Wendella Sightseeing Co., Inc. v. City of Chi.

226 N.E.3d 636

2023 IL App (1st) 211371

WENDELLA SIGHTSEEING COMPANY, INC., Plaintiff- Appellee,

v.The CITY OF CHICAGO, a Municipal Corporation, THROUGH Its DEPARTMENT OF FINANCE, Defendant-Appellant.

No. 1-21-1371

Appellate Court of Illinois, First District, Second Division.

Filed March 14, 2023

Appeal from the Circuit Court of Cook County. No. 2019 CH 3022, Honorable John J. Curry, Jr., Judge, presiding

Celia Meza, Corporation Counsel, of Chicago (Myriam Zreczny Kasper, Suzanne M. Loose, Stephen Collins, and Tara Kennedy, Assistant Corporation Counsel, of counsel), for appellant.

Stuart P. Krauskopf, Kurt A. Kauffman, and Jamie S. Ritchie, of Krauskopf Kauffman, P.C., of Chicago, for appellee.

OPINION

JUSTICE COBBS delivered the judgment of the court, with opinion.

¶ 1 This case is a continuation of an ongoing dispute between the City of Chicago (City) and Wendella Sightseeing, Inc. (Wendella). The subject of the dispute is whether the City may impose a form of an amusement tax on Wendella, a sightseeing boat tour company. In City of Chicago v. Wendella Sightseeing, Inc., 2019 IL App (1st) 181428, 436 Ill.Dec. 942, 143 N.E.3d 771 (Wendella, I) we held that the City’s prior existing version of its amusement tax ordinance, as applied to Wendella, was preempted by and thus violated the federal Rivers and Harbors Appropriation Act of 1884 (RHA), as amended at 33 U.S.C. § 5(b) (2018). The City has since amended its amusement tax ordinance specifically to assess a tax on "tour boat operators." Wendella challenged this new tax in the circuit court of Cook County and argued that, even as amended, the tax was still preempted. In response to the parties’ cross-motions for summary judgment, the circuit court ruled that the amended version of the amusement tax was also preempted by federal law. The City appeals that ruling, and for the following reasons, we affirm.

¶ 2 I. BACKGROUND

¶ 3 A. Initial Litigation—Wendella I

¶ 4 The factual background underlying this case stems from Wendella I, 2019 IL App (1st) 181428, 436 Ill.Dec. 942, 143 N.E.3d 771. For historical context, we incorporate the facts of that here.

¶ 5 1. The RHA

¶ 6 The federal statute at issue in Wendella I and here in this appeal is an amendment to the RHA (33 U.S.C. § 1 et seq. (2018)). We begin briefly with the language of the RHA, which provides that the United States Secretary of the Army is charged with responsibility for the "use, administration, and navigation of the navigable waters of the United States." Id. § 1. As a whole, the statute provides a comprehensive scheme defining impermissible and permissible uses and activities related to the federal waterway system.

¶ 7 Section 5(b) was added to the RHA in 2002 and 2003 primarily through the passage of the Maritime Transportation Security Act of 2002, Pub. L. No. 107-295, 116 Stat. 2133 (MTSA). See 33 U.S.C. § 5(b) (2018). Its current form governs the limited circumstances in which a local tax or fee may be levied against a vessel, its passengers, or its crew on federal navigable waters.¹ Section 5(b) provides, in relevant part:

"No taxes, tolls, operating charges, fees, or any other impositions whatever shall be levied upon or collected from any vessel or other water craft, or from its passengers or crew, by any non-Federal interest, if the vessel or water craft is operating on any navigable waters subject to the authority of the United States, or under the right to freedom of navigation on those waters, except for—

(1) fees charged under section 2236 of this title;

(2) reasonable fees charged on a fair and equitable basis that—

(A) are used solely to pay the cost of a service to the vessel or water craft;

(B) enhance the safety and efficiency of interstate and foreign commerce; and

(C) do not impose more than a small burden on interstate or foreign commerce; or

(3) property taxes on vessels or watercraft, other than vessels or watercraft that are primarily engaged in foreign commerce if those taxes are permissible under the United States Constitution." Id.

¶ 8 2. General Background

¶ 9 Wendella operates sightseeing boat tours exclusively on Lake Michigan and the Chicago River. Between July 1, 2006, and June 30, 2013, Wendella sold tickets for its boat tours at its ticket offices at the Wrigley Building, as well as online and at kiosks near Wendella’s city-leased dock on Michigan Avenue. No tickets were sold onboard Wendella’s tour boats. For decades, Wendella paid license fees to the City for the right to operate and charter its tour boats and water taxis from the dock.

