Empress Casino Joliet Corp. v. Blagojevich , 638 F.3d 519 ( 2011 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 09-3975
E MPRESS C ASINO JOLIET C ORPORATION, et al.,
Plaintiffs-Appellants,
v.
B ALMORAL R ACING C LUB, INC., et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
Nos. 09 C 3585—Matthew F. Kennelly, Judge.
A RGUED F EBRUARY 23, 2010—R EARGUED EN B ANC M AY 10, 2011
D ECIDED JULY 8, 2011
Before E ASTERBROOK , Chief Judge, and B AUER, P OSNER,
K ANNE, W OOD , S YKES, T INDER, and H AMILTON, Circuit
Judges.Œ
P OSNER, Circuit Judge. The plaintiffs, four riverboat
casinos operating in Illinois, brought this RICO suit
Œ
Circuit Judges Flaum, Rovner, and Williams did not partici-
pate in the consideration or decision of this case.
2 No. 09-3975
against five Illinois racetracks, charging that the owner
of two of the tracks, in cahoots with Illinois’ then
governor, Rod Blagojevich, had “bought” a pair of Illinois
statutes harmful to the casinos. Enacted in 2006 and
2008 by large margins, these statutes, which are to
remain in effect until the end of this year, require the
casinos to deposit 3 percent of their revenues in a segre-
gated state fund—the “Horse Racing Equity Trust
Fund”—for disbursement to the racetracks within 10
days of receipt; the racetracks are directed to use the
money to increase winners’ and runner-ups’ purses
and improve the tracks. Ill. Pub. Act 94-804, effective
May 26, 2006; Ill. Pub. Act 95-1008, effective Dec. 15, 2008.
The plaintiffs asked the district court to impose, as
a remedy for the alleged violation of RICO, a construc-
tive trust in their favor on the money received by the
racetracks under these laws. The district judge issued
a temporary restraining order that required that any
money paid by the state fund be placed in an escrow
account that the racetracks could not reach while the
litigation was pending. Later the judge ruled that the
Tax Injunction Act, 28 U.S.C. § 1341, barred equitable
relief, of which the imposition of a constructive trust is
a form. So he dissolved the temporary restraining order.
The casinos appealed. A panel of this court reinstated
the temporary restraining order pending appeal (so
the escrow remains in force and no money is being dis-
bursed to the racetracks), and then reversed the district
court (with one judge dissenting), holding that the Tax
Injunction Act did not bar the casinos’ quest for equitable
No. 09-3975 3
relief in federal court. 638 F.3d 519 (7th Cir. 2011). We
granted rehearing en banc to reexamine that holding.
The merits of the suit were not before the panel and are
not before us. Moreover, upon the grant of rehearing
en banc, the panel opinion was vacated only with regard
to appeal No. 09-3975; the part of the panel’s opinion
and order that relates to appeal No. 10-1019, which
had been consolidated with No. 09-3975, was unaffected
by the grant of rehearing en banc and is unaffected by
the present opinion. And the temporary restraining
order pending appeal remains in force.
The Tax Injunction Act forbids federal district courts
to “enjoin, suspend or restrain the assessment, levy or
collection of any tax under State law,” provided that
an adequate remedy is available in the state courts,
28 U.S.C. § 1341, and it is in this case. The Act thus does
not limit any substantive rights to enjoin a state tax
but requires only that they be enforced in a state court
rather than a federal court. The requirement serves to
minimize the frictions inherent in a federal system of
government, and is considered so important that the
duty of federal courts to cede litigation seeking to
enjoin state tax statutes to the state courts (a duty of
“comity”—that is, of respect for another sovereign)
extends beyond the limits of the Tax Injunction Act. Fair
Assessment in Real Estate Ass’n, Inc. v. McNary, 454 U.S.
100, 110 (1981). The Act is just a “partial codification of
the federal reluctance to interfere with state taxation.”
National Private Truck Council, Inc. v. Oklahoma Tax
Comm’n, 515 U.S. 582, 590 (1995); see also Levin v. Commerce
Energy, Inc., 130 S. Ct. 2323, 2331-33 (2010). The Supreme
4 No. 09-3975
Court has told us to withhold decision even in situations
to which the Act does not apply, though we won’t have
to take that step in this case.
Ex parte Young, 209 U.S. 123 (1908), had as a practical
matter stripped away the states’ sovereign immunity
from equitable suits. So were it not for the Tax Injunc-
tion Act and the related doctrine of comity, “ ‘state tax
administration might be thrown into disarray, and tax-
payers might escape the ordinary procedural require-
ments imposed by state law. During the pendency of the
federal suit the collection of revenue under the chal-
lenged law might be obstructed, with consequent
damage to the State’s budget, and perhaps a shift to the
State of the risk of taxpayer insolvency.’ ” Rosewell v. LaSalle
Nat’l Bank, 450 U.S. 503, 527 (1981), quoting Perez v.
Ledesma, 401 U.S. 82, 128 n. 17 (1971) (separate opinion);
see also Hill v. Kemp, 478 F.3d 1236, 1246-47 (10th Cir.
2007). The Act is “first and foremost a vehicle to limit
drastically federal district court jurisdiction to interfere
with so important a local concern as the collection of
taxes.” Rosewell v. LaSalle Nat’l Bank, supra, 450 U.S. at 522.
The reason for this drastic limitation is that “it is upon
taxation that the several States chiefly rely to obtain the
means to carry on their respective governments, and it is
of the utmost importance to all of them that the
modes adopted to enforce the taxes levied should be
interfered with as little as possible. Any delay in the
proceedings of the officers, upon whom the duty is de-
volved of collecting the taxes, may derange the opera-
tions of government, and thereby cause serious detriment
to the public.” Dows v. City of Chicago, 78 U.S. (11 Wall.)
108, 110 (1871).
No. 09-3975 5
Not that enjoining a particular tax, depending on what
it is, is certain to “derange the operations of govern-
ment.” But a general lowering of standards under the Tax
Injunction Act could result in state fiscal policy being
nickeled and dimed to death by an avalanche of suits
by disgruntled taxpayers. (When the suit is not by tax-
payers, but by persons objecting just to how the money
is being spent, as in Hibbs v. Winn, 542 U.S. 88 (2004), the
danger of interference with state tax administration is
diminished; Hibbs holds that such suits are outside
the Act’s scope.) The application of the Act should not
turn on judges’ guesses about the importance of a par-
ticular tax to the legitimate operations of state govern-
ment. Even the plaintiffs acknowledge that the allegedly
corrupt origin of the statutes they attack does not bear
on whether the exactions that those statutes impose
are taxes within the meaning of the Tax Injunction Act.
The Act would be thwarted if a taxpayer could get a
federal court to enjoin the collection of a state tax just
by presenting evidence of corruption in the process
by which the taxing statute had been enacted. This princi-
ple has been recognized in analogous contexts, see, e.g.,
City of Columbia v. Omni Outdoor Advertising, Inc., 499
U.S. 365, 374-78 (1991) (state immunity from federal
antitrust suits)—notably that of absolute immunity.
Pierson v. Ray, 386 U.S. 547, 553-54 (1967).
We are mindful that the state is not a party to this suit.
But the relief sought both is equitable and would thwart
the tax as surely as an injunction against its collection.
The taxpayers (the casinos) are seeking a constructive
trust of the tax revenues, which if imposed would result
6 No. 09-3975
in their recapturing the taxes they have paid. The tax
would be nullified. (If the tax statutes were not shortly
to expire, the casinos would be seeking an injunction
as well.)
The Act’s forum-selecting character argues com-
pellingly for a crisp rule distinguishing taxes from other
exactions by states, such as fees charged for services
provided (or prices charged for the sale or lease of state
property), transfers of damages awarded to a state to
the persons on whose behalf the state had sued (cf.
