City of Chicago, Illinois v. Stubhub!, Incorporated

In the
United States Court of Appeals
For the Seventh Circuit
No. 09-3432
CITY OF CHICAGO, ILLINOIS,
Plaintiff-Appellant,
v.
STUBHUB!, INCORPORATED,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 08 C 3284—Wayne R. Andersen, Judge.
ARGUED SEPTEMBER 8, 2010—DECIDED SEPTEMBER 29, 2010
Before EASTERBROOK, Chief Judge, and BAUER and
KANNE, Circuit Judges.
EASTERBROOK, Chief Judge. The resale of tickets to
sports, concerts, and other events usually is illegal in
Illinois, if the tickets fetch more than the original
price. 720 ILCS 375/1.5(a). Resale at a premium is
called scalping, and rules that forbid it even when the
events’ promoters are content to allow resale have puz-
zled economists. See Craig A. Depken, II, Another look at

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2 No. 09-3432
anti-scalping laws: Theory and evidence, 130 Public Choice
55 (2006); Pascal Courty, Some Economics of Ticket Resale, 17
J. Econ. Perspectives 85 (Spring 2003); Stephen K. Happel
& Marianne M. Jennings, Assessing the Economic Rationale
and Legal Remedies for Ticket Scalping, 16 J. Legislation 1
(1989); Sherwin Rosen & Andrew M. Rosenfield, Ticket
Pricing, 40 J.L. & Econ. 351 (1997). Cf. United States v.
Mount, 966 F.2d 262 (7th Cir. 1992) (discussing one po-
tential justification for restrictions on reselling tickets).
In 1991 Illinois authorized ticket brokers to resell
tickets at premium prices, 720 ILCS 375/1.5(b), if they
registered with the Illinois Secretary of State and col-
lected all local taxes—for municipalities in Illinois tax
the selling price of tickets, see 65 ILCS 5/11-42-5, and want
to collect additional taxes on the difference between the
original selling price and any higher resale price. Since
1995 the City of Chicago has taken advantage of this
opportunity to tax the incremental price of resold tickets.
Chicago Municipal Code §4–156–020. The tax is 9% of
the original price, and a further 9% of any profit on a
ticket’s resale.
Illinois amended its scalping laws again in 2005, adding
a new subsection (c) to the Ticket Sale and Resale Act.
720 ILCS 375/1.5(c). This amendment allows an “Internet
auction listing service” to resell tickets, but it attaches
several conditions. One is that the auction service
register with both the Secretary of State and the Depart-
ment of Financial and Professional Regulation. Another
is that the auction service either collect and remit
all required taxes or publish “a written notice on the

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No. 09-3432 3
website after the sale of one or more tickets that auto-
matically 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 discloses to law enforcement or other
government tax officials, without subpoena, the name,
city, state, telephone number, e-mail address, user ID
history, fraud complaints, and bidding and listing
history of any specifically identified reseller or purchaser
upon the receipt of a verified request from law enforce-
ment or other government tax officials relating to a crimi-
nal investigation or alleged illegal activity”. 720 ILCS
375/1.5(c)(6)(B).
StubHub!, which operates an Internet auction site, has
registered with the appropriate officials and permits its
clients to resell tickets to events in Illinois. It collects
commissions from both the seller (15% of the resale
price) and the buyer (10% of the resale price) but does not
collect taxes. Instead it provides each reseller and
buyer with the notice required by §1.5(c)(6)(B) and
stands ready to furnish taxing jurisdictions with the
information specified by that subsection. Chicago
does not think that it would be worthwhile to pursue
thousands of persons for a few dollars apiece; instead
it wants StubHub! and similar services to collect and
remit the taxes. (Even when the stakes are larger,
tracking down retail transactions and ensuring payment
can be difficult. See Hemi Group, LLC v. New York City,
130 S. Ct. 983 (2010).) Chicago’s ordinances have long
provided that sales agents must collect and remit its
amusement taxes; a recent amendment to §4–156–010 of

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4 No. 09-3432
the Municipal Code says that a “reseller’s agent” means
“a person who, for consideration, resells a ticket on
behalf of the ticket’s owner or assists the owner in
reselling the ticket. The term includes but is not limited
to an auctioneer, a broker or a seller of tickets for amuse-
ments . . . and applies whether the ticket is resold by
bidding, consignment or otherwise, and whether the
ticket is resold in person, at a site on the Internet or
otherwise.”
Because StubHub! has taken the position that Illinois
law permits it to disregard municipal taxes, Chicago
filed this suit in state court seeking a judgment that
StubHub! is responsible for the amusement tax. StubHub!
removed the proceeding to federal court under the diver-
sity jurisdiction. 28 U.S.C. §1332(a). A district judge
dismissed Chicago’s complaint under Fed. R. 12(b)(6). 622
F. Supp. 2d 699 (N.D. Ill. 2009). It held that, whether or
not the City has the authority to levy a tax on resales
and designate StubHub! as a “reseller’s agent,” the tax is
preempted by the Preemption Act, 65 ILCS 5/8–11–6a,
which prohibits home-rule municipalities from using
their authority to tax the “sale or purchase of tangible
or personal property” based on a percentage of the
sales price. An intermediate court in Illinois has stated
that tickets are “tangible personal property,” see Mr. B’s,
Inc. v. Chicago, 302 Ill. App. 3d 930, 935, 706 N.E.2d 1001,
1005–06 (1998), and the district judge thought this
dispositive. When sitting in diversity, a federal court
should follow the decision of an intermediate state ap-
pellate court “unless it is convinced by other persuasive
data that the highest court of the state would decide

