Chicago Sues Ebay For Ticket Tax

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.

It’s not clear how much money is at stake, but when the city first floated the idea of going after taxes for online sales in 2006, Alderman Edward Burke estimated the city could be losing $16 million a year in taxes on Internet-based sales by ticket resellers.

Burke, who asked for the initial hearings on the matter, said Tuesday the loss is likely higher now given the growth in e-commerce, so he’s passionate about getting the money where he thinks it belongs.

"Sixteen million dollars can pay for a lot of police officers here," Burke said.

The city filed two complaints Monday, one against each company, asking eBay and StubHub to hand over records of sales in Illinois.

"We don’t have enough information to give an estimate (of lost taxes), because of the lack of information from eBay and StubHub," said Chicago Law Department spokeswoman Jennifer Hoyle.

The city is engaged in similar lawsuits against online companies that secure discount hotel room rates, like, for not paying applicable taxes.

Also, Texas said this month it is looking into whether it can collect sales taxes from Inc. The investigation was prompted by a legal dispute between the online retailer and New York, which plans to require out-of-state online companies to collect sales tax on goods they send to addresses in New York.

EBay has said paying sales taxes could cripple small Internet businesses and has lobbied against Internet sales tax legislation on Capitol Hill. For small business owners who operate through the online auctioneer’s Web site, implementing or modifying tax collection systems would be prohibitively costly, eBay says.

The National Conference of State Legislatures has estimated states lose billions of dollars each year in uncollected taxes from online sales.

But a 1992 U.S. Supreme Court ruling prohibits states from forcing businesses to collect the states’ sales taxes unless the company has a physical presence in the state.

States argue that when businesses don’t collect taxes for online sales they are competing unfairly against local retailers because customers can check out merchandise locally and then buy online to avoid the sales tax.

StubHub has an office in Chicago, while it’s unclear whether eBay has a "physical presence" there, according to eBay spokesman Jose Mallabo.