Trailer Marine Transport Corp. v. Rivera Vazquez, 977 F.2d 1,
5 (1st Cir. 1992) (“the accident-compensation statute is
essentially a social welfare program and tort reform law
to impose on motor vehicle owners as a class the cost of
the accidents they cause and to assure compensation for
accident victims”) (emphasis added)), and fines. A crisp
rule determining which court system has jurisdiction
to decide a particular type of case is needful because
until the proper forum for a lawsuit is determined, the
case cannot proceed; and if at any time until the decision
resolving the litigation becomes final by exhaustion
of appellate remedies it is discovered that the court
rendering the decision lacked jurisdiction, the suit must
start over from scratch in the forum that has jurisdiction.
A challenge to the constitutionality of the casino-tax
statutes brought by the casinos in the Illinois state
court system against public officials rather than the
racetracks has already been decided (adversely to the
casinos) by the Supreme Court of Illinois. Empress Casino
Joliet Corp. v. Giannoulias, 896 N.E.2d 277 (2008). The
casinos brought a second suit in the Illinois courts, making
No. 09-3975 7
new allegations of corruption. While we federal judges
are continuing to debate the proper venue of this case,
the second state suit, too, has been decided on the merits,
again adversely to the casinos. Empress Casino Joliet Corp.
v. Giannoulias, 942 N.E.2d 783 (Ill. App. 2011), leave to
appeal denied (Ill. S. Ct., No. 112003, May 25, 2011).
As the casino-tax litigation illustrates, “administrative
simplicity is a major virtue in a jurisdictional statute . . . .
Complex jurisdictional tests complicate a case, eating up
time and money as the parties litigate, not the merits
of their claims, but which court is the right court to
decide those claims.” Hertz Corp. v. Friend, 130 S. Ct. 1181,
1193 (2010). “Functional approaches to legal questions
are often, perhaps generally, preferable to mechanical
rules; but the preference is reversed when it comes
to jurisdiction.” Hoaglund ex rel. Midwest Transit, Inc. v.
Sandberg, Phoenix & Von Gontard, P.C., 385 F.3d 737,
739 (7th Cir. 2004). And so “the more mechanical the ap-
plication of a jurisdictional rule, the better. The chief
and often the only virtue of a jurisdictional rule is clar-
ity.” In re Kilgus, 811 F.2d 1112, 1117 (7th Cir. 1987) (cita-
tions omitted); see also Kuntz v. Lamar Corp., 385 F.3d
1177, 1183 (9th Cir. 2004).
Although a jurisdictional rule should be simple and
clear, where possible—and this is possible in regard to
the Tax Injunction Act—a number of decisions under
the Act, including the panel majority opinion, have
flirted with open-ended, multifactor tests—open-ended
because the relative weights of the factors are left to
judicial discretion. Among the factors either urged by
8 No. 09-3975
the casino plaintiffs or mentioned in the cases are
whether the legislature called the exaction a “tax” or
something else (the Supreme Court of Illinois calls the
casino exaction a “tax,” but the plaintiffs insist that this
is irrelevant—the legislature must use the word; it has
not done so, instead calling the casino exaction a “condi-
tion of licensure”); whether the money generated by
the exaction is deposited in a “lock box” type of trust
fund (the only real kind, according to the plaintiffs, who
call the Social Security Trust Funds a fraud); how
quickly the money passes through the trust fund to the
ultimate beneficiaries; the price elasticity of the taxed
behavior; the amount of revenue collected by the
exaction; whether that revenue is to be used for a tradi-
tional public purpose; whether the benefit that the
fiscal program confers on the people of the state is direct
or indirect; whether the exaction is designed to benefit
one firm or a narrow group of firms (for example, race-
tracks) by oppressing a competitor or competitors (for
example, casinos); whether enjoining its collection
would prevent the state from paying its bills or even
threaten it with insolvency; whether the persons or
firms subjected to the exaction are numerous or few,
whether the beneficiaries of the exaction are numerous
or few, and what the relative size of the two groups
is; whether the amount of revenue from the exaction
that is transferred to the intended beneficiaries is deter-
mined by the legislature or is allowed to rise and fall with
the fluctuations in that revenue; whether the plaintiff
avoids naming state officials as defendants; whether
the exaction was based on the state’s taxing power or
No. 09-3975 9
on some other power, such as the police power (even
though these are distinctions primarily relevant to the
federal Constitution, which unlike state constitutions
was designed, in order to protect state prerogatives, to
be a constitution of limited, specified powers); and, as
a kind of catchall, how much the exaction resembles
what everyone would agree was a “tax,” or as Wittgenstein
might have wanted us to ask, how close a “family resem-
blance” the exaction bears to an exaction acknowledged
by all to be a “tax.” Is it a brother, or a third cousin?
The Supreme Court has not endorsed any multifactor
test for applying the Tax Injunction Act, and such a test
would be inappropriate quite apart from the need for
clarity and simplicity in interpreting a forum-selection
law. It is not a proper office of the federal courts to
“reform” state fiscal policies by providing a federal
forum for state taxpayers who object to the form or sub-
stance of laws designed to raise revenues for state pur-
poses, whether purposes approved or disapproved by
enlightened social thinkers. The wisdom of a tax on
casinos to benefit racetracks is not a proper subject of
inquiry by federal judges. “The federal balance is well
served when the several States define and elaborate
their own laws through their own courts and admin-
istrative processes and without undue interference
from the Federal Judiciary. The States’ interest in the
integrity of their own processes is of particular moment
respecting questions of state taxation.” Arkansas v. Farm
Credit Services of Central Arkansas, 520 U.S. 821, 826 (1997).
The only material distinction is between exactions
designed to generate revenue—taxes, whatever the state
10 No. 09-3975
calls them (for what is a “tax” for purposes of the Tax
Injunction Act is a question of federal rather than state
law, RTC Commercial Assets Trust 1995-NP3-1 v. Phoenix
Bond & Indemnity Co., 169 F.3d 448, 457 (7th Cir. 1999);
Wright v. Riveland, 219 F.3d 905, 911 (9th Cir. 2000); Ameri-
can Landfill, Inc. v. Stark/Tuscarawas/Wayne Joint Solid
Waste Management District, 166 F.3d 835, 837 (6th Cir.
1999))—and exactions designed either to punish (fines, in
a broad sense) rather than to generate revenue
(the hope being that the punishment will deter, though
deterrence is never perfect and therefore fines generate
some state revenues), or to compensate for a service
that the state provides to the persons or firms on whom
or on which the exaction falls (or, what is similar, to
compensate the state for costs imposed on it by those
persons or firms, other than costs of providing a service
to them): in other words, a fee. “If the fee is a rea-
sonable estimate of the cost imposed by the person re-
quired to pay the fee, then it is a user fee and is within
the municipality’s regulatory power. If it is calculated
not just to recover a cost imposed on the municipality
or its residents but to generate revenues that the munici-
pality can use to offset unrelated costs or confer unre-
lated benefits, it is a tax, whatever its nominal designa-
tion.” Diginet, Inc. v. Western Union ATS, Inc., 958 F.2d
1388, 1399 (7th Cir. 1992).
For examples of exactions held to be fees, see Hager
v. City of West Peoria, 84 F.3d 865, 870-71 (7th Cir. 1996)
(fees for permits for use of certain streets by heavy
trucks); Government Suppliers Consolidating Services, Inc. v.
Bayh, 975 F.2d 1267, 1271 n. 2 (7th Cir. 1992) (registration
No. 09-3975 11
fees for waste collection vehicles), and Trailer Marine
Transport Corp. v. Rivera Vazquez, supra, 977 F.2d at 4-6
(annual fee imposed on owners of motor vehicles
to fund compulsory accident compensation). For ex-
amples of nominal “fees” held to be taxes for purposes
of the Act, see Hill v. Kemp, supra, 478 F.3d at 1243-46
(revenue from sale of specialty license plates greatly
exceeded cost of the plates and the excess was ear-
marked for purposes, such as promotion of adoptions,
tied to the legend on the plate); Folio v. City of Clarksburg,
134 F.3d 1211, 1217 (4th Cir. 1998) (city fee for fire pro-
tection); Wright v. McClain, 835 F.2d 143, 144-45 (6th Cir.
1987) (parolee’s payments to a victim compensation
fund); cf. Diginet, Inc. v. Western Union ATS, Inc., supra,
958 F.2d at 1399 (“franchise fee” imposed on use of a fiber
optic network to generate revenues that are “use[d] to
offset unrelated costs or confer unrelated benefits”).
