CHICAGO HEALTH CLUBS, INC., et al., Appellants, v. RONALD PICUR, Comptroller of the City of Chicago, et al., Appellees.
No. 65386
Supreme Court of Illinois
June 20, 1988
October 3, 1988
JUSTICE CUNNINGHAM delivered the opinion of the court:
Plaintiffs, Chicago Health Clubs, Inc., Chicago Health Clubs Fair Lady, Inc., Exercise Centers of Chicago, Inc., River City Fitness Center, Inc., Downtown Court Club, Inc., Pro‘s Gym and Nautilus, Inc., Lakeshore Centre Management Company d/b/a Lakeshore Centre, Charles Vavrus d/b/a Charlie Club, Tennis Corporation of America, Women‘s Workout World, Inc., Women‘s Workout World II, Inc., Central World, Inc., The River Club, Inc. d/b/a The River Club, Hyde Park Athletic Club, Inc., Combined Fitness Centre-LaSalle, Inc., Combined Fitness Centre-Randolph, Inc., Combined Fitness Centre-Northbrook, Inc., and Patricia Stanis (an individual dues-paying member of a health club in Chicago), brought this suit in the circuit court of Cook County on January 9, 1986, against defendants, the City of Chicago (city) and certain officials, namely, Ronald Picur, comptroller, Cecil A. Partee, treasurer, and Charles Sawyer, director of revenue. In their complaint, plaintiffs challenged the constitutionality of the December 23, 1985, amendment to the Chicago Amusement Tax Ordinance (Chicago Municipal Code §§104 through 104-8 (1985)), and sought declaratory and permanent injunctive relief.
Defendants filed a motion to dismiss the complaint for failure to state a cause of action. Plaintiffs then filed an amended complaint, and also filed a motion for a preliminary injunction. Defendants let their motion to dismiss the original complaint stand as a basis for dismissing the amended complaint, but filed an additional motion to strike portions of plaintiffs’ reply brief, and a
The appellate court, with one justice dissenting, held that the December 23, 1985, amendment to the Chicago Amusement Tax (Chicago Municipal Code §§104-1 through 104-8 (1985)) was constitutional in all respects (155 Ill. App. 3d 482) and therefore found that the circuit court erred in denying the motion to dismiss and granting the preliminary injunction. We granted plaintiffs’ petition for leave to appeal (
I. Summary of Amendment and Related Provisions
In 1947 the City of Chicago enacted an amusement tax ordinance which imposed a tax on organizers, sponsors and promoters of various enumerated spectator and participatory events. In 1980 the ordinance was amended to shift the tax from the providers to their patrons. (Chicago Municipal Code §§104-1 through 104-2 (1980).) Since then, the Chicago Amusement Tax Ordinance has provided for a tax upon the patrons of amusements located within the city. The city taxes the privilege of witnessing, viewing or participating in such amusements.
On December 23, 1985, the city amended this ordinance, and it is this amendment which the plaintiffs chal-
“[A]ny entertainment or recreational activity offered for the public participation or on a membership or other basis including but not limited to racquetball or health clubs, carnivals, amusement park rides and games, bowling, billiard and pool games, dancing, tennis, racquetball, swimming, weightlifting, body building or similar activities.” (Emphasis added.)
This amendment thus adds health clubs and racquetball clubs to the list of “amusements” for purposes of the Amusement Tax Ordinance. While this case was pending in the circuit court the city, on February 26, 1986, passed a related amendment which brought “social and eating clubs” within the definition of “amusement” and also reduced from 4% to 2% the tax rate to be paid by members and guests of health, social and eating clubs (Chicago Municipal Code §§104-1 through 104-2.1 (1986)). The February 26, 1986, amendment was challenged by the Chicago Athletic Club (Chicago Athletic Club v. City of Chicago, No. 86 CH 3116) in the circuit court of Cook County. In that case an agreed order was entered exempting social and eating clubs from the amusement tax, in effect holding that social and eating clubs are not “amusements” within the meaning of the amusement tax. This latter amendment is not in issue here and further references to an amendment will be to the December 23, 1985, amendment.
In addition to adding racquetball and health clubs to the list of amusements, the amendment at issue here makes the owners, managers, and operators of amusements the collectors for and on behalf of the city. They are responsible for collecting the tax, keeping accurate records of the moneys collected, and remitting the tax collected to the city. Furthermore, the ordinance subjects them (owners, managers or operators) to penalties and
II. Motion to Dismiss
Regarding the
In denying the motion, however, the circuit court also found that, as alleged in the complaint and the motion for preliminary injunction, the amended ordinance was unconstitutional. We shall address these constitutional questions when discussing the preliminary injunction.
