Opinion ID: 2228799
Heading Depth: 2
Heading Rank: 1

Heading: The Tax Is an Occupation Tax

Text: Defendants submit that the tax involved herein is not an occupation tax because it is expressly imposed upon the patrons, rather than the operators, of the health and racquetball clubs. However, the fact that the legal incidence of the tax is ostensibly placed upon the members of the club is not dispositive of the question of whether the tax is an unauthorized service occupation tax. We recognized this principle in Commercial National Bank v. City of Chicago (1981), 89 Ill.2d 45, 67, where we stated that the mere recitation in the ordinance that the tax is upon purchasers does not transform an occupation tax into a tax upon the purchaser. In Commercial National Bank we emphasized the relationship between the constitutional restriction on income taxes and the constitutional restriction on occupation taxes (both of which are contained in article VII, section 6(e), of the Constitution of 1970). We noted that an apparent purpose of prohibiting home rule units from imposing occupation taxes not expressly authorized by statute was to prevent those units from evading the constitutional restriction on income taxes by labeling such taxes occupation taxes. In view of this purpose we stated, The mere recitation in the ordinance that the tax is upon purchasers of services does not eliminate the evils [which] the delegates to the convention sought to prevent. (Emphasis added.) 89 Ill.2d at 67. As in Commercial National Bank, in order to abide by this particular constitutional provision we must look to this ordinance's practical operation and effect rather than only to a facial declaration contained therein. In doing so it becomes apparent that, although the tax may ostensibly fall on individuals receiving the clubs' services, the tax truly is an occupation tax within the meaning of section 6(e). The clubs are not only responsible for collecting and remitting the tax to the city, but are also responsible for paying the tax to the city regardless of whether their patrons fail or refuse to remit the tax. Additionally, the health clubs are subject to some very substantial penalties for any delays in submitting the tax payments. These are largely the same types of considerations which we found persuasive in Commercial National Bank, 89 Ill.2d at 66-67, and Waukegan Community Unit School District No. 60 v. City of Waukegan (1983), 95 Ill.2d 244, 254-55, in determining that the taxes involved therein were de facto occupation taxes. In analyzing the substantive impact of this tax as an occupation tax, we have reviewed Chicago Department of Revenue Ruling 86-1 (February 17, 1986) in conjunction with the ordinance at issue here, which the revenue ruling purports to interpret. The ruling in part attempts to exculpate club operators who make a good faith unsuccessful effort to collect and remit the tax. This ruling, issued during the pendency of this litigation, is a clear effort to address the amendment's asserted constitutional infirmities. The good faith language is clearly intended to respond to an argument that the substantive burden of the tax herein is that of an occupation tax. However, this administrative interpretation is not in accord with the language of the ordinance itself, which subjects operators to penalties for failures or errors unless they are not due to any fault on the part of the person required to remit the tax. (Emphasis added.) This quoted language of the ordinance clearly encompasses negligent, as opposed to merely intentional, failures on the part of club operators. A self-serving administrative ruling obviously cannot amend an ordinance to save it from constitutional infirmities. In reaching our conclusion that an occupation tax is involved herein, we have not overlooked defendants' argument in their brief that even if the ordinance did impose a tax upon amusement providers, it would not be an occupation tax because the express terms of the ordinance impose the tax with respect to ` any amusements within the city of Chicago' (Sec. 104-2A), irrespective of whether they are provided by those engaged in the occupation of presenting amusements or by those engaged in a hobby, diversion or occasional fund-raising enterprise. (Emphasis in original.) The ordinance, even as amended, undoubtedly imposes numerous nonoccupational taxes, taxing activities which may in fact be offered by those engaged in a hobby, diversion or occasional fund-raising enterprise, as defendants suggest. However, by defining amusement to include racquetball or health clubs, and by further establishing a tax on those clubs' membership fees, the city has gone far beyond merely taxing particular activities ( cf. Town of Cicero v. Fox Valley Trotting Club, Inc. (1976), 65 Ill.2d 10), and has imposed a tax unique to those types of commercial enterprises. Realistically viewed, it is clear that a tax on membership fees on health and racquetball club memberships is a tax on those occupations.