In listing these cases, however, we do not mean to
endorse their specific holdings, based as they often are
on questionable multifactor tests.
The line between a tax and a fee, and a tax and a fine,
is sometimes fuzzy, and in a borderline case factors that
distinguish between rather similar-looking exactions
may be useful tools for determining on which side of the
line the case falls. For example, a tax might be so totally
punitive in purpose and effect that, since nomenclature
is unimportant, it should be classified as a fine rather
than a tax. “The mere use of the word ‘tax’ in an act
primarily designed to define and suppress crime is not
enough to show that within the true intendment of the
term a tax was laid. When by its very nature the imposi-
12 No. 09-3975
tion is a penalty, it must be so regarded.” Lipke v. Lederer,
259 U.S. 557, 561-62 (1922) (citation omitted); see also
Retail Industry Leaders Ass’n v. Fielder, 475 F.3d 180, 189 (4th
Cir. 2007); Denton v. City of Carrollton, 235 F.2d 481, 485 (5th
Cir. 1956); RTC Commercial Assets Trust 1995-NP3-1 v.
Phoenix Bond & Indemnity Co., supra, 169 F.3d at 457-58.
And so in Department of Revenue v. Kurth Ranch, 511 U.S.
767, 782 (1994), the Supreme Court held that a state mari-
juana “tax” was actually a fine, noting among other
things that it was exacted only after the taxpayer had
been arrested for the conduct that had given rise to the
tax obligation and that because the taxed activity was
completely forbidden “any legitimate revenue-raising
purpose that might support such a tax could be equally
well served by increasing the fine imposed upon con-
viction.”
Or imagine a fee that has aspects of a tax because
the revenue it generates is greater than is needed to
fund the service for which the fee is the charge, and the
surplus goes into the state’s general funds. In Schneider
Transport, Inc. v. Cattanach, 657 F.2d 128, 132 (7th Cir.
1981)—a case indistinguishable from the present case—
we held that what was called a fee was actually a tax;
we said: “although not denominated as such, the
[vehicle] registration fees are imposed for revenue-
raising purposes, a characteristic of any tax. The fees
are deposited in a segregated fund, the state transporta-
tion fund, for transportation purposes, including high-
way construction. The revenues from the fund ‘are depos-
ited into funds other than the general fund and are avail-
able for the purposes for which such funds are cre-
No. 09-3975 13
ated’ ” (citations omitted). The First Circuit reached the
opposite conclusion in San Juan Cellular Telephone Co. v.
Public Service Comm’n, 967 F.2d 683 (1st Cir. 1992); it
held that a fee imposed on phone companies to
defray the expenses of regulating them was not a tax
even though the fee generated more revenue than
needed to meet those expenses and the surplus was
used for other state purposes rather than returned to
the companies.
Fees for products (people buy electricity from public
utilities) and bona fide user fees (a toll for crossing a
bridge, for example) are not “taxes” in either lay or legal
lingo. Similarly, bona fide user fees for wharfs and tug-
boats aren’t taxes for the purpose of the Constitution’s
import-export duties clause, or the rule against discrim-
inatory taxes on interstate commerce. But “sin taxes” are
real taxes and so are taxes that go into limited-purpose
funds, such as the FICA tax and the gasoline tax. We
mustn’t write transfer payments and behavior-shaping
taxes out of the Tax Injunction Act just because it is
easier with such taxes to identify winners and losers.
The Act would have a very limited reach if we did that.
The recent decision in Kathrein v. City of Evanston,
636 F.3d 906, 912-13 (7th Cir. 2011), classified a city
“demolition tax” as not being a tax for purposes of the
Tax Injunction Act, but instead as being a regulatory
device (like the Prohibition-era tax on alcohol that we
mentioned) because its sole purpose, the panel con-
cluded, was to keep poor people in their homes. The tax
would deter demolitions and the modest fund generated
14 No. 09-3975
by it (a trivial $90,000 each year) would be used to subsi-
dize those poor people and thus amplify the effect of
the tax in enabling them to keep their homes out of
reach of the wrecker’s ball. We do not agree with that
decision. Taxes that seek both to deter and to collect
revenue when deterrence fails (liquor taxes are an ex-
ample) are commonplace, and these sin taxes often are
an important component of state fiscal policy because
there are so many unrepentant sinners.
The exaction imposed on the casinos is not a fine or a
fee, and is therefore (if there is to be a simple and clear
jurisdictional rule) a tax; the panel majority was
explicit that it was not a fee and no one suggests that it’s
a fine. It is instead an example of a state’s taking money
from one group of firms and giving it to another group,
in much the same way that federal income tax takes
money from persons and firms mostly in the nonagricul-
tural sector of the economy and Congress gives some of
the tax revenues to the tiny but influential agricultural
sector in the form of farm subsidies: in other words, tax
and spend, and the taxpayers and the recipients of the
tax revenues needn’t be the same.
The fact that the casino exaction isn’t called a tax, is
placed in a trust fund, passes speedily from taxpayer to
recipient, is justified by reference to the police power of
the state rather than the state’s taxing power, etc., has
nothing to do with any concern behind the Tax Injunc-
tion Act. “Taxation” is unpopular these days, so taxing
authorities avoid the term. Legislatures are unpredictable,
so trust funds are created to hold revenues generated by
No. 09-3975 15
specific taxes, in order to avoid annual appropriations
battles. The politics of state taxation have naught to do
with the policy of the Tax Injunction Act. If in the guise
of “interpreting” the Act the courts insist on greater
candor or directness in state taxing legislation as the
price for avoiding federal-court suits to enjoin state tax
collections, we shall make it difficult, given the politics
of tax-and-spending legislation, for states to raise
revenues—we shall be doing just what the Supreme Court
in Rosewell said it was the object of the Act to prevent
doing: throwing state tax administration into disarray.
Gambling taxes, including casino taxes, are not unique
to Illinois. See Ind. Code §§ 4-33-12-1, -6(b)(6); N.J.
Stat. §§ 5:12-203(a), -205; cf. Md. Code, State Gov’t, §§ 9-1A-
27(a)(5), -29. They are real taxes, not fees. Their aim is to
raise revenue, not to cover costs. That the revenue is
earmarked for a particular purpose is hardly unusual;
think of the social security tax. Congress does, it is true,
define the exact benefits to which each social security
recipient is entitled. But the aggregate benefits vary with
the number of recipients, rather than being specified. The
benefits conferred by another earmarked federal tax, the
federal tax on gasoline, likewise fluctuate; the amount of
revenue generated by the tax varies from year to year
because it’s a tax on gallonage and so depends on the
amount of driving and on the gas consumption of the
vehicles driven. See, e.g., U.S. Energy Information Admin-
istration, “Annual Energy Outlook 2011,” p. 10 (2011),
www.eia.gov/forecasts/aeo/pdf/0383(2011).pdf
(visited July 1, 2011).
16 No. 09-3975
A tax, possibly of corrupt origin, levied on one set of
gambling enterprises to subsidize another may seem a
fiscal travesty. But what has that to do with the Tax
Injunction Act? And, though we don’t think this
matters, we note that horse racing is a major activity in
Illinois and one with economic significance for the state.
It employs more than 30,000 people and generates
more than $700 million in annual betting and some $15
million in state and local government revenues. Ill. Pub.
Act 94-804, § 1(3)-(4); Illinois Racing Board, “2010
Annual Report” 2, 6 (Mar. 2011), www2.illinois.gov/irb/
Documents/AnnualReports/2010_Annual_Report.pdf
(visited July 1, 2011); Commission on Government Fore-
casting and Accountability, “Wagering in Illinois—2010
Update” 53-60 (2011), www.ilga.gov/commission/
cgfa2006/Upload 2010wagering_in_il.pdf (visited July 1,
2011). And that’s just the beginning, because horse racing
boosts the equine population of Illinois, which benefits
breeders, horse farms, feed companies, and other busi-
nesses ancillary to horse racing. Bill Wright, “Where
Illinois’ Economy Gets Its Horsepower,” Chicago Tribune,
Mar. 10, 2002, p. 6.
