{ "id": 2638813, "name": "THOMAS R. MEITES et al., d/b/a Meites, Frackman & Mulder, Plaintiffs-Appellants, v. THE CITY OF CHICAGO et al., Defendants-Appellees", "name_abbreviation": "Meites v. City of Chicago", "decision_date": "1989-06-20", "docket_number": "No. 1\u201488\u20142410", "first_page": "887", "last_page": "895", "citations": [ { "type": "official", "cite": "184 Ill. App. 3d 887" } ], "court": { "name_abbreviation": "Ill. App. Ct.", "id": 8837, "name": "Illinois Appellate Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "502 N.E.2d 283", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "151 Ill. App. 3d 354", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3539870 ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/151/0354-01" ] }, { "cite": "519 N.E.2d 447", "category": "reporters:state_regional", "reporter": "N.E.2d", "weight": 2, "opinion_index": 0 }, { "cite": "119 Ill. 2d 391", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 3192573 ], "weight": 2, "pin_cites": [ { "page": "400" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/119/0391-01" ] }, { "cite": "447 N.E.2d 345", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "95 Ill. 2d 244", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 3112396 ], "weight": 2, "pin_cites": [ { "page": "254-55" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/95/0244-01" ] }, { "cite": "432 N.E.2d 227", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "89 Ill. 2d 45", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 5493868 ], "opinion_index": 0, "case_paths": [ "/ill-2d/89/0045-01" ] }, { "cite": "532 N.E.2d 322", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "177 Ill. App. 3d 305", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3620927 ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/177/0305-01" ] }, { "cite": "494 N.E.2d 603", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "144 Ill. App. 3d 774", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3500242 ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/144/0774-01" ] }, { "cite": "478 N.E. 2d 446", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "132 Ill. App. 3d 666", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3443466 ], "weight": 5, "pin_cites": [ { "page": "668" }, { "page": "668" }, { "page": "669" }, { "page": "669" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/132/0666-01" ] }, { "cite": "504 N.E.2d 1298", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "152 Ill. App. 3d 812", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3574618 ], "pin_cites": [ { "page": "816-17" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/152/0812-01" ] }, { "cite": "559 F.2d 488", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 942219 ], "opinion_index": 0, "case_paths": [ "/f2d/559/0488-01" ] }, { "cite": "510 F.2d 894", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 146866 ], "opinion_index": 0, "case_paths": [ "/f2d/510/0894-01" ] }, { "cite": "367 F Supp. 258", "category": "reporters:federal", "reporter": "F. Supp.", "case_ids": [ 8476297 ], "year": 1975, "pin_cites": [ { "page": "273" } ], "opinion_index": 0, "case_paths": [ "/f-supp/367/0258-01" ] }, { "cite": "841 F.2d 531", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 11297866, 6120302 ], "opinion_index": 0, "case_paths": [ "/f2d/841/0531-01", "/br/83/0531-01" ] }, { "cite": "528 N.E.2d 978", "category": "reporters:state_regional", "reporter": "N.E.2d", "weight": 3, "opinion_index": 0 }, { "cite": "124 Ill. 2d 1", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 3217517 ], "weight": 7, "pin_cites": [ { "page": "10" }, { "page": "10" }, { "page": "11-12" }, { "page": "15" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/124/0001-01" ] } ], "analysis": { "cardinality": 881, "char_count": 19512, "ocr_confidence": 0.779, "pagerank": { "raw": 5.12982294956584e-08, "percentile": 0.3224911954326295 }, "sha256": "d0e86933ef449fd1dd60310a78200d65c80c303a5c2aec3e39a8e96b24ceed65", "simhash": "1:626ee5510f777175", "word_count": 3203 }, "last_updated": "2023-07-14T17:19:22.278456+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "THOMAS R. MEITES et al., d/b/a Meites, Frackman & Mulder, Plaintiffs-Appellants, v. THE CITY OF CHICAGO et al., Defendants-Appellees." ], "opinions": [ { "text": "JUSTICE SCARIANO\ndelivered the opinion of the court:\nThis appeal arises from an unsuccessful challenge in the circuit court to the City of Chicago\u2019s transaction tax as imposed on online database searches on the Nexis/Lexis computerized legal library system operated by Mead Data Central, Inc. Plaintiff appeals, raising the following issues on appeal: (1) whether the Chicago transaction tax ordinance authorizes the imposition of tax on all charges made for the use of a computer and its software, including database search charges; and (2) whether such a tax is a tax upon occupations, in violation of section 6(e) of article VII of the Illinois Constitution.