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City of Chicago, Illinois v. Stubhub

March 30, 2009


The opinion of the court was delivered by: Wayne R. Andersen District Judge


This case is before the Court on the motion of Defendant StubHub, Inc. ("StubHub") to dismiss Plaintiff's Complaint pursuant to Fed.R.Civ.P. 12(b)(6). For the following reasons, the motion to dismiss is granted in part and denied in part.


I. Allegations of the Complaint

The City of Chicago (the "City") filed this lawsuit against StubHub seeking to collect the City's 8% amusement tax on tickets to Chicago events that are sold through StubHub's Internet listing service. The City also seeks to compel StubHub to provide it with information about the sales of tickets to Chicago events made on StubHub's website from January 1, 2000 to the present.

StubHub is a venue which third parties use to buy and sell tickets. StubHub collects the purchase price from the buyer, keeps a percentage for itself, and remits the balance to the seller. In order to use StubHub`s website, users must first register as sellers. As the Complaint alleges, a seller listing an item for sale must fill in numerous fields in order to list an item on the site.

Compl. ¶ 7. As part of this process, the seller will choose from a variety of listing methods, including an auction-style listing or a set-price method. Id. ¶¶ 7-8. In an auction, the seller sets a per-ticket minimum price and decides on the duration of the auction. When the auction comes to an end, the seller sells the ticket to whomever submits the highest bid as long as the reserve has been met. Compl. ¶ 8. In the fixed price model, the seller sets a price and the ticket is sold to the first person who agrees to pay that price. Id. The City alleges that if an item listed on StubHub is ultimately sold, StubHub collects a commission--10% of the purchase price as a fee paid by the buyer, and 15% of the purchase price as a fee paid by the seller. Compl. ¶ 10.

II. Illinois Law Regarding Ticket Resales

For many years, the City of Chicago has imposed a special tax on amusements such as theater performances and sporting events that take place within the city limits (hereinafter "amusement tax"). Chicago Municipal Code § 4-156-020. There is no doubt that the City has the authority to impose a tax on the venues that sell tickets to amusements. The Illinois General Assembly has specifically granted all municipalities the power to license, regulate and tax "theatricals and other exhibitions, shows and amusements" as well as "all places for eating or amusement." 65 ILCS 5/11-42-5. Tickets sold to events held in Chicago typically include the 8% City amusement tax on the face of the ticket.

Historically, ticket "scalping"--reselling a ticket at a price above its face value--was generally unlawful in Illinois under the Illinois Ticket Sale and Resale Act. 720 ILCS 375/1.5(a). However, the law has evolved over time. In 1991, an exception was made for ticket brokers who are registered with the Illinois Secretary of State to allow them to resell tickets at prices above face value. 720 ILCS 375/1.5(b). To take advantage of the exception, ticket brokers must (among other things) pay all applicable state and local taxes. 720 ILCS 375/1.5(b)(4). When ticket brokers buy tickets from a venue, they (like any other purchaser) pay the ticket's face amount, relevant fees and applicable taxes, including the amusement tax. See Mr. B's, Inc. v. City of Chicago, 706 N.E.2d 1001, 1003 (Ill. App. Ct. 1998).

In 1995, the Chicago Amusement Tax Ordinance was amended to extend the amusement tax to cover secondary ticket sales by persons who resell tickets above face value. Under the amended Chicago amusement tax, ticket resellers are required to pay the 8% amusement tax on the entire amount of any mark-up charged to the ticket purchaser, including any amount the broker may designate as a fee for its brokerage services.

In 2005, the Illinois Ticket Sale and Resale Act, 720 ILCS 375/1.5(c), was amended in a manner that bears directly on the key issues in this case. The amendments added a second exception to the prohibition on ticket scalping. This amendment allows anyone to use certain Internet websites to sell tickets at prices above face value. The legislative history of these amendments shows that they were designed to permit an expansion of the secondary market in tickets (and thus create competition for existing ticket brokers) while at the same time protecting consumers. See Senate Hearing on H.B. 873, Ill. Gen. Ass'y 94th Sess., Sen. Tr. 65 (May 20, 2005) (statement of Sen. Harmon). Toward that end, the prohibition on ticket-scalping is lifted only for those resellers who use "an Internet auction listing service duly registered with the Department of Financial and Professional Regulation under the Auction License Act and with the Office of the Secretary of State on a registration form provided by that Office." 720 ILCS 375/1.5(c).

During legislative debates on the amendments, a proposal was made to require the operator of a registered listing service or Internet auction site to be responsible for collecting and remitting any applicable amusement taxes--the very obligation that the City seeks to impose against StubHub in this case. The General Assembly rejected that idea. The sponsors of the bill pointed out that Internet auction sites like StubHub do not actually buy or sell tickets, but rather simply offer a marketplace for those who do. They argued that it would make no sense to require StubHub to discharge the seller's obligation to pay amusement taxes. As one of the sponsors put it, requiring entities like StubHub to pay the tax would be "like saying the landlord of a small business needs to make sure that that small business is paying their sales tax." Senate Hearing on H.B. 873, Ill. Gen. Ass'y, 94th Sess., Sen. Tr. 19 (May 18, 2005) (statement of Sen. Harmon).

The General Assembly made a policy decision that, rather than requiring Internet auction listing services to collect and remit amusement taxes, it would require the operator of such a service to do only two things: 1) to warn resellers of their potential liability for municipal amusement taxes; and 2) to provide certain information in response to a request from law enforcement or taxing officials. Thus, the Ticket Sale and Resale Act provides that, to discharge its obligations with respect to state and local taxes, the operator of an Internet auction listing service need only publish: a written notice on the website after the sale of one or more tickets that automatically informs the ticket reseller of the ticket reseller's potential legal obligation to pay any applicable local amusement tax in connection with the reseller's sale of tickets, and disclose to law enforcement or other government tax officials, without subpoena, the name, city, state, telephone number, e-mail address, user ID history, ...

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