There is also Illinoisians’ sentimental affection for
horses which we noted in Cavel Int’l, Inc. v. Madigan, 500
F.3d 551 (7th Cir. 2007), where we upheld against a com-
merce clause challenge the decision by the Illinois legisla-
ture—inspired by movie actress Bo Derek, id. at 559, a
notable horse lover—shutting down the last slaughter-
house in the United States (which happened to be in
Illinois) that was permitted to slaughter horses for human
consumption. States routinely subsidize favored activi-
No. 09-3975 17
ties—not by taxing the persons or firms engaged in the
activities, which would make the “tax” a fee and negate the
subsidy, but by taxing someone else. Are animals not
appropriate objects of state subsidy? Cannot Citation,
Man ‘o War, Seabiscuit, and Secretariat be distinguished,
as objects of public solicitude, from roulette wheels and
one-armed bandits?
Casinos are recent additions to the legal gambling
scene in Illinois; the first casino in the state opened in
1991. Jerry Shnay, “Alton Riverboat Already Hitting
Jackpot,” Chicago Tribune, Sept. 25, 1991, at 4. They
compete with the racetracks and thus attract gamblers
away from them. So at least it is widely believed, see
Illinois Harness Horsemen’s Ass’n, Press Release, “Top
State Horsemen Flee to Greener Pastures in Eastern
States” (Nov. 30, 2005), and William Nack, “A House
Divided,” Sports Illustrated, July 10, 1995, at 52, 56,
though Douglas M. Walker and John D. Jackson, in their
article “Do U.S. Gambling Industries Cannibalize Each
Other?,” 36 Public Finance Rev. 308, 322-24 (2008), present
contrary evidence—evidence that casino and other non-
racetrack gambling increases the demand for racetrack
gambling by increasing the demand for gambling in
general. What is not debatable is that, whether because
of the advent of casinos or because of other factors, race-
track attendance and revenues in Illinois have plum-
meted in recent years, along with the state’s horse popula-
tion and commercial activities that are correlated with
the number of horses. Illinois Racing Board, supra, at 9;
Commission on Government Forecasting and Account-
ability, supra, at 59-60; Will Buss, “Hoffman: Bill Will
18 No. 09-3975
Help Fairmount,” Belleville News-Democrat, Mar. 27, 2008,
p. A1. The first of these sources shows horse-racing bets
falling from $1.2 billion in 1996 to $.7 billion in 2010,
though some of the drop is doubtless due to the economic
crisis that began in 2008; the 2007 total was $900 million.
Sixty percent of the subsidy created by revenues from
the casino tax is earmarked for the purses for winners
and runners-up in the horse races, on the theory that
bigger purses attract the owners of the better horses
and the better the horses in a race the larger the at-
tendance and therefore the more money is bet and so
the greater the track’s revenues are because they’re a
percentage of the amount of money that is bet. The other
40 percent is earmarked for physical improvements of
the racetracks. The subsidy is rationally designed to
promote the horse racing industry in Illinois, which
seems no less proper an objective than promoting a
state’s film industry by offering tax credits or other fin-
ancial incentives to filmmakers, a common form of
state subsidy. Horse racing and movies are two forms
of entertainment. Are the taxes that provide the revenue
to subsidize such activities not taxes at all, but in-
stead—what?
In a laissez-faire or Social Darwinist society, as
dreamed by Herbert Spencer (the target of Holmes’s
crack that “the 14th Amendment does not enact Mr.
Herbert Spencer’s Social Statics,” Lochner v. New York,
198 U.S. 45, 75 (1905)), the government would keep its
hands off the competition between the casinos and the
racetracks. The disappearance of racetracks, jockeys,
No. 09-3975 19
horses, bridles, blacksmiths, racetrack touts, and DVDs
of National Velvet—replaced by croupiers, glassy-
eyed retirees at one-armed bandits, roulette wheels, and
blackjack tables, all on riverboat casinos—would be
commended as progress. But American government is
not committed to the laissez-faire vision of society.
We find no hints of Social Darwinism in the Tax Injunc-
tion Act. Congress and state legislatures frequently
use their taxing, spending, and regulatory powers to
redistribute wealth from one group in society to another.
This is a familiar exercise of taxing power and whether
unconstitutional in particular instances (in the Illinois
courts the casinos unsuccessfully attacked the casino tax
as an uncompensated taking), it is still taxation, which
is our only concern in this appeal. Federal payroll
taxes are earmarked for such expenditure programs as
Medicare, social security, and unemployment benefits;
the federal gasoline tax is used to subsidize highway
construction; other earmarked taxes are common. See
Susannah Camic, “Earmarking: The Potential Benefits,” 4
Pitt. Tax Rev. 55, 60-61 (2006). Rarely are taxpayers
closely matched with the recipients of the spending that
the taxes support. If you die before reaching the age of
62, you get no social security benefits even if you’ve
been paying social security tax for 40 years.
Illinois’ casino tax is not an isolated example of taxing
one industry for the benefit of another. The federal
Audio Home Recording Act of 1992 taxes digital media
to subsidize prerecorded media, 17 U.S.C. § 1001 et seq.
(though the tax has, as many taxes do, a punitive purpose
as well—to discourage illegal copying of recordings). The
20 No. 09-3975
Illinois Coal Technology Development Assistance Fund
taxes gas and electrical utilities to pay for the develop-
ment of coal technologies, 30 ILCS 730/3. And Ohio
taxes wine from all over the world to pay for research
on grapes in Ohio. Ohio Rev. Code Ann. §§ 924.51 et seq.,
4301.43(B).
When the plaintiffs call the casino tax a “fee,” they do so
because they want a word to describe what the casino
exaction is: if it is not a tax or a fee (or a fine), what is
it? The panel majority, emphasizing the adverse effect
of the tax on the casinos, called it “a regulatory penalty
or fee.” Fees for services are not taxes, but no services
are rendered to the casinos in exchange for their having
to give up 3 percent of their revenues. All the money
goes to the racetracks. The plaintiffs try to blur the dis-
tinction by quoting from a previous opinion of this
court that “courts faced with distinguishing a ‘tax’ from
a ‘fee’ ‘have tended . . . to emphasize the revenue’s ulti-
mate use, asking whether it provides a general benefit to
the public, of a sort often financed by a general tax,
or whether it provides more narrow benefits to
regulated companies or defrays the agency’s cost of reg-
ulation.’ ” Hager v. City of West Peoria, supra, 84 F.3d at 870,
quoting San Juan Cellular Telephone Co. v. Public Service
Comm’n, supra, 967 F.2d at 685. The reference to “narrow
benefits” may seem to describe this case, since only
racetracks received the proceeds of the casino tax. But
this is to ignore the words in the Hager opinion that
follow “provides more narrow benefits”: “to regulated
companies or defrays the agency’s cost of regulation.” The
revenues from the tax on the casinos does not go to pay
No. 09-3975 21
for some service that the State of Illinois renders to
casinos, or, what amounts to the same thing, to some
service that is required by the existence of casinos, in the
same way that expenses incurred to regulate telephone
companies were necessitated by those companies and
hence were part of the regulatory costs (San Juan Cellular).
The casino tax goes to subsidize racetracks, and so it
falls within the rule that exactions of money earmarked
for designated purposes rather than collected just to
swell the state’s coffers are taxes within the meaning of
the Tax Injunction Act even if imposed for a reason
of which judges disapprove.
The plaintiffs point us to Bidart Brothers v. California
Apple Comm’n, 73 F.3d 925 (9th Cir. 1996), but that case
involved an assessment of fees on apple producers to
support advertising and other activities designed to
boost apple consumption. The fees were to pay for
services to the payors of the fees. Taxes often are levied
on people or firms that will derive no benefit at all
from them, as in the present case.
