Associated Press report says that the city of Chicago is suing eBay and its subsidiary StubHub for failing to collect city amusement taxes on concert and sporting event tickets sold through the Web sites. Chicago’s amusement tax ordinance includes Internet sites that resell tickets, but eBay, which bought StubHub last year, says the 8 percent tax does not apply to it. The city is engaged in similar lawsuits against online companies that secure discount hotel room rates, like Hotels.com, for not paying applicable taxes.

Now this could seem like a small matter, limited to Chicago, but believe me, it has earth-shattering (or internet shattering …) repercussions, if this is used as a precedent to tax online commerce. According to a 1992 Supreme Court ruling, a state cannot impose sales tax on an company, if the company has no physical presence in the state. So, if eBay, or Hotels.com, or any of the other online sellers targeted by the City of Chicago do not have some kind of office or address in Illinois, then they can’t collect the taxes. So the question, on the face of it, is whether eBay, and the other companies, have an office in Illinois?

I did a bit of research into it, and what do you know? The State of Illinois is one smart cookie. They also have one other regulatory requirement for online auctioneers - That they be registered seperately in Illinois, if they want to do business with local buyers and sellers. And EBAY Inc. is registered (License no. 447000004, Issue date - 11/30/2004). You can check it yourself at the license lookup page of the Division of Professional Regulation, State of Illinois. This most likely means that the City of Chicago will argue that eBay is registered in Illinois, even if it does not actually have an office in Chicago, and so tehy have to pay the taxes. It’s a borderline argument, but there’s a chance that eBay might have to pony up the taxes.

Now I don’t know if eBay has a ‘physical’ address in Chicago, but think about what could happen if other states followed suit, and required online companies to register in order to do business, and then turned around and imposed taxes on them because they were registered in-state.

The immediate impact of these additional taxes will be passed on straight to consumers, and you can think about all the things to do in Chicago, and then add an online sales tax to it, and then do some more thinking, whetehr you can afford it or not…This is the kind of classic bureaucratic red tape crapshit that we don’t need in the U.S. And let’s hope the courts have sense enough to knock it down before it spreads from Chicago to other states.

Posted on May 21st, 2008 by PLing
Filed under: Travel News