By David C. Blum and Jackie M. Amatulli of Levenfeld Pearlstein (LP)
An Illinois Circuit Court, overruling a Cook County Administrative Law Judge, recently held that the Chicago Bears would not have to pay over $5.5 million in back taxes, penalties and interest originally assessed by Cook County. County officials have reportedly said they plan to fight the judge’s ruling and will continue to seek to collect on its Amusement Tax assessment for the 2002 — 2007 tax years.
At issue in this case is whether the Bears Luxury Suite and Club ticket holders should be taxed on the entire ticket price for such seats, which includes amenities other than merely a seat to watch the Bears game. County officials argued that the 3 percent Amusement Tax should be collected not just on the price to watch a game at Soldier Field, but also on amenities such as food, beverage, access to heated and air conditioned lounges, parking and more. The Bears disagreed.
This is a case of the first impression. Cook County reportedly also assessed the Chicago Cubs and White Sox. The White Sox had reportedly settled and the Cubs are challenging the assessment.
The Bears computed Amusement Tax by bifurcating the cost of the Luxury and Club Seat prices into two parts (1) the ticket price, and (2) the value of the amenities. The ticket price equaled the highest “regular ticket” price in the club and luxury suite seating area. The entire “ticket price” was subject to the Tax. The second component is the “club privilege fee” that is arguably not subject to the Amusement Tax. The club privilege fee was determined as the difference between the highest ticket price paid by persons in the regular seating area and the total price paid by club and luxury seat holders.
The Bears have consistently paid Amusement Tax on the amounts charged to each individual ticket holder to view Bears football games at Soldier Field, but they did not charge and collect Amusement Taxes on the amenities related to Luxury and Club tickets.
Cook County’s Amusement Tax ordinance imposes a 3 percent tax on admission fees or other charges paid “for the privilege to enter, to witness or to view such amusement…”
On September 2011, a Cook County Administrative Law Judge (the “ALJ”), siding with the County, ruled that the term “amusement” means “game day experience,” even though such a term is not found in the County Ordinance. The ALJ further determined that the Bears were required to pay tax on 100 percent of the money they collected as club privilege fees and 60 percent of the money collected for luxury suite license fees. In his conclusion, the ALJ wrote that the team “was not in jeopardy of losing its faithful and loyal fan base” by collecting the amusement tax “from those who could afford it the most.”
On appeal, the Illinois Circuit Court found that “amusement” was incorrectly defined as a “game day experience” and the term “amusement” is already defined in the Cook County Code of Ordinances (defined below). Specifically, the Court noted that the concept of the “game day experience” is a “legal fiction invented by the County and adopted by the ALJ.”
The court further noted that club privileges and suite amenities were separate and apart from the privilege to “enter, witness or to view a Chicago Bears football game.” Moreover, there was no basis to impose a tax on 60 percent of suite revenues.
The Cook County Code of Ordinances defines an “Amusement” subject to tax as “any exhibition, performance, presentation or show for entertainment purposes, including, but not limited to, 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, riding on animals or vehicles, baseball, basketball, softball, soccer, football, tennis, golf, hockey, track and field games, bowling, or billiard and pool games…”
The Bears computed the portion paid by club seat holders that was subject to the Amusement Tax as consistent with NFL rules that were in place during the period of tax assessment. Under NFL rules, teams were generally contractually required to turn over 40 percent of their revenues from ticket prices charged to regular seat ticket holders to the NFL for equal disbursement to all 32 league teams. The NFL also had special rules for amounts paid for club seat privileges. In the case of club seats, a team was required to treat a portion of the club seat payment made by a holder equal to the highest ticket price paid for regular seats as the “ticket price” portion of the club seat payments. Under NFL rules, the “ticket price” portion of the club seat payment was treated like the ticket price paid by regular seat holders, and the Bears were required to turn over 40 percent of such “ticket price” portion over to the NFL for disbursement to all 32 league teams.
For luxury suite holders, the Bears similarly paid Amusement Tax on the ticket price equaling the highest “regular ticket” price in the luxury suite seating area. The value of the amenities and additional benefits for luxury suite licensees were not subject to the Tax. Further, a similar methodology to that of the NFL was followed in determining the taxable amusement portion of amounts paid to witness the Bears games. Bears took the portion of the luxury suite fee equal to the highest outdoor ticket price charged for outdoor seating, multiplied by the number of seats in a suite, multiplied by the number of Bears games played in a season, and treated that amount as subject to the Amusement Tax.
In sum, County officials believe that the Bears “should be collecting the 3 percent amusement tax not just on ticket prices, but also on amenities — such as food, beverage and parking — tied to the premium-seat tickets.” In contrast, the Bears argue that the amusement tax ordinance “applies only to the cost of entering the stadium and watching a game — not the added benefits tied to those premium tickets.”
The Bears have declared a victory for now. The County has vowed to appeal the ruling on the field. Stay tuned…
David Blum is a partner in the Levenfeld Pearlstein’s Taxation Service Group and is chair of the firm’s sports law group, while Jacqueline Amatulli is an associate in the firm’s Taxation Service Group.