The practical reason for the difference in treatment
under the Tax Injunction Act between fees and taxes is
that enjoining the collection of a fee is less likely to
disrupt state programs than enjoining a tax. Fees are for
services and if the collection of the fees is enjoined, the
state can curtail the services. Cf. Ben Oehrleins & Sons &
Daughter, Inc. v. Hennepin County, 115 F.3d 1372, 1383 (8th
Cir. 1997); San Juan Cellular Telephone Co. v. Public Service
Comm’n, supra, 967 F.2d at 686-87. But if the use of tax
moneys to subsidize racetracks is prohibited, the subsidy
22 No. 09-3975
program will be thwarted—unless the rule is to be that
an earmarked tax, held to be enjoinable, can be replaced
by a tax having a broader base and a suit against
the replacement in federal court would be blocked by
the Tax Injunction Act. This would inject the federal
courts deeply into the design of federal-injunction-proof
state taxes. It is another reason not to distort language by
calling the casino tax a fee.
It’s true that the plaintiffs are not seeking to enjoin
the casino tax in the narrow sense of “enjoin.” The money
is being collected from the casinos for intended payment
to the racetracks; it is being held in escrow pending
the outcome of this appeal; it will be paid to them if they
prevail—but only if they prevail. A constructive trust,
however, is an equitable remedy, just like an injunction.
Bontkowski v. Smith, 305 F.3d 757, 761 (7th Cir. 2002);
Beatty v. Guggenheim Exploration Co., 122 N.E. 378, 380
(N.Y. 1919) (Cardozo, J.); 1 Dan B. Dobbs, Law of
Remedies § 4.3(2), pp. 589-90 (2d ed. 1993). If allowed in
cases in which an injunction would be unlawful, a con-
structive trust in favor of the taxpayers would defeat the
purpose of the Tax Injunction Act as effectively as an
injunction would. As we explained earlier, a construc-
tive trust gives the tax money back to the taxpayers; the
money goes in a circle. And so the Second Circuit has
invalidated in the name of the Tax Anti-Injunction Act,
26 U.S.C. § 7421(a)—the counterpart, in federal taxation,
to the Tax Injunction Act—the imposition of a construc-
tive trust on moneys that would otherwise have been
used to satisfy federal tax liabilities. SEC v. Credit Bancorp,
Ltd., 297 F.3d 127, 137-38 (2d Cir. 2002).
No. 09-3975 23
Other forms of equitable relief have been held to be
forbidden by the Tax Injunction Act when, even though
no equitable relief was sought against the state itself, the
relief sought would have indirectly but substantially
impeded state tax collection. In Sipe v. Amerada Hess
Corp., 689 F.2d 396, 403-04 (3d Cir. 1982), for example,
the plaintiffs sought to enjoin their employers from de-
ducting unemployment taxes from their paychecks. And
in RTC Commercial Assets Trust 1995-NP3-1 v. Phoenix
Bond & Indemnity Co., supra, 169 F.3d at 454-56, the
plaintiff sought a declaration that a tax certificate that
the private defendant had purchased at a tax sale was
invalid. See also Blangeres v. Burlington Northern, Inc., 872
F.2d 327, 328 (9th Cir. 1989) (per curiam); cf. California
v. Grace Brethren Church, 457 U.S. 393, 407-11 (1982);
Wright v. Pappas, 256 F.3d 635 (7th Cir. 2001).
There is one last point to consider. The Tax Injunction
Act bars federal equitable relief only if the plaintiffs
have available to them a state remedy that is “plain,
speedy and efficient.” 28 U.S.C. § 1341; see, e.g., Rosewell
v. LaSalle Nat’l Bank, supra, 450 U.S. at 512-15. There is
such a remedy in this case; the casinos can ask an
Illinois state court to impose a constructive trust on the
tax receipts. See Village of Itasca v. Village of Lisle, 817
N.E.2d 160, 170 (Ill. App. 2004); Selmaville Community
Consolidated School Dist. No. 10 v. Salem Elementary School
Dist. No. 111, 421 N.E.2d 1087, 1091 (Ill. App. 1981).
Whether they can seek a refund of the taxes they paid is
less clear, because it is unclear whether the refund statute
cited by the parties—the State Officers and Employees
Money Disposition Act, 30 ILCS 230/2a, the statutory
24 No. 09-3975
basis for the casinos’ claims in Empress Casino Joliet Corp.
v. Giannoulias, supra, 896 N.E.2d at 283—authorizes the
recovery of tax money that has already been disbursed.
But if the unlawfulness can be traced to the racetracks,
the casinos can seek damages from them. The Tax In-
junction Act does not bar federal monetary relief. What
the federal courts must not do is freeze the state’s tax
moneys by imposition of a constructive trust.
The judgment of the district court is affirmed, but the
temporary restraining order against releasing money
from the escrow is extended for 30 days from the date of
this decision to enable the plaintiffs to ask our Circuit
Justice to continue the order pending the casinos’ peti-
tioning the Supreme Court for certiorari.
A FFIRMED.
S YKES, Circuit Judge, with whom B AUER and K ANNE,
Circuit Judges, join, dissenting. Anyone reading the
en banc opinion might lose sight of the fact that this is
not the kind of lawsuit in which jurisdictional questions
under the Tax Injunction Act (“TIA”) typically arise. It’s
not a public-law suit against a state or local taxing author-
ity seeking a remedy against the enforcement of a tax
statute or otherwise interfering with the collection of
No. 09-3975 25
state or municipal revenue. It’s a RICO suit between
private parties seeking a private-law remedy.
The TIA prohibits district courts from hearing actions
to “enjoin, suspend or restrain the assessment, levy or
collection of any tax under State law where a plain,
speedy and efficient remedy may be had in the courts
of such State.” 28 U.S.C. § 1341. The Act withdraws
federal jurisdiction over suits seeking forms of equitable
relief—declaratory and injunctive—against state and
local tax assessments. California v. Grace Brethren Church,
457 U.S. 393, 410-11 (1982). This lawsuit does not seek
an equitable remedy against the assessment or collection
of a tax. The plaintiffs have asked for a constructive
trust on a private account holding money alleged to be
the proceeds of a racketeering conspiracy. If they prevail
and a constructive trust is imposed, the collection of
state revenue will not be imperiled. Not a penny of state
money would be affected. The private-party defendants
would be prevented from reaping the benefits of the
conspiracy, but the TIA does not block federal jurisdic-
tion over suits to prevent private unjust enrichment.
To be sure, this case does involve allegations of public
corruption in the promulgation of a state subsidy
program, but that’s not enough to trigger the TIA’s juris-
dictional bar. The subsidy in question is structured in
an unusual way, and it came into being under circum-
stances that led to the indictment, impeachment, and
removal of the Illinois governor, and a long-running state-
court constitutional challenge.
The plaintiffs, four riverboat casinos in Illinois, claim
that two Illinois gaming laws—the 2006 and 2008 Horse
26 No. 09-3975
Racing Acts—were the product of a pay-to-play scheme
between former Governor Rod Blagojevich and John
Johnston, the owner of two Illinois horse-racing tracks.
The Acts imposed an unusual license requirement on
the four casinos (and only these four, by virtue of their
being the most profitable in the state). The four casinos
must directly subsidize a select group of their competi-
tors—five Illinois horse-racing tracks, including the
two owned by Johnston—as a condition of their state
gaming licenses. The Acts compel them to pay a
percentage of their revenue into a segregated fund for
direct pass-through to the racetracks. It’s important to
note that the money paid into this fund is not state
general revenue and is not subject to appropriation;
instead, the money is held in trust for the sole benefit of
the five racetracks and is disbursed directly to the benefi-
ciary tracks soon after receipt.
More specifically, the 2006 Racing Act created, and the
2008 Racing Act renewed, the Illinois “Horse Racing
Equity Trust Fund,” a “non-appropriated trust fund
held separate and apart from State moneys” for the benefit
of the horse-racing tracks. 230 ILL. C OMP . S TAT. 5/54.5(a)
(2006) (repealed 2008) (the 2006 Act); 230 ILL. C OMP.
S TAT. 5/54.75(a) (2011) (the 2008 Act).1 Under the Acts
the four casinos are required “as a condition of licensure”
to “pay into the Horse Racing Equity Trust Fund . . . an
amount equal to 3% of the adjusted gross receipts
1
Except for citations to the 2006 Act, which are hereafter cited
as § 5/54.5 (2006), all subsequent citations to the Illinois Compiled
Statutes are to the current edition.
