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Volume XIII, Number 29


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Chicago's Legal Amusement Tax: If at First You Don't Legally Succeed, Try . . . Try Again.

Legal Background of the Amusement Tax

The City of Chicago imposes an amusement tax ("Amusement Tax" or "Ordinance") on the patrons of any amusement within Chicago based on "the admission fees or other charges for the privilege to enter, witness, view or participate in the amusement." Municipal Code of Chicago ("M.C.C.") § 4-156-020. The tax is nine-percent (9%) of the "admission fees or other charges." M.C.C. § 4-156-010.       

The Ordinance lists activities which are considered to be amusements, including: (1) any exhibition, performance, presentation, or show for entertainment purposes, including any theatrical, dramatic, musical, or spectacular performance, promotional show, motion picture show, flower, poultry, or animal show, animal act, circus, rodeo, athletic contest, sport, game, or similar exhibition such as boxing, wrestling, skating, dancing, swimming, racing, or riding on animals or vehicles, baseball, basketball, softball, football, tennis, golf, hockey, track and field games, bowling, billiard and pool games; (2) any entertainment or recreational activity offered for public participation or on a membership or other basis, including carnivals, amusement park rides, and games, bowling, billiard and pool games, dancing, tennis, racquetball, swimming, weight lifting, body building, or similar activities; or (3) any paid television[1] programming, whether transmitted by wire, cable, fiber optics, laser, microwave, radio satellite or similar means. M.C.C. § 4-156-010.

According to the Ordinance, the owner, manager, or operator of an amusement or of a place where an amusement is being held must collect the tax from each patron and remit it to the Chicago Department of Revenue ("Department"). M.C.C. § 4-156-030. With respect to paid television programming, an "owner" includes any person operating a community antenna television system or wireless cable television system, or any person receiving consideration from the patron for furnishing, transmitting, or otherwise providing access to paid television programming. M.C.C. §4-156-010. 

Proposed but Already in Use:

The City of Chicago Finance Committee recently held a hearing in which the budget director discussed a number of changes likely to be adopted in the City's 2015 budget to Chicago's tax system[2]. One of those being the expansion the amusement tax to bars and restaurants advertising televised sports (by interpretation of the existing rule). What the City has failed to mention is that the Department has already, albeit quietly, tested out this enforcement through a number of small audits on independent restaurants located within the City.

With the Department's expansion on its enforcement of its amusement tax, the Department has taken the position that subscribers of paid television programming located in Chicago, whose providers do not collect the Amusement Tax, are subject to the 9% tax based on the subscriber's fees. The Department has begun to audit and assess local restaurant owners an Amusement Tax liability based on the restaurant owners' subscription to satellite television. The Department has based its assessments on the restaurant owners' monthly bill received from its satellite provider. This "interpretation" of its existing ordinance comes years after its failed attempt to tax cable companies directly only to be preempted by federal law. However, regardless of the method, the Department cannot tax indirectly what it is prohibited from taxing directly and as a result, the Department, hereto, is preempted from doing so by federal law.      

The Federal Telecommunications Act ("FTA"), 47 U.S.C.S. §152, preempts local taxation with respect to direct-to-home satellite services. Specifically, a provider of direct-to-home satellite services is exempt from the collection, remittance or both, of any tax or fee imposed by any local taxing jurisdiction on direct-to-home satellite service. "Direct-to-home Satellite Service," is defined to include "programming transmitted or broadcast by satellite directly to the subscribers' premises without the use of ground receiving or distribution equipment, except at the subscribers' premises or in the uplink process to the satellite." Id. The original intent of the Act was to protect the provision of a service that was national, not local in nature. Unlike cable and telephone companies which utilize public rights-of-way to provide service to their subscribers, providers of direct-to-home services utilize satellites to provide programming to their subscribers in every jurisdiction. Congress determined that to permit thousands of local taxing jurisdictions to tax such a national service would create an unnecessary and undue burden on the providers of such services. As a result local taxing jurisdictions, such as the City of Chicago, are preempted from taxing the provision of or sale of direct-to-home satellite services. Accordingly, direct-to-home satellite service providers and others in the distribution chain are exempted from collecting and remitting local taxes and fees on the sale of such services.

In 2009, the Kentucky Supreme Court held that the Telecommunications Act preempted local taxation of direct-to-home satellite programming and struck down a municipality's attempt to tax DirecTV services. DirecTV, Inc. v. Treesh, 290 SW3d 638 (Ky. S.C. 2009). The Court reasoned that, "Congress's intent was not to spare the providers from taxation as such, but to spare national businesses with little impact on local resources from the administrative costs and burdens of local taxation in the myriad local jurisdictions where their services would be sold." Id.

Here, the Department is attempting to tax indirectly what it is not permitted to tax directly. The Department is prohibited by Federal Law from taxing satellite providers (DirecTV) directly so instead it is taxing the subscribers. Nevertheless as the Federal Law provides and Congress originally intended, not only are the providers exempt from local taxation, but so should others in the distribution chain be, including subscribers to satellite services, i.e., Chicago restaurant and bar owners. The United States Supreme Court has repeatedly stated that such an end-around of a tax is not to be allowed. Therefore, the City is preempted from taxing satellite services by the FTA and by imposing the Amusement Tax on the subscribers of satellite services the City is acting in direct violation of Federal Law.

[1] "Paid television" means programming that can be viewed on a television or other screen, and is transmitted by cable, fiber optics, laser, microwave, radio, satellite or similar means to members of the public for consideration. M.C.C. §4-156-010.

[2] See Christopher Lutz's blogpost, "City of Chicago 2015 Tax Proposals May Ruffle Some Feathers," located here. 

© Horwood Marcus & Berk Chartered 2023. All Rights Reserved.National Law Review, Volume IV, Number 351

About this Author

Breen Scheller, Tax Attorney, Horwood, Marcus and Berk Law Firm

BREEN M. SCHILLER is a partner with Horwood Marcus and Berk Chartered where she concentrates her practice in state and local tax planning and the resolution of state and local tax controversies for multi-state and multi-national corporations.  She advises Fortune 500 companies as well as mid-size and closely-held businesses and start-up companies on issues related to all types of state and local tax, including income tax, sales/use tax, franchise tax, public utility and motor fuel taxes, transaction taxes, gross receipts-based taxes and unclaimed property.  Breen has...