A popular Chicago River boat tour operator has again won reprieve from the city’s effort to collect millions of dollars in amusement taxes on its excursions.
Wendella Sightseeing Company has been battling with City Hall for years over the vendor's refusal to collect an amusement tax on its tour ticket sales from 2006 to 2012. In 2019 an Illinois First District Appellate Court panel agreed with the Chicago Department of Administrative Hearings that the federal Maritime Transportation Security Act preempted the tax. In response, the city amended its ordinance to specifically list “tour boat operators,” but Wendella challenged that language in state court.
On cross-motions for summary judgment, Cook County Judge John Curry Jr. sided with Wendella. The city challenged that ruling, also before the First District Appellate Court, which issued a ruling March 14. Justice Cynthia Cobbs wrote the opinion; Justices James Fitzgerald Smith and David Ellis concurred.
The 2002 Maritime Transportation Security Act amended the 1884 Rivers and Harbors Appropriation Act, which Cobbs explained “provides a comprehensive scheme defining impermissible and permissible uses and activities related to the federal waterway system.” Since a 2013 audit, Wendella has insisted its tickets are exempt from the city tax because its boats operate exclusively on federal waterways, the river and Lake Michigan.
When the city first tried to collect, in October 2014, it said Wendella owed $3.2 million for tickets sold from July 1, 2006, through June 30, 2013. In November 2016 the City Council amended its amusement tax ordinance to target tour boat operators, not patrons or vessels. When Wendella told the city it wanted to improve its Chicago River dock and also obtain a 10-year lease extension, the Chicago Department of Transportation in February 2019 said it could not approve either request while Wendella owed amusement taxes dating from Jan. 1, 2017.
In arguing for summary judgment, in addition to restating its logic concerning RHA pre-emption, Cobbs wrote: “Wendella reasoned that a tax on the vessel’s owner was ‘inseparable’ from a tax on the vessel itself, because, practically speaking, a vessel could not pay its own taxes. Wendella further contended that the tour boat operator tax was not comparable to permissible taxes such as sales taxes or taxes on goods sold on boats or vessels.”
The city said the 2002 amendments represented Congress’ attempt to bypass tolls and fees for boats “passing through” a jurisdiction without explicit exemption for “local commercial sales transactions,” Cobbs wrote. The panel said Judge Curry, while stipulating courts’ general preference to avoid invoking pre-emption, said the federal law in question was a “patently clear” example of Congress intending to suppress local or state tax law, specifically prohibiting “taxation of vessels, passengers, and crews on navigable waters.”
Cobbs explained no appellate court beside itself has addressed this question under the 2002 Maritime Transportation Security Act. The panel pointed to the U.S. Constitution’s tonnage clause, through which Congress intended to prevent states from taxing imports and exports. The panel said “the U.S. Supreme Court has interpreted the tonnage clause to prohibit more than just ‘classic’ tonnage duties, such as taxes on a ship based on its capacity. Examples of prohibited taxes include taxes on the number of masts, mariners, or passengers, as well as taxes ‘imposed not just on the vessel itself but also on the ship captain, owner, supercargo (the person in charge of the cargo on the ship), and passengers.’ ”
However, Cobbs continued, states or municipalities are allowed to charge for certain things, such as “services rendered or conveniences provided” a given boat. But she explained a city can’t just label an assessment a service tax, but can only escape preemption by demonstrating a beneficial service for the taxed boat.
Although Chicago insisted “the tour boat operator tax is not actually a tax on the vessel, but on the business revenue or income of the company" and that the federal law is intended to allow such assessments, “the legislative history only bolsters the conclusion that it does not.”
While sympathetic to the city’s intent to equitably tax all amusement businesses, the panel surmised it could only reach agreement with Wendella’s position on the federal exemption and affirmed Judge Curry’s ruling.
Wendella has been represented in the case by attorneys Stuart P. Krauskopf, Kurt A. Kauffman, and Jamie S. Ritchie, of Krauskopf Kauffman, of Chicago.
The city has been represented by attorneys from its Department of Law.