Federal Statute Prevents Chicago Imposing Amusement Tax

The Illinois Appellate Court determined that Wendella Sightseeing, Inc. was not liable for the City of Chicago’s amusement tax due to a federal statute. The Appellate Court’s decision affirmed the Circuit Court’s previous decision.

Wendella Sightseeing, Inc. provides architectural tours via boat as well as cruises on Lake Michigan and the Chicago River. Chicago Municipal Code section 4-156-020 requires tax be collected and remitted “for the privilege to enter, to witness, to view or to participate in such amusement.”

The City of Chicago first audited Wendella in 2013 and claimed that Wendella owed the city $3.2 million in unpaid taxes between 2006 and 2013. However, Wendella argued that the Maritime Transportation Security Act of 2002 preempted Chicago’s municipal code. Section 5(b) of the act states that “no taxes, tools, operating fees, or any other impositions” can be collected from the passengers or crew of a vessel by a non-federal authority.

In 2021, the Circuit Court of Cook County ruled in favor of Wendella. The City of Chicago filed a motion for reconsideration a few months later, which was denied. The Circuit Court’s decision was affirmed by the Appellate Court.

In this case, it’s important for business owners and professionals to be aware of not only tax legislation for their locality, but also state and federal regulations. Although it required legal action, Wendella was able to save significant amounts of money because of their knowledge of the Supremacy Clause and how it directly impacted their course of business.

For tax professionals who primarily deal with State and Local Tax, this case serves as a reminder of the Supremacy Clause in the US Constitution. That clause states that federal law generally takes precedence over state law. Having extensive knowledge of a variety of legislation can lead to more successful and efficient work.

(Wendella Sightseeing, Inc. v. The City of Chicago, Appellate Court of Illinois, First District, No. 1-21-1371, March 14, 2023, ¶403-933)

Posted on March 30, 2023