No. 09-3975 27
received by the owners [sic] licensee.” Id. § 10/7(a). The
money paid into this fund “shall be distributed within
10 days” of deposit directly to the beneficiary horse-
racing racetracks; the racetracks must direct 60% of the
money received to the purse and the remaining 40% to
improvements, marketing, and operating expenses. Id.
§§ 5/54.5(b) (2006), 5/54.75(b). The Horse Racing Fund
is administered by the state Racing Board in accordance
with the terms of the Acts, id. § 5/54.75(a), and the
money in the Fund may not be transferred to the State’s
General Revenue Fund, 30 ILL. C OMP. S TAT. 105/8h(a).
As the panel opinion explained, the casinos paid the
3% surcharge into a protest fund and waged a vigorous
constitutional attack on the Racing Acts in state court. See
Empress Casino Joliet Corp. v. Blagojevich, 638 F.3d 519, 524-
27 (7th Cir. 2011). The state supreme court rejected this
challenge, see Empress Casino Joliet Corp. v. Giannoulias,
896 N.E.2d 277 (Ill. 2008), and the money in the
protest fund was set to pay out to the racetracks. In the
meantime, however, Governor Blagojevich was indicted
on federal charges of public corruption, including
some relating to the pay-to-play scheme involving
Johnston and the racetracks. Empress Casino, 638 F.3d at
525. The Illinois House of Representatives quickly im-
peached him and the Senate removed him from office.
The casinos then brought this federal RICO suit against
Blagojevich, his campaign committee, Johnston, and the
two racetracks he owns. Id. at 526. Tracing the allega-
tions in the federal indictment, the casinos claimed that
Blagojevich “sold” his support for the Racing Acts in
exchange for campaign cash from Johnston. Id. at 522-23.
28 No. 09-3975
To prevent the five racetracks from being unjustly
enriched by the proceeds of the alleged racketeering
conspiracy, the complaint also named as defendants the
three racetracks not owned by Johnston. The casinos
sought a constructive trust on the money all five race-
tracks received from the Horse Racing Fund. Id. at 526-27.
Those funds are held in a private account owned by
the racetracks, not in the state treasury or in any state-
owned or -administered account. The money in the
protest fund was paid out to the racetracks but is held
in escrow under the terms of a temporary restraining
order entered by the district court and kept in place by
order of this court pending resolution of this appeal. The
escrow continues to grow as the casinos periodically pay
the 3% surcharge, and the money is disbursed to the
racetracks within ten days of deposit, as required by the
Acts. To be clear, the casinos did not name any state
agency or governmental official as a defendant in this
action and do not seek to invalidate the Racing Acts or
obtain a remedy against the Horse Racing Fund.
The en banc opinion obscures these critical facts, which
are necessary to bring the jurisdictional issue into
proper focus. For example, my colleagues acknowledge
that “the state is not a party to this suit,” Majority
Op. at 5, but in the very next breath say the casinos are
“seeking a constructive trust [on] tax revenues,” and
speculate that the casinos “would be seeking an injunc-
tion as well” if the Racing Acts “were not shortly to
expire,” id. at 5-6. This gives the impression that the
casinos are seeking equitable relief against the Racing Acts
or a remedy that would operate on tax money owed to or
No. 09-3975 29
held by the State. They are not. As I have explained, the
complaint does not name any state agency or any
official responsible for enforcing the Racing Acts as a
defendant; nor have the casinos asked for injunctive or
declaratory relief against the enforcement of the Acts
or sought a constructive trust on tax money owed to or
held by the State.
The en banc opinion also warns that
[i]t is not a proper office of the federal courts to
“reform” state fiscal policies by providing a federal
forum for state taxpayers who object to the form or
substance of laws designed to raise revenues for
state purposes, whether purposes approved or disap-
proved by enlightened social thinkers. The wisdom
of a tax on casinos to benefit racetracks is not a
proper subject of inquiry by federal judges.
Id. at 9. This passage also suggests that this litigation
takes aim at a state tax law. Not so. This case does concern
the corrupt origins of the Racing Acts but does not chal-
lenge their validity or the manner in which they are
enforced. The district court has been asked to adjudicate
a racketeering claim, not to pass judgment on the fiscal
policy of the State of Illinois or the wisdom of compelling
casinos to subsidize racetracks. This case will not require
the federal judiciary to decide whether the purposes
behind the Racing Acts comport with enlightened
social thinking. Justice Holmes will not roll over in his
grave; his Lochner dissent remains undisturbed. See id. at
15 (citing Lochner v. New York, 198 U.S. 45, 75 (1905)
(Holmes, J., dissenting)). At the risk of repeating myself,
30 No. 09-3975
no remedy is sought against the State, its tax policies, or
its revenue-raising apparatus. A constructive trust would
have no effect on state revenue but would operate only
on funds received by the racetracks and held by them
in private escrow in order to prevent their unjust enrich-
ment.
My colleagues do not meaningfully address this critical
fact until the very end of the en banc opinion, see id. at 22-
23, and their effort to explain it away is ineffective. It is
true that the TIA’s jurisdictional bar is sometimes
applied “even though no equitable relief was sought
against the state itself,” but only if “the relief sought
would . . . indirectly but substantially impede[] state tax
collection.” Id. at 23 (citing Grace Brethren Church, 457
U.S. 393; Wright v. Pappas, 256 F.3d 635 (7th Cir. 2001);
RTC Commercial Assets Trust 1995-NP3-1 v. Phoenix Bond
& Indem. Co., 169 F.3d 448 (7th Cir. 1999); Blangeres v.
Burlington N., Inc., 872 F.2d 327 (9th Cir. 1989); Sipe v.
Amerada Hess Corp., 689 F.2d 396 (3d Cir. 1982)). In each
of the cases cited for this proposition, state or local
taxing authorities were parties to the litigation and the
relief sought would have impeded their receipt of taxes
or otherwise depleted the public fisc.2 That is not
2
See California v. Grace Brethren Church, 457 U.S. 393, 407-11
(1982) (TIA barred a claim for declaratory relief against collec-
tion of state unemployment taxes from religious schools because
it would have interfered with the State’s collection of those
taxes; California was a party); Wright v. Pappas, 256 F.3d 635,
637-38 (7th Cir. 2001) (TIA barred a claim seeking an equitable
remedy against a Cook County tax-lien sale based on alleged
(continued...)
No. 09-3975 31
the case here. A constructive trust on the racetracks’
private escrow would have no effect on state funds and
would not interfere with the State’s collection of taxes,
either directly or indirectly. No state taxing authority is
a party. From all appearances, Illinois is indifferent to
this case.
What makes this case difficult is that the casino sur-
charge is unusual and therefore hard to classify. My
colleagues call it a tax. With respect, I disagree. Our
disagreement, however, does not arise from different
views on the essential principles underlying the TIA. The
central concern of the TIA is to prevent federal-court
interference with the assessment and collection of state
2
(...continued)
discrimination because it would have impeded the County’s
collection of taxes; Cook County treasurer was a party); RTC
Commercial Assets Trust 1995-NP3-1 v. Phoenix Bond & Indem. Co.,
169 F.3d 448, 454-56 (7th Cir. 1999) (TIA barred a claim for
judicial declaration that a tax certificate purchased by a private
party was invalid because it would have required the municipal-
ity to refund the proceeds of the tax-lien sale; Cook County was
a party); Blangeres v. Burlington N., Inc., 872 F.2d 327, 328 (9th
Cir. 1989) (TIA barred a claim against private employers
seeking to prevent their disclosure of employees’ wage informa-
tion to state tax authorities because it would have impeded the
State’s collection of income taxes; Idaho and Montana taxing
authorities were parties); Sipe v. Amerada Hess Corp., 689 F.2d
396, 403-04 (3d Cir. 1982) (TIA bars suit for equitable remedy
against private employers’ deduction of unemployment taxes
from employees’ wages because it would have impeded the
State’s receipt of those taxes; state unemployment compensa-
tion agency was a party).
