Chicago Demands Tax Money From EBay, StubHub

by Wendy Davis, May 22, 2008, 7:15 AM

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The city of Chicago has filed lawsuits against online auction site eBay and its subsidiary StubHub, alleging that the companies failed to collect tax on tickets sold to events in the city.

Chicago claims that eBay and StubHub act as "resellers' agents," which are required to collect 8% sales tax for tickets to ballgames, music performances and other events under a city "amusement tax."

The lawsuits, filed this week, also allege that eBay has contacts with the state of Illinois because the venues where it sells tickets are located in the state. The city also asserts that eBay's "eBay University," which teaches people how to sell items on the site, constitutes links to the state.

The U.S. Supreme Court ruled in 1992 that states cannot require catalog companies to collect sales tax unless they have a connection to the state, such as a bricks-and-mortar store.

StubHub said it will "vigorously fight" the lawsuit. "We do not believe that the city's amusement tax applies to either eBay's or StubHub's business models nor do we believe that the amusement tax can properly be assessed here," said Sean Pate, StubHub's head of corporate communications.

Chicago is also seeking to audit eBay and StubHub to determine how much in taxes the companies potentially owe. Without viewing the companies' books, the city can't determine how much money in back taxes it's seeking to collect, said Chicago law department spokeswoman Jennifer Hoyle. "The companies involved aren't submitting the tax documents, so we don't have any way to calculate what may be due to the city," Hoyle said.

These complaints, filed earlier this week, are not the first time Chicago has attempted to force e-tailers to collect taxes. The city also sued online travel sites including Hotels.com, alleging that those sites are required to collect hotel occupancy taxes. That case is still pending in court, Hoyle said.

This latest lawsuit comes several weeks after the states of New York and Texas made moves to force online retailers to collect taxes. In New York, the state legislature passed a law requiring any e-commerce store that uses in-state affiliates to collect sales tax from state residents. Amazon recently filed a lawsuit asking that a court declare the law unconstitutional.

The state of Texas also recently launched a probe of whether Amazon is required to collect sales tax because of a warehouse in the state.

Web retailer Overstock.com said last week it would stop using New York advertising affiliates as of June 1 to avoid the new tax.

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