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Thursday, March 16, 2023

Amusement Tax on Tour Boat Operators Preempted by Federal Law

An Illinois Appellate Court recently struck down a municipality’s amusement tax, finding the tax was "preempted" by federal law. Wendella Sighting Company v. City of Chicago.

In 2008, a municipality amended its amusement tax ordinance to require that all amusement owners secure an amusement tax from patrons to be payable to the municipality’s revenue department. A sightseeing boat tour company operating on Lake Michigan and the Chicago River sought relief administratively after it was assessed $3.2 million in amusement taxes and interest from the municipality. An administrative law judge (ALJ) ruled in favor of the boat tour company on the grounds that federal law, "The Rivers and Harbors Act" (RHA), preempted the municipality’s amusement tax. The RHA limits local regulation of vessels that travel federal waters. Both the circuit and appellate courts upheld the ALJ’s decision in favor of the boat company. While the decision was pending with the ALJ, the municipality amended its amusement tax to solely impose the tax on the tour boat operator rather than requiring the collection of the tax from the patrons.

The boat tour company challenged the amended ordinance in court, asking the court to declare the tour boat tax void. The circuit court ruled in favor of the boat tour company, finding that the RHA preempted the amended ordinance as well. 

On appeal, the municipality argued there was no preemption because the tour boat operator tax was not a tax on a vessel as prohibited under the RHA but instead was a tax on the business revenue of the tour company. The Appellate Court rejected that argument, pointing to federal court decisions interpreting a vessel to include the passengers, crew, and captain of a ship. Further, the court noted the Tonnage Clause of the US Constitution had been interpreted to prohibit taxes on vessels, captains, and passengers. 

The Appellate Court also noted that because the tax was based on the fees that patrons paid to the tour boat operator, the tax is still placed on the patron as it was in the amusement tax ordinance. 

Finally, the Court found that the RHA was clear about what limited taxes are allowed on vessels operating on federal waters, and if Congress viewed a tour boat operator tax as permissible, it would have included it as an exception to the RHA's limitations. 

In conclusion, the Court was clear that any tax burden falling on the patron or owner of a tour boat operating on federal navigable waters is preempted by federal law.

Post Authored by Katie Nagy & Julie Tappendorf, Ancel Glink


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