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No. 09-3432 5
otherwise.” West v. AT&T, 311 U.S. 223, 237 (1940). The
district judge did not think that any decision by the
Supreme Court of Illinois implies a contrary under-
standing of “tangible personal property.”
The parties’ briefs on appeal discuss at length whether
Chicago has the authority to tax the resale of tickets by
Internet auction services—and, if it does, whether that
authority is superseded by either the 2005 amendment
to the Ticket Sale and Resale Act or by the Preemption
Act. For reasons that we discuss later, we think it appro-
priate to ask the Supreme Court of Illinois to decide
whether Chicago may require StubHub! to collect
and remit the tax. Certification of a state-law issue is ap-
propriate, however, only if that issue is dispositive.
StubHub! contends that federal law blocks Chicago
from imposing a tax on Internet auction sites, so we
address that possibility first.
StubHub! relies on two federal statutes: §230(e) of the
Communications Decency Act, 47 U.S.C. §230(c), and the
Internet Tax Freedom Act, 47 U.S.C. §151 note. Section
230’s title, “Protection for private blocking and screening
of offensive material”, does not suggest that it limits
taxes that have nothing to do with the content of any
speech (the City’s tax is the same whether the theater is
performing “South Pacific” or “Hair”). Subsection (c)’s
caption, “Protection for ‘Good Samaritan’ blocking and
screening of offensive material” bodes even less well
for StubHub!. But it nonetheless insists that the statu-
tory text establishes a tax immunity. Subsection (c) pro-
vides:

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6 No. 09-3432
(1) No provider or user of an interactive com-
puter service shall be treated as the publisher or
speaker of any information provided by another
information content provider.
(2) No provider or user of an interactive com-
puter service shall be held liable on account of—
(A) any action voluntarily taken in good faith
to restrict access to or availability of material
that the provider or user considers to be ob-
scene, lewd, lascivious, filthy, excessively vio-
lent, harassing, or otherwise objectionable,
whether or not such material is constitu-
tionally protected; or
(B) any action taken to enable or make avail-
able to information content providers or
others the technical means to restrict access
to material described in paragraph (1).
StubHub! relies on subsection (c)(1). As earlier decisions
in this circuit establish, subsection (c)(1) does not create
an “immunity” of any kind. See Doe v. GTE Corp., 347
F.3d 655, 660 (7th Cir. 2003); Chicago Lawyers’ Committee
for Civil Rights Under Law, Inc. v. craigslist, Inc., 519 F.3d
666, 669–71 (7th Cir. 2008). It limits who may be called
the publisher of information that appears online. That
might matter to liability for defamation, obscenity, or
copyright infringement. But Chicago’s amusement tax
does not depend on who “publishes” any information or
is a “speaker”. Section 230(c) is irrelevant.
The title of the Internet Tax Freedom Act is more prom-
ising. As with most statutes, however, the details are

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No. 09-3432 7
more complex than the title portends. The statute does not
create “tax freedom” for transactions on the Internet
but instead forbids “[m]ultiple or discriminatory taxes
on electronic commerce.” Section 1101(a). These are
defined terms. Section 1105(6) says that a “multiple” tax
means two states taxing the same thing without a tax
credit. There is only one tax on tickets for events in Chi-
cago (the location of the event ensures that no other
municipality can levy a tax). Section 1106(C) drives that
point home by stating that sales and use taxes on
“tangible personal property” are valid even if they other-
wise would be called “multiple” taxes. So if, as a matter
of Illinois law, tickets are “tangible personal property”,
the rule against multiple taxes would not apply even
if there were multiple taxes (which there aren’t).
Section 1105(2)(B)(ii) defines a tax as “discriminatory”
if “a provider of Internet access service or online
services is deemed to be the agent of a remote seller for
determining tax collection obligations solely as a result
of—(I) the display of a remote seller’s information or
content on the out-of-State computer server of a provider
of Internet access service or online services; or (II) the
processing of orders through the out-of-State computer
server of a provider of Internet access service or online
services.” (Emphasis added.) Chicago deems an elec-
tronic auction service to be a reseller’s agent, but not
“solely” because it displays information or processes
orders. Recall the definitional clause of Chicago’s ordi-
nance: a reseller’s agent is “a person who, for consider-
ation, resells a ticket on behalf of the ticket’s owner or
assists the owner in reselling the ticket. The term in-