\nPlaintiff, a law partnership, subscribes to the Lexis/Nexis databases maintained by Mead. It is challenging the City of Chicago\u2019s collection of a transaction tax on charges billed for database searches, arguing that the transaction tax ordinance does not authorize the tax on such charges and that the city\u2019s Department of Revenue\u2019s Ruling No. 9, which interprets the ordinance, is overly broad and invalid.\nCount I of plaintiff\u2019s amended complaint alleges that the Chicago transaction tax ordinance is not broad enough to cover the imposition of the tax upon charges made for online database searches where those charges are not time based. Count II, which plaintiff subsequently dismissed, asserts a violation of equal protection. Count III alleges that if the transaction tax ordinance does cover charges for online database searches, it is unconstitutional as a tax on occupations. The city filed two separate motions to strike and dismiss; one based on section 2 \u2014 615 of the Code of Civil Procedure (Ill. Rev. Stat. 1987, ch. 110, par. 2 \u2014 615), and the other on section 2 \u2014 619 (Ill. Rev. Stat. 1987, ch. 110, par. 2 \u2014 619). On May 11, 1988, the trial judge filed a memorandum of decision, indicating his intention to grant the city\u2019s motions, and on May 26, 1988, he entered such an order. On August 1, 1988, the trial court denied plaintiff\u2019s motion for reconsideration, in which it argued that Chicago Health Clubs, Inc. v. Picur (1988), 124 Ill. 2d 1, 528 N.E.2d 978, decided while this case was pending, renders the ordinance unconstitutional as applied to online database searches. This appeal followed.\nThe transaction tax ordinance provides in pertinent part as follows:\n\u201cThere is hereby imposed and shall immediately accrue and be collected a tax, *** on *** [transactions consummated in the City of Chicago involving the lease or rental of any personal property ***.\n* * *\nThe ultimate incidence of and liability for payment of such tax shall be borne by the lessee.\n* * *\n*** [T]he lease or rental of any personal property shall include but not be limited to leased time on equipment not otherwise itself rented, such as leased time for use of calculators, computers, computer software ***, whether said leased time is fully or partially utilized. This includes but is not limited to the usage of a computer under a time-share agreement.\u201d (Chicago Municipal Code \u00a7200.1 \u2014 2A.)\nRuling No. 9 interprets this ordinance as authorizing the collection of a transaction tax on \u201call lease or rental charges associated with the usage of the computer and its software in the City of Chicago.\u201d The ruling also provides that \u201c[separately stated optional charges not for the use of the computer, its software or other personal property used in the city, shall not be subject to the Chicago Transaction Tax. An example would be separately stated maintenance charges which are optional.\u201d\nIn ruling in favor of the city, the trial judge stated as follows:\n\u201c[T]he court is of the opinion that the [cjity\u2019s analysis is correct when it asserts that the term leased time with reference to the equipment is a description of a lease without possession where use is charged. Hence, the conclusion that can properly be drawn [is] that a lease charge may be either a flat fee or can vary with time. The charges made by Mead are for the use of its computer databases for connect and search charges. .\nThere is a connection or inter-relation between connect time and searches. A search requires connect time and therefore both become part of the total charge made to the subscriber.\u201d\nPlaintiff does not dispute the city\u2019s right to impose the transaction tax on \u201cconnect time,\u201d defined by Mead as \u201ceach unit of time that [subscriber is in contact with MDC\u2019s central computer, beginning with the transmission of an identification number and ending when connection with the computer is terminated.\u201d Plaintiff does object to the city\u2019s collection of the tax on charges made for online database searches, defined as \u201ceach execution of a command by [subscriber that requests information to be located or retrieved from a file.\u201d Search charges are a flat fee for each request for information from Mead\u2019s database without reference to the amount of time involved, and connect time is a charge based solely on the time customers are connected to Mead\u2019s central computer. Plaintiff emphasizes that the two charges are billed separately. It asserts that the ordinance authorizes a tax on charges for leased time on a computer, and not, as the city suggests, on charges for the use of a computer.