32 No. 09-3975
and local tax revenue. See Hibbs v. Winn, 542 U.S. 88, 105-
06 (2004); Rosewell v. LaSalle Nat’l Bank, 450 U.S. 503, 527-
28 (1981); Scott Air Force Base Props. v. Cnty. of St. Clair,
548 F.3d 516, 520 (7th Cir. 2008); Levy v. Pappas, 510 F.3d
755, 761-62 (7th Cir. 2007). My colleagues have ex-
plained the TIA’s important role in preserving the federal-
state balance; the perils of federal-court interference
with state and local tax administration; and the
preference for a “crisp” rule for applying the TIA’s juris-
dictional bar to federal suits seeking equitable remedies
against state and local tax measures. Majority Op. at 3-7.
On these points I agree. Under the TIA’s jurisdictional
rule and the background prudential doctrine of comity,
suits for equitable relief against state tax assessment and
collection belong in state court. See Levin v. Commerce
Energy, Inc., 130 S. Ct. 2323, 2330-33 (2010). To the extent
we can discern a clear, simple rule for applying the
TIA’s jurisdictional bar, we should. Complex and
discretion-expanding multi-factor tests should be
avoided where possible, especially on matters of juris-
diction, for all the reasons compellingly explained in the
en banc opinion.
Nothing in the panel opinion undermined these princi-
ples. We held that the TIA does not apply because the
3% casino surcharge is more like a license fee than a
tax, and a constructive trust on the money received by
the racetracks would not interfere with the assessment
or collection of any state revenue. In the plain language
of the TIA, the district court is not being asked to
“enjoin, suspend or restrain the assessment, levy or
collection of any tax under State law.” 28 U.S.C. § 1341. The
No. 09-3975 33
en banc rehearing has not altered the applicable legal
principles, shed new light on the facts, or shaken my
confidence in our original conclusion. The TIA does not
apply here.
The en banc opinion divides up the universe of govern-
mental exactions into three categories: fines, fees, and
taxes. See Majority Op. at 9-13. The casino surcharge
is not a fine, so we must decide whether it is more like
a “fee” or a “tax.” “The question whether something
is a ‘tax’ or not for purposes of the TIA is ultimately
one of federal law, even though we consult state law to
understand exactly what a particular charge is.” RTC
Commercial, 169 F.3d at 457 (citing Reconstr. Fin. Corp. v.
Beaver Cnty., Pa., 328 U.S. 204, 207-10 (1946)). “The most
common formula for classifying exactions under the
Tax Injunction Act [is to] ask[] whether the payment is
a tax to raise general revenue or is a fee incident to reg-
ulation.” Trailer Marine Transp. Corp. v. Rivera Vazquez,
977 F.2d 1, 5 (1st Cir. 1992). This “formula” is drawn
from an influential First Circuit opinion by then-
Judge Breyer distinguishing for TIA purposes between
revenue-raising tax measures, which are covered by the
jurisdictional bar, and regulatory fees, which are not. See
San Juan Cellular Tel. Co. v. Pub. Serv. Comm’n of Puerto
Rico, 967 F.2d 683 (1st Cir. 1992). Following this lead,
most courts look to the structure and purpose of the
charge at issue to determine whether it counts as a tax
for purposes of the TIA. See Hill v. Kemp, 478 F.3d 1236,
1244-48 (10th Cir. 2007); Folio v. City of Clarksburg, 134
F.3d 1211, 1217 (4th Cir. 1998); Hager v. City of W. Peoria,
84 F.3d 865, 870-71 (7th Cir. 1996); Bidart Bros. v. Calif.
34 No. 09-3975
Apple Comm’n, 73 F.3d 925, 930-33 (9th Cir. 1996); Trailer
Marine, 977 F.2d at 5-6; San Juan Cellular, 967 F.2d at 684-86;
Wright v. McClain, 835 F.2d 143, 144-45 (6th Cir. 1987).
Moreover, the Supreme Court has held that the
primary object of the TIA is to protect the flow of state
and local revenue from federal-court interference, see
Hibbs, 542 U.S. at 106; Grace Brethren Church, 457 U.S. at
410-11, and this also explains why the cases tend to
focus on whether the purpose of the challenged govern-
mental exaction is regulatory or general-revenue-
raising, see Hill, 478 F.3d at 1244-45 (noting that the
“primary purpose of the special license plate scheme is
revenue rather than regulation and thus it qualifies as a
tax”); Folio, 134 F.3d at 1217 (distinguishing between
“broader-based taxes that sustain the essential flow of
revenue to state (or local) government and fees that are
connected to some regulatory scheme” (internal quotation
marks omitted)); Hager, 84 F.3d at 870-71 (drawing the
same distinction between general-revenue-raising and
regulatory purposes); Bidart Bros., 73 F.3d at 930-33
(same); Trailer Marine, 977 F.2d at 5-6 (same); San Juan
Cellular, 967 F.2d at 684-86 (same); Schneider Transp., Inc. v.
Cattanach, 657 F.2d 128, 132 (7th Cir. 1981) (same). Finally,
the form of relief requested is an important part of
the inquiry. “[I]f the relief sought would diminish or
encumber state tax revenue, then the Act bars federal
jurisdiction over claims seeking such relief.” Scott Air
Force Base, 548 F.3d at 520 (citing Levy, 510 F.3d at 762);
see also Trailer Marine, 977 F.2d at 5-6.
For the en banc court, the only payments that count as
“fees” are those that “compensate for a service that the
No. 09-3975 35
state provides to the persons or firms on whom or on
which the exaction falls” or those that “compensate the
state for costs imposed on it by those persons or firms,
other than costs of providing a service to them.” Majority
Op. at 10. This includes “[f]ees for products” (like elec-
tricity from a public utility) and “bona fide user fees”
(like toll-road payments). Id. at 13. This definition corre-
sponds to one that we and other circuits have used
to identify a “classic” or “paradigmatic” fee, which
courts generally agree is not covered by the TIA’s juris-
dictional bar. See Hill, 478 F.3d at 1245; Hager, 84 F.3d at
870-71; San Juan Cellular, 967 F.2d at 685. But it does
not follow (and the cases do not hold) that unless a gov-
ernmental charge is a “fee” under this “classic” or “para-
digmatic” definition, then it must be a tax. That’s what
the en banc court has concluded. Clear classification
lines are helpful, for all the reasons my colleagues have
noted, but this kind of line-drawing shifts the focus
away from the core “state-revenue-protective moorings”
of the TIA. Hibbs, 542 U.S. at 106.
Some regulatory assessments do not fit the classic
definition of a fee, but they don’t have the characteristics
of a tax, either. Government-mandated payments come
in many types and can be implicated in federal
litigation in a variety of ways. The TIA does not block
federal jurisdiction over all suits touching on any pay-
ment to state or local government; it withdraws fed-
eral jurisdiction over suits seeking equitable remedies
against the assessment and collection of state and local
taxes. This directs our focus to whether the suit challenges
a law that serves a general-revenue-raising function and
36 No. 09-3975
whether “the relief sought ‘would . . . operate[] to reduce
the flow of state tax revenue’ or would tie up ‘rightful
tax revenue.’ ” Levy, 510 F.3d at 762 (quoting Hibbs, 542
U.S. at 106, and Rosewell, 450 U.S. at 527-28). The casino
surcharge at issue here is specifically structured so that
it does not raise state tax revenue.
As I have explained, the 2006 and 2008 Racing Acts
impose the 3% surcharge on the State’s four highest-
earning casinos—and only these four—as a “condition
of licensure.” 230 ILL. C OMP . S TAT. 10/7(a). A different
section of the Riverboat Gambling Act levies taxes on
all riverboat casinos, id. § 10/13; the money collected
under these provisions is specifically referred to as “tax
revenue” subject to appropriation by the Illinois
General Assembly. This “tax revenue” is earmarked for
the support of specific governmental functions (e.g.,
education, the criminal justice system) and is distributed
to the counties in which the casinos are situated, to be
used for those purposes. Id. § 10/13(b), (c-20), (d).
