Golf tournaments that “are a means to a charitable end” are typically exempt from municipal taxation, the Supreme Court of Illinois has held, affirming an appeals court decision that had held that the Quad Cities Open, a PGA Tour event, does not have to pay taxes as imposed by the City of Silva.
First incorporated in 1976 as an Illinois not-for-profit corporation, the Quad Cities Open was granted federal tax-exempt status, shortly thereafter, under the Internal Revenue Code (26 U.S.C. § 501(c)(3) (2000).
Its stated purpose was:
“To sponsor a professional golf tournament and to operate same, with the specific purpose that all profits in excess of a one-year operating contingency fund (which shall not include the tournament prize) be used in promoting the common good and general welfare of the people of the Quad Cities area or be given to organizations which qualify for a tax exemption under 501(c)(3) of the Internal Revenue Code.
No part of the net earning of the corporation shall inure to the benefit of any Director of the corporation, officer of the corporation, or any private individual (except that reasonable compensation may be paid for services rendered to or for the corporation affecting one or more of its purposes), and no Director or officer of the corporation, or any private individual shall be entitled to share in the distribution of any of the corporate assets on dissolution of the corporation.”
“Excess revenue” from the PGA Tour event has benefited such charities as American Red Cross, Junior Achievement, the Easter Seals Foundation, the Boy Scouts, Special Olympics, and the YMCA of the Quad Cities, the March of Dimes, and the Make-A-Wish Foundation.
The site of the tournament varied until 2000 when it was moved to the Tournament Players’ Club (TPC) at Deere Run golf course, a newly constructed golf course in Silvis, Illinois.
Soon after, the city enacted an ordinance imposing a 3 percent tax upon “gross receipts from the sale of admission tickets at for gain professional tournaments or other for gain professional athletic events.” City of Silvis Ordinance No. 2000-26-60 (eff. January 1, 2001). In imposing the tax, the city relied on section 11-54-1 of the Illinois enabling statute, which authorizes municipalities to regulate and tax athletic contests “carried on for gain.” 65 ILCS 5/11-54-1 (West 2002).
On April 4, 2001, the tournament sought a declaratory judgment against the city, alleging that the event is not subject to taxation under the ordinance because the tournament is not “carried on for gain” within the meaning of the enabling statute. n1
Discovery revealed that the tournament was proving substantial monies to charities and that the only officer or director to be paid for his services was the tournament director. The tournaments also provided an affidavit from a CPA, who said that “each expense [of the tournament], including the prize purse, appears necessary to effectuate the purpose of the OPEN as stated in its Articles. An expense is considered to violate the private inurement doctrine if it is substantially more than similar expenses based on appropriate comparability data. That is, expenses must be similar in amount to corresponding expenses of comparable organizations or events. None of the documentation I have reviewed suggests expenditures by the OPEN that are unreasonable in their amount.”
Silvis countered with its own expert witness, who stated the revenues derived from media rights helped to make the tournament “a for-profit enterprise.”
The trial court held that the tournament “is a major business enterprise” and that its “charitable purpose is incidental.” It denied the tournament’s summary judgment motion and granted that of the city. The appellate court reversed the trial court (337 Ill. App. 3d 251, 785 N.E.2d 1031, 271 Ill. Dec. 837), finding that “most of the net proceeds” are distributed to charities and that the tournament “was not operated for a profit.”
The city appealed.
The high court identified the key decision as whether the tournament was “carried on for gain.” It noted that in Illinois, taxing laws are to be “strictly construed and they are not to be extended beyond the clear import of the language used.”
Besides finding support for the tournament’s position in its own state, the Illinois Supreme Court also took guidance from Akron Golf Charities, Inc. v. Limbach, 34 Ohio St. 3d 11, 516 N.E.2d 222 (1987), which stated: “to suggest that (a tournament) has the status of a ‘business’ solely because it staged a major golf tournament simply ignores the fact that the golf tournament is nothing more than a means to a charitable end.” Akron, 34 Ohio St. 3d at 13, 516 N.E.2d at 225.
However, the court was unmoved about the application of case law from another state, Pennsylvania. The city relied on Betsy King LPGA Classic, Inc. v. Township of Richmond, 739 A.2d 612 (Pa. 1999) as part of its argument. But in that case, the tournament took in $1,804,090, but only contributed $340 to a charity, and there was even question whether it was “a legally recognized charitable organization.”
“Like the Ohio Supreme Court in Akron, we find that the event is nothing more than a means to a charitable end,” concluded Illinois’ highest court. Quad Cities Open, Inc. v. The City of Silvis, Docket No. 95972
S. Ct. Ill., 1/23/04
Attorneys of Record: (for appellant) Michael T. Reagan, Herbolsheimer, Lannon, Henson, Duncan & Reagan, P.C., Ottawa, IL and Dean L. Sutton, East Moline, IL. (for appellee) Robert T. Park, Snyder, Schwarz, Park & Nelson, P.C., Rock Island, IL.