\nThe parties dispute whether a time-sharing agreement is involved here. Plaintiff claims that even if this is a time-sharing agreement, the tax cannot be collected on search charges. It maintains that the ordinance taxes charges made for time-sharing agreements \u201conly to the extent that those charges are attributable to leased time.\u201d The. city contends that this is a time-sharing agreement and that the tax is proper because the ordinance applies to any \u201cusage of a computer under a time-sharing agreement.\u201d\nTime-sharing agreements have been defined as follows:\n\u201cA time-sharing computer network consists of a central computer, which stores programs and performs all calculations, and user terminals. Individual users access the central computer through telephone connections and terminals located in their own offices. Typically, users pay some monthly fee for access privileges plus an hourly rate for time actually spent utilizing the central computer.\u201d Flip Mortgage Corp. v. McElhone (4th Cir. 1988), 841 F.2d 531, 533 n.l.\n\u201cA time-sharing company is one that installs a terminal facility in the customer\u2019s business location; the terminal is connected to the time-sharing company\u2019s computer system via telephone communication lines. The end-user can then time-share the computer system by means of the remote terminal for a fee.\u201d Telex Corp. v. International Business Machines Corp. (N.D. Okla. 1973), 367 F Supp. 258, 273, aff\u2019d in part, rev\u2019d on other grounds (10th Cir. 1975), 510 F.2d 894.\n\u201cOne witness testified, \u2018Time sharing is a system of using a computer whereby a user has a terminal of some capability, some small, some large, and the terminal is hooked to the computer via telephone line at some remote distance, and this allows the user to access the computer through the telephone lines and through his terminal.\u2019 \u201d (Greyhound Computer Corp. v. International Business Machines Corp. (9th Cir. 1977), 559 F.2d 488, 494 n.9.)\nPlaintiff asserts that the ordinance does not define time-sharing agreements, that the definition is not self-evident, and that this court cannot rely on definitions from earlier decisions, because databases are continually developing and their functions are becoming more complex. The trial court made no finding on this question, nor is it necessary for us to do so in order to decide this case.\nThe city argues that the Department of Revenue\u2019s interpretation of the ordinance is to be considered persuasive authority unless it is \u201cclearly erroneous, arbitrary, or unreasonable.\u201d (Mitee Racers, Inc. v. Carnival-Amusement Safety Board (1987), 152 Ill. App. 3d 812, 816-17, 504 N.E.2d 1298.) Additionally, the city notes that according to Mead, usage of the computer system is composed of both access to the system and the operations performed by the time-sharing user after the system is accessed. The city maintains that accessing Mead's system \u201cwithout proceeding to use the system to search for and retrieve information is of no practical value and a waste of resources.\u201d Thus, it urges, access and usage of a computer system is \u201ca single, unitary transaction.\u201d\nAlthough the concept of \u201cleased time on equipment not otherwise itself rented\" is not well defined, it could reasonably include usage of a computer and its software, and thus Rule No. 9 is not \u201cerroneous, arbitrary or unreasonable.\u201d Nor is the trial judge\u2019s ruling that \u201cthe charges made by Mead are for the use of its computer databases for connect and search charges.\u201d Plaintiff cites no authority for its contention that the tax cannot be applied to charges that are not time based, and we decline to so hold.\nPlaintiff next argues that charges for searches are fees for a service rendered by Mead, and a tax on that service is a tax on occupations, prohibited by article VII, section 6(e), of the Illinois Constitution. Alternatively, plaintiff asserts that under Chicago Health Clubs, Inc. v. Picur (1988), 124 Ill. 2d 1, 528 N.E.2d 978, it is not necessary to find that searches are services to find that the tax is one on occupations.\nIn Webster v. City of Chicago (1985), 132 Ill. App. 3d 666, 478 N.E. 2d 446, the court rejected plaintiffs\u2019 argument that the transaction tax violates article VII, section 6, of the Illinois Constitution, which provides in part as follows:\n\u201cExcept as limited by this Section, a home rule unit may exercise any power and perform any function pertaining to its government and affairs including, but not limited to, the power *** to tax ***.\n* * *\nA home rule unit shall have only the power that the General Assembly may provide by law *** to license for revenue or impose taxes upon or measured by income or earnings or upon occupations.\u201d (Ill. Const. 1970, art. VII, \u00a7\u00a76(a), (e).)