In contrast the 3% surcharge appears in the Riverboat
Gambling Act’s section on “Owners [sic] Licenses” and
is never referred to as a “tax.”3 Id. § 10/7. The surcharge
3
That the Racing Acts do not call the surcharge a “tax” is
relevant but not dispositive. As the en banc court rightly notes,
legislatures often avoid using the t-word, see Majority Op.
at 14 (“ ’Taxation’ is unpopular these days, so taxing authorities
avoid the term.”), so the name given to the exaction may not
deserve much weight. That the Illinois Supreme Court called
the surcharge a “tax” doesn’t advance the discussion either; the
(continued...)
No. 09-3975 37
is paid into the “Horse Racing Equity Trust Fund,” which
is established as a “non-appropriated trust fund held
separate and apart from State moneys” for the sole
benefit of the racetracks. Id. §§ 5/54.5(a) (2006), 5/54.75(a).
The money is disbursed very quickly and directly to
the beneficiary racetracks. Id. §§ 5/54.5(b) (2006), 5/54.75(b).
The State holds the money in trust for the racetracks;
it may not be transferred to the State’s general revenue
fund or otherwise commingled with public funds and
may not be allocated to any state agency or program or
used to pay any state cost or expense. 30 ILL. C OMP. S TAT.
105/8h(a). Illinois itself assumes no obligation to the
racetracks; the statutory scheme does not establish an
entitlement program or obligate the State to pay a
subsidy to the racetracks. Instead, the State acts as a
trustee for the mandated transfer payments from the
casinos to the racetracks.
3
(...continued)
state supreme court also repeatedly referred to it as a “sur-
charge” and a “fee.” See, e.g., Empress Casino Joliet Corp. v.
Giannoulias, 896 N.E.2d 277, 283-84, 285, 289-91 (2008). The state
constitution’s uniformity clause applies to taxes and fees, I LL .
C ONST . art. IX, § 2, and the state supreme court used the terms
“tax,” “fee,” and “surcharge” interchangeably throughout its
opinion in Giannoulias. The Illinois General Assembly has
plenary authority to enact the Racing Acts, but whether it
invoked its police power or its tax power in adopting the
Acts has some bearing on how the surcharge should be classi-
fied. The General Assembly structured the surcharge as a
“condition of licensure,” amending the provision of the
Riverboat Gambling Act that pertains to gaming licenses—
regulatory requirements that are tied to the State’s police
power. See 230 I LL . C OMP . S TAT . 10/2(b).
38 No. 09-3975
In short, the 3% casino surcharge is an off-budget
regulatory device for relieving the competitive pressures
exerted by riverboat gambling on the horse-racing tracks.
I agree with my colleagues that the surcharge is not a
“classic” regulatory fee; it does not compensate the
State for services it provides to the casinos or otherwise
defray the costs of the State’s gaming regulatory appara-
tus. But that doesn’t mean it’s a tax. The surcharge does
not raise revenue for the State or for any state program; its
purpose is regulatory. To the extent the surcharge can be
categorized at all, it might appropriately be called a
“compensation charge,” which is how we characterized it
in Kathrein v. City of Evanston, 636 F.3d 906, 911 (7th Cir.
2011), a decision issued shortly after the release of the
panel opinion in this case and now criticized by the en
banc court. See Majority Op. at 13-14. Kathrein surveyed
the TIA caselaw and identified several types of payments
to state and local governments that although not
prototypical “fees,” are not properly classified as “taxes”
for purposes of the TIA. 636 F.3d at 911-12. One of the
“non-tax” payments identified in Kathrein was a “compen-
sation charge”—a charge “imposed upon those who cause
a negative externality, and its proceeds are used to com-
pensate those affected by the externality.” Id. at 911.
Kathrein cited the First Circuit’s decision in Trailer
Marine as an example of this kind of charge—not a classic
“fee” but not a “tax,” either. Id. Trailer Marine involved
a dormant Commerce Clause challenge to a special regis-
tration fee imposed on “transitory” trailers entering
Puerto Rican ports before permitting the trailers to be
hitched to tractors for delivery of the transported goods
No. 09-3975 39
within Puerto Rico. The fee was paid into a dedicated
fund that provided no-fault compensation to persons
injured in motor-vehicle accidents. The court began its
analysis by noting that San Juan Cellular’s regulatory
fee/revenue-raising tax distinction “does not provide
much help in this case.” Trailer Marine, 977 F.2d at 5.
This was because the purpose of the payment “is neither
to raise general revenue for Puerto Rico nor to regulate
conduct in the usual sense of that term,” but instead was
incidental to a “social welfare program and tort reform
law.” Id. Noting that “the legislature does not call the
measure a tax and the money is collected largely as dedi-
cated transfer payments for the beneficiaries” of the
accident-compensation fund, the court held that the
registration fee “should not be treated as a tax for
purposes of the . . . Tax Injunction Act[].” Id. at 5-6. Al-
though it was a “close issue,” the court said it was “at
least confident that allowing an injunction suit to be
maintained poses no threat to the central stream of tax
revenue relied on by Puerto Rico.” Id. at 6.
The same is true here—even more so, in fact. Allowing
this RICO suit to proceed will not pose any threat to tax
revenue relied on by Illinois. The State’s coffers will not
be depleted if the casinos prevail. Contrary to my col-
leagues’ suggestion, the casino surcharge is not
analogous to a “sin tax” or other forms of taxation paid
into special-purpose funds, whether of the “lock box”
variety or not. See Majority Op. at 8, 12-15. The compari-
son to Social Security taxes and taxes levied to sup-
port agricultural subsidies is inapt. See id. at 13-14.
The Racing Acts do not create an entitlement program
40 No. 09-3975
or even a traditional state subsidy. As I have noted,
Illinois has not obligated itself to pay benefits to the
racetracks and then enacted a tax as a source of revenue
for its racetrack-support program. Nor are the pay-
ments made to the racetracks properly characterized as
“earmarks,” as my colleagues imply, id. at 12-15; the
Horse Racing Fund is specifically designated as a “non-
appropriated trust fund.” The 3% surcharge is not a tax
levied to fund a state spending program established for
the benefit of the racetracks. To the contrary, as this
subsidy program is structured, the casinos must share
a portion of their wealth with the racetracks quite
directly, with the State simply serving as an agent for
receipt and disbursement of “dedicated transfer pay-
ments for the beneficiaries.” Trailer Marine, 977 F.2d at 5.
For these reasons, I cannot join the en banc opinion.
Needless to say, I take no position on the merits of the
casinos’ case—or for that matter, on my colleagues’
extended discussion of the policy justifications for re-
quiring rich casinos to share their profits with strug-
gling horse-racing tracks. See Majority Op. at 16-19.
These matters are not before the court. We have only a
jurisdictional question, and on that question I remain
where I was when this case was decided by the panel:
The TIA’s jurisdictional bar does not apply. A construc-
tive trust on the racetracks’ private escrow will not
“freeze the state’s tax moneys,” as my colleagues have
concluded.4 See id. at 24. The casino surcharge is not
4
My colleagues have suggested that our decision in Schneider
Transport is “indistinguishable from the present case,” Majority
(continued...)
No. 09-3975 41
structured as a tax, and a constructive trust on the race-
tracks’ private escrow as a remedy for the alleged
RICO violations will not interfere with the assessment
or collection of any state revenue. I respectfully dissent.
4
(...continued)
Op. at 12 (citing Schneider Transp., Inc. v. Cattanach, 657 F.2d
128, 132 (7th Cir. 1981)), but I disagree. Schneider Transport was
a suit by a trucking company against the Wisconsin Secretary
of Transportation seeking an injunction against the imposition
of vehicle-registration fees on its fleet of trucks. 657 F.2d at 130-
32. Truck-registration fees were deposited into the state’s
transportation fund and used for general transportation pur-
poses, “including highway construction.” Id. at 132. We con-
cluded that the fee was a tax for purposes of the TIA because
it was “imposed for revenue-raising purposes, a characteristic
of any tax.” Id. An injunction against the collection of the
registration fee would have depleted the state transportation
fund, which paid for highway construction and other state
transportation needs. Here, in contrast, an injunction against
the racetracks’ private escrow would have no effect on the
public fisc.
7-8-11