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8 No. 09-3432
cludes but is not limited to an auctioneer, a broker or a
seller of tickets for amusements . . . and applies whether
the ticket is resold by bidding, consignment or other-
wise, and whether the ticket is resold in person, at a site
on the Internet or otherwise.” Chicago Municipal Code
§4–156–010. This says that the location and technology
of an auction must be ignored; it does not make any-
thing turn on the role of a computer server or the provi-
sion of electronic services. Web sites such as craigslist
that list items for sale, after the fashion of classified ads
in newspapers, but do not participate in the resale trans-
action, are not resellers’ agents under Chicago’s ordinance
(and might possess a tax immunity under §1105(2)(B)(ii)
if they were). But intermediaries that take an active role
in staging an auction and exchanging goods for money,
as StubHub! does, are resellers’ agents no matter what
technology they employ. Because the ordinance applies
equally to ticket resales at physical auction houses, the
Chicago Board of Trade, and venues such as StubHub!, the
tax is not “discriminatory” under §1105(2)(B)(ii).
This conclusion brings us back to Illinois law. StubHub!
contends that Chicago’s tax is not within the City’s home-
rule powers because it acts as an occupation tax
when applied to electronic intermediaries. StubHub!
also maintains that the state’s decision not to label
electronic-commerce sites as “agents” in the 2005 legis-
lation means that a municipality cannot deem them
so—even though none of the 2005 amendment’s language
forbids that designation. The argument, in other words,
is that although the legislative history of a federal
statute may be used only to resolve ambiguities in the

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No. 09-3432 9
enacted text, see Puerto Rico Department of Consumer
Affairs v. ISLA Petroleum Corp., 485 U.S. 495 (1988), Illinois
would give the force of law to legislative history that
explains the absence of particular provisions in the legis-
lation. Finally, StubHub! contends that we should
follow the conclusion of Mr. B’s that the legal incidence
of Chicago’s amusement tax is on the ticket, a bit of
“tangible personal property,” rather than, as the City
contends, on the ticket’s grant of a license to attend the
event. If Chicago placed a tax on patent royalties, that tax
would not be deemed one on the paper on which the
contract was written, even though the physical contract
is “tangible personal property.” Chicago maintains that
this is equally true of tickets.
The argument that the amusement tax is on the
physical ticket helped Chicago win Mr. B’s; Chicago
now regrets talking the court into that conclusion. It is not
a federal court’s job to extract a litigant from a hole dug
for itself in state litigation. But the Supreme Court of
Illinois is not bound by the appellate decision in Mr. B’s.
We’re not “bound” by it either—but we should not go
against it unless persuaded that the Supreme Court of
Illinois would disapprove it. The Supreme Court of
Illinois has never addressed any of the three principal
questions in dispute between the parties: whether the
tax works as an occupation tax, whether the history of
the 2005 amendment prevents Chicago from defining
Internet auction sites as resellers’ agents, and whether
the amusement tax is one on “tangible personal prop-
erty.” The subject therefore is within the scope of Ill. S. Ct.
R. 20, which permits this court to certify determinative

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10 No. 09-3432
issues for which “there are no controlling precedents” in
the Supreme Court of Illinois. The question whether
Chicago can tax the resale of tickets on electronic
auction sites also is important for all municipalities in
Illinois—and for the people who would be subject to
the tax if the City prevails.
Certification adds to the cost of litigation and may
delay its outcome. There are many web-based auction
sites. If this meant that a lot of similar cases were
under way in both state and federal court, there would
be little reason to certify one to the Supreme Court of
Illinois. We could make a decision, confident that any
error would be corrected by the state judiciary before
too much time had passed. As far as we can tell, how-
ever, the state judiciary will be unable to address this
subject unless we certify. There are only two pending
cases, both in federal court. (The other is Chicago v. eBay
Inc., No. 10-1144, which was argued in tandem with
the suit against StubHub!, and which we will hold in
abeyance pending the resolution of this proceeding.)
Both suits began in state court and were removed
under the diversity jurisdiction. Any similar suit like-
wise would be removable. (As far as we know, none of
the web-based auction sites is incorporated in Illinois or
has its principal place of business there.) This means that
the state judiciary may never have an opportunity to
resolve this dispute. The only way the federal judiciary
can be sure that it is applying authentic state law is to
certify the subject to state court.
We therefore respectfully request the Supreme Court
of Illinois to inform us whether municipalities may

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No. 09-3432 11
require electronic intermediaries to collect and remit
amusement taxes on resold tickets. We phrase the ques-
tion this way to ensure maximum flexibility for the
state judiciary, which may elect to address any of the
three sub-questions we have already identified, or may
conclude that some other issue altogether determines
the appropriate answer. The clerk of this court will trans-
mit to the Supreme Court the appellate briefs and the
short record, and at the state court’s request will
transmit the full record.
9-29-10

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