\nPlaintiffs contended that the transaction tax is prohibited by section 6(e), because the leasing of personal property is a service and any tax on services is an impermissible tax on occupations. Webster, 132 Ill. App. 3d at 668.\nThe Webster court noted that the supreme court has defined \u201cservices\u201d as \u201call \u2018sales\u2019 transactions other than sales of tangible property,\u201d and that, during the constitutional convention debates on section 6(e), the delegates indicated that a tax on service providers, such as doctors, lawyers, repairmen and beauticians, was prohibited. (132 Ill. App. 3d at 668.) The court held that the transaction tax is \u201cakin\u201d to a use tax, because the consumer is paying for the use and temporary transfer of possession of tangible property, and therefore, is not an invalid service tax. 132 Ill. App. 3d at 669.\nThe court then addressed the plaintiffs\u2019 contention that, even if leasing were not held to be a service, the tax was invalid, because the practical operation of the tax was to tax the occupation of leasing. The court noted that the lessor was required to collect the tax and remit it to the city, and ruled that this factor did not make the transaction tax a tax on occupations, as the tax was imposed on the lessee, and it provided for fines and penalties against the lessee for failing to pay the tax. \u201cFurthermore, nothing in the history of 6(e) evidences an intent to prevent a tax on temporary transfers of personal property. The [transaction tax] is not a tax on occupations.\u201d 132 Ill. App. 3d at 669.\nIn Webster, plaintiff lessees were engaged in renting automobiles and formal clothing. Courts have also ruled that the transaction tax is not an occupation tax when applied to drivers of leased taxicabs (Wellington v. City of Chicago (1986), 144 Ill. App. 3d 774, 494 N.E.2d 603) and self-service laundromats (Katz v. City of Chicago (1988), 177 Ill. App. 3d 305, 532 N.E.2d 322). However, the supreme court has found other taxes to be taxes on occupations, such as a service tax (Commercial National Bank v. City of Chicago (1982), 89 Ill. 2d 45, 432 N.E.2d 227) and a municipal utility tax (Waukegan Community Unit School District No. 60 v. City of Waukegan (1983), 95 Ill. 2d 244, 447 N.E.2d 345). In each of those cases, the court first found that the sale of service taxes involved were prohibited by section 6(e). The court applied the practical operation and effect test to prevent an evasion of the constitutional prohibition against taxes on occupations by the taxing body\u2019s use of \u201cmagic words.\u201d\n\u201c \u2018[T]he practical operation of the entire ordinance, not just the simple declaration that the tax is on the purchaser, must be judged against the intent expressed by the delegates to the constitutional convention in determining whether the tax imposed by the ordinance falls within the proscription of section 6(e) of article VII.\u2019 [Citation.] \u2018The declaration that the tax *** is on the purchaser is *** not consistent with the constitutional restriction on taxes upon occupations but is an attempt to erode, diminish or evade the intent expressed in the constitutional convention.\u2019 [Citation.] Viewed in their entirety the *** taxes at issue are, in practical operation, attempts to impose a tax upon [services] *** provided to the general public.\u201d (Waukegan School, 95 Ill. 2d at 254-55.)\nThe supreme court has further stated that the practical-effect analysis is not appropriate when considering taxes that are not prohibited by section 6(e). Illinois Gasoline Dealers Association v. City of Chicago (1988), 119 Ill. 2d 391, 400, 519 N.E.2d 447.\nPlaintiff claims that the supreme court changed the test to determine whether a tax was prohibited by section 6(e) in Chicago Health Clubs, Inc. v. Picur (1988), 124 Ill. 2d 1, 528 N.E.2d 978. In that case, the court struck down an amendment to the Chicago amusement tax which added health and racquetball clubs to the list of \u201camusements\u201d for purposes of the tax, holding that it was an occupation tax, and stating:\n\u201c[I]n order to abide by [the constitutional restriction on occupation taxes] we must look to this ordinance\u2019s 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\u2019 services, the tax truly is an \u2018occupation\u2019 tax within the meaning of 6(e). The 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.\u201d (Emphasis in original.) (124 Ill. 2d at 10.)\nThe court noted that it found the \u201csame types of considerations\u201d persuasive in determining that other taxes were de facto occupation taxes. (124 Ill. 2d at 10.) The court continued:\n\u201cThe ordinance *** undoubtedly imposes numerous nonoccupational taxes, taxing activities which may in fact be offered by those engaged in a \u2018hobby, diversion or occasional fund-raising enterprise,\u2019 as defendants suggest. However, by defining \u2018amusement\u2019 to include \u2018racquetball or health clubs,\u2019 and by further establishing a tax on those clubs\u2019 membership fees, the city has gone far beyond merely taxing particular activities [citation], and has imposed a tax unique to those types of commercial enterprises. Realistically viewed, it is clear that a tax on membership fees on health and racquetball club memberships is a tax on those occupations.