Seventh Circuit Certifies Internet Tax Question to Illinois Supreme Court

Yesterday, the United States Court of Appeals for the Seventh Circuit asked the Supreme Court of Illinois to opine as to "whether municipalities may required electronic intermediaries to collect and remit amusement taxes on resold tickets."  City of Chicago v. StubHub!, Inc., 2010 WL 3768072, at *5 (7th Cir. Sept. 29, 2010).

Chicago filed suit against StubHub!, an online auction site for the sale of event tickets, seeking a judgment that StubHub! is responsible for the tax levied on the incremental price of resold tickets.  Illinois statute permits an "Internet auction listing service to resell" tickets but requires that the auction service either collect and remit all required taxes or publish a written notice on the website after the sale of a ticket that automatically informs the ticket reseller of the reseller's potential obligation to pay any applicable local amusement tax.  Though StubHub! provides the latter notice, the City of Chicago wants StubHub! and similar services to actually collect and remit municipal taxes, pursuant to Chicago ordinance.

In its defense, StubHub! relies on two federal statutes, Section 230(e) of the Communications Decency Act and the Internet Freedom Act.  The United States District Court for the Northern District of Illinois concluded that StubHub! was not required to collect and remit the taxes and the City appealed.

The Seventh Circuit concluded that Section 230 does not provide StubHub! a defense to its potential tax liability but that the Internet Tax Freedom Act ultimately requires the court to interpret applicable state law.  So, it certified the state law question to the Illiniois Supreme Court.

Comments

[Joe Moreno]

I have a very simple understanding of Internet based tax law which is that you only need to pay a sales tax, etc in a state or municipality if the business has a physical presence there.

Generally, taxes are collected to pay for the fire and police department, maintain roads, etc. If the business doesn't have a physical presence requiring support from these taxes then it probably shouldn't be taxed.

How far off base am I in my oversimplified thinking?