¶ 10 3. The City Amends Its Amusement Tax

¶ 11 In 2008, the City amended its amusement tax ordinance, codified at section 4-156-020 of its municipal code (Chicago Municipal Code § 4-156-020 et seq. (amended at Chi. City Clerk J. Proc. 48243 (Nov. 19, 2008))). Section 4-156-020(A) provided that:

"Except as otherwise provided by this article, an amusement tax is imposed upon the patrons of every amusement within the city. The rate of the tax shall be equal to nine percent of the admission fees or other charges paid for the privilege to enter, to witness, to view or to participate in such amusement ***." Id. § 4-156-020(A).²

¶ 12 "Amusement" was defined, in relevant part, as "(1) any exhibition, performance, presentation or show for entertainment purposes, including *** riding on animals or vehicles." Chicago Municipal Code § 4-156-010 (amended at Chi. City Clerk J. Proc. 14999 (Nov. 13, 2007)). "Patron" was defined as "a person who acquires the privilege to enter, to witness, to view or to participate in an amusement." Chicago Municipal Code § 4-156-010 (amended at Chi. City Clerk J. Proc. 15814 (Nov. 13, 2007)). The amended ordinance required "every owner, manager or operator of an amusement *** to secure from each patron the [amusement tax] and to remit the tax to the [City’s] department of revenue." Id. § 4-156-030(A).

¶ 13 Beginning in 2013, the City audited Wendella with respect to several taxes, including the 2008 amended amusement tax. During the audit, Wendella informed the City that it did not believe that the City was authorized to impose or collect the amusement tax from Wendella or its passengers because the tours were operated on federal waterways and thus expressly preempted by section 5(b) of the RHA.

¶ 14 In October 2014, Wendella received an assessment from the City for approximately $3.2 million in amusement taxes and interest for the period beginning July 1, 2006, through June 30, 2013. Wendella filed a protest in the City’s Department of Administrative Hearings (DOAH). Both parties filed cross-motions for summary judgment, with Wendella arguing, among other things, that federal law preempted the imposition of the amusement tax on Wendella.

¶ 15 On May 16, 2017, the administrative law judge issued a decision, holding that section 5(b) of the RHA preempted the City’s amusement tax as applied to Wendella. The City challenged the DOAH’s decision in the circuit court of Cook County. On March 15, 2018, the circuit court affirmed the DOAH’s decision.

¶ 16 The City appealed the circuit court’s decision to this court in Wendella I, 2019 IL App (1st) 181428, ¶ 26, 436 Ill.Dec. 942, 143 N.E.3d 771, arguing that the DOAH had erred by finding that section 5(b) preempted the amusement tax. The City reasoned that there was no conflict between the amusement tax and federal law because the tax was levied on a ticket purchased on dry land while the boat was docked and before the tour ever began. Id. The City interpreted the RHA as only prohibiting nonfederal taxes on vessel operations that were "present" and "ongoing." Id. The City also contended that section 5(b) only prohibited taxes on "passengers" of a vessel, but not "patrons" as defined within the amusement tax. Id. ¶ 31.

¶ 17 We rejected the City’s interpretation of section 5(b), and ultimately found that there was conflict preemption between the federal statute and the local ordinance. Id. ¶¶ 27, 29. Initially, we interpreted the plain meaning of section 5(b), and held that the dictionary definition of "operating" equated to "engaging in active business," and thus, a vessel was "operating" on federal waters when it was "engaged in active business." Id. ¶ 28. We reasoned that Wendella’s operations did not cease simply because the boat was docked, as that would be equivalent to saying a "business [was] no longer in operation simply because it closes at the end of the day." (Internal quotation marks omitted.) Id.

¶ 18 Further, we noted that, even if we agreed with the City that the boats were not actively operating on federal waters at the time the tax was levied, i.e., when a ticket was purchased on dry land, the language of section 5(b) was constructed in both the present and future tense. Id. ¶ 29. Thus, we determined that the statute prohibited taxes on Wendella’s vessels, or their passengers and crews, regardless of whether they were currently operating or were going to operate in the future. Id. Accordingly, we held that section 5(b) conflicted, and thus preempted, the amusement tax. Id. ¶¶ 29, 32.

¶ 19 We also found the City’s distinction between "passengers" and "patrons" unavailing. Id. ¶ 31. We observed that the amusement tax defined "patron" as a "person who *** acquires the privilege to enter, to witness, to view or to participate in an amusement." (Internal quotation marks omitted.) Id. Thus, Wendella’s "patrons" were synonymous with "passengers" as defined in section 5(b) because Wendella’s "patrons" were people who acquired the privilege to "enter" its tour boats and therefore became "passengers" as contemplated under section 5(b). Id.

¶ 20 4. Amended Amusement Tax as Applied to Tour Boat Operators

¶ 21 In or around November 2016, while Wendella’s protest was pending before the DOAH, the City amended and enacted its amusement tax by adding a new section directed at tour boat operators (tour boat operator tax).³ Chicago Municipal Code § 4-156-032 (added at Chi....