\u201d 124 Ill. 2d at 11-12.\nThe city had also argued that the tax was authorized by section 11 \u2014 42\u20145 of the Illinois Municipal Code (Ill. Rev. Stat. 1985, ch. 24, par. 11 \u2014 42\u20145), which provides that municipalities may tax amusements, but the court rejected the city\u2019s contention that charges for \u201camusements\u201d could be segregated from charges for services, such as nutritional instructions and diet counseling, provided by clubs, saying:\n\u201cThe plain language of the amended ordinance *** does not distinguish between service and nonservice components of the entities remitting the tax, and there is nothing in the amended ordinance to support [the city\u2019s] \u2018theory\u2019 that the tax applies to anything less than the gross receipts of health and racquetball clubs. Moreover, it seems simply impossible to fully segregate health club membership into amusement and nonamusement components.\u201d Picur, 124 Ill. 2d at 15.\nPlaintiff maintains that the Picur court applied the practical-effect analysis to determine whether a tax violated section 6(e), and that, therefore, \u201ca tax may now qualify as a \u2018tax on occupations\u2019 even if it is not a \u2018tax on services.\u2019 \u201d\nThe city argues that Lexis/Nexis is a self-serve business and that Mead does not provide services to its lessees. It suggests that if Mead provided personnel to fill search requests and other inquiries submitted by its subscribers, then it would be providing a service. The city contends that plaintiff \u201cis doing nothing more than leasing equipment and the time to use it,\u201d and is not purchasing a service. The city also maintains that an occupational tax is a tax either intended and designed to regulate or control a particular occupation or designed to be levied on the privilege of engaging in a particular occupation (Forsberg v. City of Chicago (1986), 151 Ill. App. 3d 354, 502 N.E.2d 283) and that such is not the case here.\nThe city does not address plaintiff\u2019s contention that Picur changed the standard for determining whether a tax is a tax on occupations. The trial court here held that Picur \u201cmay be interpreted as being consistent with prior case law effectively limiting the application of the \u2018practical operation and effect\u2019 test to \u2018service taxes\u2019 alone.\u201d We agree.\nIn Picur, the court did apply the practical operation and effect test, but it did not state whether it was doing so because the tax was one on services, or if it was applying the test regardless of whether the tax was on services. In its decision the court referred to the services provided by health clubs, and it is reasonable to consider what health clubs provide as services. Thus, it is probable that the court assumed that the tax was on services. Because the supreme court did not expressly overrule the previous cases holding that the practical operation and effect test is applied only after a determination that a challenged tax is a service tax (Illinois Gasoline Dealers Association v. City of Chicago (1988), 119 Ill. 2d 391, 519 N.E.2d 447), and because Picur can be read as consistent with such holdings, we decline plaintiff\u2019s invitation to recognize a new standard.\nWe hold that Mead does not perform a service by providing its subscribers with databases which the subscriber may use to do legal research. Because the transaction tax is not a service tax, it is not an impermissible tax on occupations.\nFor the foregoing reasons, the judgment of the circuit court of Cook County is affirmed.\nAffirmed.\nDiVITO and EGAN, JJ., concur.", "type": "majority", "author": "JUSTICE SCARIANO" } ], "attorneys": [ "Arnold M. Flamm and Matthew A. Flamm, both of Orlikoff & Flamm, of Chicago, for appellants.", "Judson H. Miner, Corporation Counsel, of Chicago (Ruth M. Moscovitch and L. Anita Richardson, Assistant Corporation Counsel, of counsel), for appellees." ], "corrections": "", "head_matter": "THOMAS R. MEITES et al., d/b/a Meites, Frackman & Mulder, Plaintiffs-Appellants, v. THE CITY OF CHICAGO et al., Defendants-Appellees.\nFirst District (2nd Division)\nNo. 1\u201488\u20142410\nOpinion filed June 20, 1989.\nArnold M. Flamm and Matthew A. Flamm, both of Orlikoff & Flamm, of Chicago, for appellants.\nJudson H. Miner, Corporation Counsel, of Chicago (Ruth M. Moscovitch and L. Anita Richardson, Assistant Corporation Counsel, of counsel), for appellees." }, "file_name": "0887-01", "first_page_order": 909, "last_page_order": 917 }