Empress Casino Joliet Corp. v. Blagojevich

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