III. Preliminary Injunction
When a circuit court is determining the propriety of a preliminary injunction, it must consider whether the plaintiff is likely to succeed on the merits, and whether the plaintiff‘s rights will be irreparably harmed if this equitable form of relief is not immediately granted. (See, e.g., Central Building & Cleaning Co. v. Vodnansky (1980), 84 Ill. App. 3d 586.) On appeal from the grant or
When moving for a preliminary injunction in the instant case, the plaintiffs asserted that they were likely to succeed on the merits, that no adequate remedy at law existed, and that if a preliminary injunction were not immediately granted they would suffer irreparable harm. In appealing the grant of the preliminary injunction and the denial of the motion to dismiss, defendants argued only the likelihood of success on the merits, i.e., they focused on the constitutionality of the amendment. Before this court as well, the parties have likewise concentrated on the question of whether the ordinance is constitutional. Therefore, we, too, focus on this question, rather than on an evaluation of the risk of irreparable harm and inadequacy of a legal remedy, in deciding whether the preliminary injunction was appropriate.
A brief summary of the parties’ contentions on the constitutionality of the amendment will facilitate a discussion of the individual constitutional issues. Defendants submit that the amendment was properly enacted pursuant to the city‘s home rule power. Plaintiffs contend that the amendment is an “occupation tax” which, according to
We find that the amendment imposes an occupation tax within the meaning of
A. The Tax Is an Occupation Tax
Defendants submit that the tax involved herein is not an occupation tax because it is expressly imposed upon the patrons, rather than the operators, of the health and racquetball clubs. However, the fact that the legal incidence of the tax is ostensibly placed upon the members of the club is not dispositive of the question of whether the tax is an unauthorized service occupation tax. We recognized this principle in Commercial National Bank v. City of Chicago (1981), 89 Ill. 2d 45, 67, where we stated that the “mere recitation in the ordinance that the tax is upon purchasers” does not “transform an occupation tax into a tax upon the purchaser.”
In Commercial National Bank we emphasized the relationship between the constitutional restriction on income taxes and the constitutional restriction on occupation taxes (both of which are contained in article VII,
As in Commercial National Bank, in order to abide by this particular constitutional provision we must look to this ordinance‘s practical operation and effect rather than only to a facial declaration contained therein. In doing so it becomes apparent that, although the tax may ostensibly fall on individuals receiving the clubs’ services, the tax truly is an “occupation” tax within the meaning of
In analyzing the substantive impact of this tax as an occupation tax, we have reviewed Chicago Department of Revenue Ruling 86-1 (February 17, 1986) in conjunction with the ordinance at issue here, which the revenue ruling purports to interpret. The ruling in part attempts to exculpate club operators who make a “good faith” un-
In reaching our conclusion that an occupation tax is involved herein, we have not overlooked defendants’ argument in their brief that “even if the ordinance did impose a tax upon amusement providers, it would not be an occupation tax because the express terms of the ordinance impose the tax with respect to ‘any amusements within the city of Chicago’ (Sec. 104-2A), irrespective of whether they are provided by those engaged in the occupation of presenting amusements or by those engaged in a hobby, diversion or occasional fund-raising enterprise.” (Emphasis in original.) The ordinance, even as amended, undoubtedly imposes numerous nonoccupational taxes, taxing activities which may in fact be offered by those engaged in a “hobby, diversion or occasional fund-raising enterprise,” as defendants suggest. However, by defining “amusement” to include “racquetball or health clubs,” and by further establishing a tax on those clubs’ membership fees, the city has gone far beyond merely taxing particular activities (cf. Town of Cicero v. Fox Valley Trotting Club, Inc. (1976), 65 Ill. 2d 10), and has imposed a tax unique to those types of com-
B. The Tax Is Not Authorized by Section 11-42-5
Defendants claim and the majority of the appellate court held that even if the amendment imposes an occupation tax it is nevertheless valid because it is authorized under
“The corporate authorities of each municipality may license [and] tax *** theatricals and other exhibitions, shows, and amusements ***.”
Ill. Rev. Stat. 1985, ch. 24, par. 11-42-5 .
Cities and villages are thus granted specific power by the aforesaid provision to license, tax and regulate amusements and places of amusement. We must determine whether the city has acted within the scope of this statutory authorization. In this regard we note initially defendants’ argument that even if not all of the activities carried on at health and racquetball clubs are “amusements,” the tax is still proper because
This court has indicated that the word “amusement” is synonymous with diversion, entertainment, recreation, pastime and sport. (See, e.g., City of Chicago v. Green Mill Gardens (1922), 305 Ill. 87, 93; Stiska v. City of Chicago (1950), 405 Ill. 374, 379.) The term “amusement” is clearly broad enough to include participative entertainment and is not limited to that of an exhibitory nature. However, entertainments of many kinds may be exhibitive or participative and yet not be classed as amusements; each case must depend upon its own particular facts.
The question of what constitutes an “amusement” for the purposes of section 11-24-5 has been a much litigated issue.
Citing Kurle v. Evangelical Hospital Association (1980), 89 Ill. App. 3d 45, 48, H. K. H. Development Corp. v. Metropolitan Sanitary District (1964), 47 Ill. App. 2d 46, 51, and People ex rel. Edgar v. Miller (1982), 110 Ill. App. 3d 264, defendants argue that the circuit court, in evaluating the nature of the activities occurring at these clubs, relied on affidavits which were not properly before it on a motion for a preliminary injunction. In this regard we note initially that defendants did not raise this issue in the appellate court and thus have not preserved it for this court‘s review. Additionally, we note that the diversity of services and activities commonplace in these health and racquetball clubs is not something beyond the common knowledge of most individuals who, if not having visited such a club, have certainly been exposed to the widespread advertisements and other promotional activities common in those competitive enterprises. Accordingly, we cannot say that defendants were prejudiced by the admission of these affidavits, even if admission thereof was improper.
