June 6, 2008, 12:00 AM

Chicago says eBay is responsible for sales tax on online ticket sales

The City of Chicago, charging eBay fails to collect sales tax on online ticket sales, has filed two lawsuits seeking to force eBay and its StubHub unit to submit to an audit of their records and pay fines totalling about $186,000.

The City of Chicago, contending that eBay Inc. fails to collect sales tax on online ticket sales it processes as an agent for Chicago-based ticket vendors, has filed two legal complaints charging eBay and its StubHub subsidiary are in violation of the city’s amusement tax law. The action seeks to force eBay and StubHub to submit to audits of their records and to pay fines so far totalling about $186,000.

EBay contends the Chicago law does not apply to its business activity and plans to fight the city in court. “We intend to fight this litigation vigorously,” eBay says in a statement.

The city’s legal complaints, filed May 19 in the Circuit Court of Cook County, IL, contend that eBay and StubHub act as online “reseller’s agents” for Chicago-based vendors who sell tickets to sporting events and other activities. “Through its web site, Defendant has facilitated the sale of thousands of tickets to the public for such amusements taking place in the city,” the suit against eBay says.

The city, represented by city attorney Mara Georges, contends in the lawsuit against eBay that the e-marketplace maintains relationships with businesses based in Chicago but that the city needs to “engage in discovery to determine the full extent and specifics of Defendant’s operations and amusement tax liabilities.”

The city charges that eBay and StubHub have refused to comply with a request to submit their records on ticket sales since last year, which triggered the imposition of fines set at $500 per day until the matter is settled.

EBay, however, says it’s confident it will prevail in court. “EBay and StubHub have historically enjoyed an excellent working relationship with local tax authorities across the nation, and we intend to continue building those relationships,” eBay says. “However, in this case, we do not believe that the city`s amusement tax applies to either eBay`s or StubHub`s business models, nor do we believe that the amusement tax can properly be assessed here.”

The legal fight could last a while, if past actions are an indication. In October 2005, Chicago filed a lawsuit against several online travel services retailers, including Hotels.com, Orbitz.com, Priceline.com and Travelocity.com. In February 2008, a judge denied the defendants’ motion to dismiss the lawsuit and the city is currently engaged in legal discovery in that case, a spokeswoman for Chicago says.

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