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Quad Cities Open, Inc. v. City of Silvis

January 23, 2004


[6] The opinion of the court was delivered by: Justice Fitzgerald

[7]  Docket No. 95972-Agenda 14-November 2003.

[8]  In this appeal we examine whether the City of Silvis may tax the gross receipts from the sale of admission tickets to a charitable golf tournament, a tournament sanctioned by the Professional Golfers' Association (PGA), and operated by Quad Cities Open, Inc. (Open). The Illinois Municipal Code permits municipal corporate authorities to "license, tax, and regulate all athletic contests and exhibitions carried on for gain." 65 ILCS 5/11-54-1 (West 2002). The appellate court held that the charitable golf tournament was not conducted "for gain" and, consequently, was exempt from tax. 337 Ill. App. 3d 251.

[9]  Accordingly, at issue in this appeal is the meaning of "for gain" under the Municipal Code and whether the tournament is carried on "for gain" and therefore subject to taxation.


[11]   The Open, first incorporated in 1976 as an Illinois not-for-profit corporation, has been granted federal tax-exempt status under the Internal Revenue Code (26 U.S.C. §501(c)(3) (2000)). The Open's articles of incorporation state the purpose of the corporation:

[12]   "To sponsor a professional golf tournament and to operate same, with the specific purpose that all profits in excess of a one-year operating contingency fund (which shall not include the tournament prize) be used in promoting the common good and general welfare of the people of the Quad Cities area or be given to organizations which qualify for a tax exemption under 501(c)(3) of the Internal Revenue Code.

[13]   No part of the net earning of the corporation shall inure to the benefit of any Director of the corporation, officer of the corporation, or any private individual (except that reasonable compensation may be paid for services rendered to or for the corporation affecting one or more of its purposes), and no Director or officer of the corporation, or any private individual shall be entitled to share in the distribution of any of the corporate assets on dissolution of the corporation."

[14]   To achieve this purpose, the Open has operated an annual PGA tour sponsored golf tournament in the Quad Cities area. For 31 years the tournament varied in location and name depending on the title sponsor. Each year, the Open contributes excess revenue from the tournament to Quad Cities area charities such as the American Red Cross, Junior Achievement, the Easter Seals Foundation, the Boy Scouts, Special Olympics, the YMCA of the Quad Cities, the March of Dimes, and the Make-A-Wish Foundation. In 1998 Deere & Company became the event's title sponsor and it was thereafter named the John Deere Classic Golf Tournament (the tournament). In 2000, the Open moved the tournament to the Tournament Players' Club (TPC) at Deere Run golf course, a newly constructed golf course in Silvis, Illinois. The Open also moved its operations and offices to the City of Silvis.

[15]   Soon afterwards, Silvis enacted an ordinance imposing a 3% tax upon "gross receipts from the sale of admission tickets at for gain professional tournaments or other for gain professional athletic events." City of Silvis Ordinance No. 2000-26-60 (eff. January 1, 2001). Silvis enacted the ordinance pursuant to section 11-54-1 of the Illinois enabling statute, which authorizes municipalities to regulate and tax athletic contests "carried on for gain." 65 ILCS 5/11-54-1 (West 2002). On April 4, 2001, the Open sought a declaratory judgment against Silvis. In its complaint, the Open alleged that the tournament is not subject to taxation under the ordinance because the tournament is not "carried on for gain" within the meaning of the enabling statute. *fn1

[16]   Discovery revealed the following undisputed facts. The Open is operated and directed by volunteers who offer their time and expertise in both the planning of and execution of the actual event. No net earnings are paid to either officers or directors, with the exception of the tournament director, who is paid an annual salary. For the fiscal years 1998 to 2000, the tournament's gross revenues totaled $14,755,611. The Open paid $6,150,000 in purses to golfers, distributed $1,078,397 to legitimate charities, set aside a portion to the operating reserve fund, and devoted the remainder to the tournament's operating expenses.

[17]   Examples of operating expenditures include: $200,000 for road and cart path work required to repair damage caused by heavy equipment used to construct grand stands, television stands, and sky boxes; $200,000 for electrical and wiring upgrades required for score boards, media facilities, grandstands, concessions and other services; and approximately $100,000 for water well construction requested by the Silvis health department. The record further reveals that in 1998 and 1999 the Open's unrestricted revenue exceeded total expenses. In 2000, the unrestricted revenue was $416,242 less than expenses, and the Open suffered a loss. In both 1999 and 2000 the Open drew assets from its operating reserve fund for payment of tournament expenses, and following the conclusion of the tournament in 2000 the reserve fund totaled $471,273. During the year the tournament operated at a loss, the Open continued to donate to Quad Cities area charities.

[18]   In addition, the Open makes possible the Birdies for Charity program. Operated by the John Deere Classic Charitable Corporation, a nonparty to this appeal, Birdies for Charity solicits individual pledges and donations for each birdie scored during the tournament. The Open pays all overhead for the program, and in return the program donates to charity 100% of the revenue. During the years 1997 to 2000, the program raised and donated to charity $2,406,651.22.

[19]   Following discovery, the parties filed cross-motions for summary judgment. The Open attached the affidavit of Kay Hegarty, a certified public accountant, who stated in her affidavit:

[20]   "[E]ach expense [of the tournament], including the prize purse, appears necessary to effectuate the purpose of the OPEN as stated in its Articles. An expense is considered to violate the private inurement doctrine if it is substantially more than similar expenses based on appropriate comparability data. That is, expenses must be similar in amount to corresponding expenses of comparable organizations or events. None of the documentation I have reviewed suggest expenditures by the OPEN that are unreasonable in their amount.

[21]   None of the terms and obligations found in the contract between the OPEN and the PGA support a suggestion that the OPEN operates for gain. The testimony is based upon the fact that the provisions in the contract are necessary in order to define the rights and obligation of the parties [the OPEN and the PGA]. Moreover, since the activities conducted pursuant to the contract, i.e. to sponsor a professional golf tournament, constitute the basis for the OPEN's tax ...

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