Defendants also submit that any concern that the tax on fees paid to health and racquetball clubs encompasses a tax on nonamusement activities can be resolved by reference to Chicago Department of Revenue Ruling 86-1 (discussed above in conjunction with the determination that an occupation tax is involved herein). Ruling 86-1 attempts to authorize “amusement providers” to segre-
IV. Conclusion
We thus conclude that the amendment at issue herein imposes a service occupation tax and that the tax is neither solely nor even predominately a tax on “amusements” or “places of amusements” within the meaning of
Finding a portion of a legislative enactment unconstitutional does not render the entire enactment unconstitutional unless it can be said that the legislators would not have passed the legislation with the invalid portion
We thus find that the circuit court properly granted the preliminary injunction and denied the motion to dismiss. Accordingly, we reverse the judgment of the appellate court, affirm the decision of the circuit court, and remand to the circuit court of Cook County for further proceedings not inconsistent with this opinion.
Appellate court reversed; circuit court affirmed; cause remanded.
JUSTICE RYAN, specially concurring:
I concur with the court that this amendment, which places a tax on membership in a racquetball or health club, constitutes an occupation tax which has not been authorized by the General Assembly. However, I believe the opinion is not clear in its analysis for determining whether a tax is an occupation tax within the meaning of article VII, section 6(e), of our Constitution of 1970.
According to the majority opinion, the tax on membership in a racquetball or health club constitutes an occupation tax because “[t]he clubs are not only responsible for collecting and remitting the tax to the city, but are also responsible for paying the tax to the city regardless of whether their patrons fail or refuse to remit the tax. Additionally, the health clubs are subject to some very substantial penalties for any delays in submitting the tax payments.” (Emphasis in original.) (124 Ill. 2d at 10.) The fact that the clubs have to collect the tax and that there is a penalty for the delay is not the dispositive factor in determining whether the tax is an occupation tax. If such were the case, other home rule
Recently, this court held that an ordinance which imposed a tax on vehicle fuel, which the dealers were required to collect and which imposed penalties on the dealers for failure to collect the tax, did not constitute an occupation tax. (Illinois Gasoline Dealers, 119 Ill. 2d 391.) In that case, we stated that the practical effect of a tax analysis was not relevant because the tax was one which the constitutional convention expressly indicated was permissible. 119 Ill. 2d at 400.
The first step in determining whether the tax is constitutional is to look at the relevant constitutional provision. The 1970 Illinois Constitution provides:
“(e) A home rule unit shall have only the power that the General Assembly may provide by law *** [to] impose taxes *** upon occupations.” (
Ill. Const. 1970, art. VII, § 6(e) .)
This court has considered transcripts from the constitutional convention in order to interpret language of the Constitution. (See People ex rel. City of Canton v. Crouch (1980), 79 Ill. 2d 356, 366-67.) The Record of Proceedings from the constitutional convention further clarifies what are permissible home rule taxes that do not constitute occupation taxes. (Illinois Gasoline Dealers Association v. City of Chicago, 119 Ill. 2d at 400, citing 7 Record of Proceedings, Sixth Illinois Constitutional Convention 1655-56.) The transcripts from the constitutional convention reveal that under a city‘s home rule power, it can tax liquor, food, hotel rooms, gasoline, etc. During the constitutional debates, these taxes, which a home rule unit can levy, were imprecisely referred to as
Thus, determining whether the tax imposes all legal responsibilities and obligations on the person engaged in providing the service (Commercial National Bank v. City of Chicago (1981), 89 Ill. 2d 45, 68) becomes significant only after a determination that the tax is not similar to the examples set forth by the local government committee of the constitutional convention as permissible home rule taxes. We discussed this distinction in our recent decision in Illinois Gasoline Dealers Association v. City of Chicago (1988), 119 Ill. 2d 391, 400-01, and noted that the shifting of the incidence of the tax was not, in that case, an attempt to evade the intent of the constitutional convention to prohibit a tax on the sale of services.
As indicated in the opinion in our case, a tax on membership fees or dues of health and racquetball clubs is not such a tax as the delegates to the constitutional convention intended home rule units to levy. This tax cannot be classified as what the delegates understood to be an excise tax or a tax on the sale of tangible personal property. These clubs perform services, and the tax is measured not by participation in or admissions to individual events, but on membership dues collected by the clubs. It is in the nature of a service tax and, as such, is similar to those taxes held invalid in Commercial National Bank v. City of Chicago. As indicated in the constitutional debates, there was concern by the delegates that a proliferation of such taxes, as are involved in this case and in Commercial National Bank, would, in effect, nullify the intention that taxes levied on or measured by income not be levied by home rule units, absent the grant of authority from the General Assembly. These de-