the transaction tax ordinance does cover charges for online database searches, it is unconstitutional as a tax on occupations. The city filed two separate motions to strike and dismiss; one based on section 2-615 of the Code of Civil Procedure (Ill. Rev. Stat. 1987, ch. 110, par. 2-615), and the other on section 2-619 (Ill. Rev. Stat. 1987, ch. 110, par. 2-619). On May 11, 1988, the trial Judge filed a memorandum of decision, indicating his intention to grant the city's motions, and on May 26, 1988, he entered such an order. On August 1, 1988, the trial court denied plaintiff's motion for reconsideration, in which it argued that Chicago Health Clubs, Inc. v. Picur (1988), 124 Ill. 2d 1, 528 N.E.2d 978, decided while this case was pending, renders the ordinance unconstitutional as applied to online database searches. This appeal followed.
The transaction tax ordinance provides in pertinent part as follows:
"There is hereby imposed and shall immediately accrue and be collected a tax, . . . on . . . [ttansactions] consummated in the City of Chicago involving the lease or rental of any personal property . . ..
The ultimate incidence of and liability for payment of such tax shall be borne by the lessee.
. . . [The] lease or rental of any personal property shall include but not be limited to leased time on equipment not otherwise itself rented, such as leased time for use of calculators, computers, computer software . . ., whether said leased time is fully or partially utilized. This includes but is not limited to the usage of a computer under a time-share agreement." (Chicago Municipal Code § 200.1 -- 2A.)
Ruling No. 9 interprets this ordinance as authorizing the collection of a transaction tax on "all lease or rental charges associated with the usage of the computer and its software in the City of Chicago." The ruling also provides that "[separately] stated optional charges not for the use of the computer, its software or other personal property used in the city, shall not be subject to the Chicago Transaction Tax. An example would be separately stated maintenance charges which are optional."
In ruling in favor of the city, the trial Judge stated as follows:
"[The] court is of the opinion that the [city's] analysis is correct when it asserts that the term leased time with reference to the equipment is a description of a lease without possession where use is charged. Hence, the Conclusion that can properly be drawn [is] that a lease charge may be either a flat fee or can vary with time. The ...