                              In the

United States Court of Appeals
               For the Seventh Circuit

No. 09-3673

M ICHAEL L. K ATHREIN and V ICTORIA K ATHREIN,

                                                Plaintiffs-Appellants,
                                  v.


C ITY OF E VANSTON, ILLINOIS, et al.,
                                               Defendants-Appellees.


             Appeal from the United States District Court
        for the Northern District of Illinois, Eastern Division.
               No. 08 C 83—Ronald A. Guzmán, Judge.



    A RGUED D ECEMBER 7, 2010—D ECIDED M ARCH 11, 2011




  Before R IPPLE, K ANNE, and SYKES, Circuit Judges.
   K ANNE, Circuit Judge. Michael and Victoria Kathrein
sued the City of Evanston, Illinois, and various officials
(“Evanston”), pursuant to 42 U.S.C. § 1983, claiming
Evanston’s Affordable Housing Demolition Tax (“Demo-
lition Tax”) violates the Fifth and Fourteenth Amend-
ments of the United States Constitution, the Illinois
Constitution, and other Illinois law (Counts II-VII). They
2                                               No. 09-3673

also claimed that the Tax Injunction Act, 26 U.S.C. § 7421(a)
(“TIA”), violates Article V of the United States Constitu-
tion (Count I). Upon Evanston’s motion, the district
court dismissed for lack of subject matter jurisdiction.
Because the Kathreins have standing and the TIA does
not bar their challenges to the Demolition Tax, we
reverse as to Counts II through VII. Because the Kathreins
do not have standing to challenge the TIA, we affirm as
to Count I.


                     I. B ACKGROUND
  Evanston’s Demolition Tax is part of an ordinance
scheme designed to keep high-quality, affordable housing
in Evanston. When applying for a permit to demolish
a residential building, the property owner must pay a
Demolition Tax of $10,000 per building or $3,000 per
residential unit to be demolished, whichever is greater.
The Demolition Tax raised $90,000 in each of Evanston’s
Fiscal Years 2006-07 and 2007-08. The proceeds of the
Demolition Tax go to the city’s Affordable Housing
Fund, which helps low- and moderate-income residents
find and keep affordable housing in Evanston.
  The Demolition Tax does not apply to every demoli-
tion of a residential building. An exemption applies
whenever the owner replaces the demolished structure
with affordable housing or forms an agreement with
the city to provide affordable housing by some other
means. Another exemption applies when the property
owner has lived in the building or unit for three years
prior to demolition and will live for three years in the
No. 09-3673                                              3

replacement building. Finally, the Demolition Tax does
not apply to any demolition ordered by the city or by
an appropriate city official.
  The Kathreins own property located at 1925 Jackson
Avenue in Evanston. A single-family house is on the
land. In fall 2007, the Kathreins agreed to sell the
property to Eitan Ouzan, a real estate investor and de-
veloper, for $225,000. Shortly after agreeing to buy, Ouzan
learned of Evanston’s Demolition Tax. He demanded
the sale price be reduced to offset the Demolition Tax.
When the Kathreins refused, Ouzan refused to buy. The
Kathreins now have no plan to sell the property or
to demolish the house.
  The Kathreins filed suit in federal district court, chal-
lenging the Demolition Tax under various constitu-
tional theories. Evanston argued that the TIA divested
the district court from considering these claims, so the
Kathreins amended their complaint to include a claim
challenging the constitutionality of the TIA. The district
court granted Evanston’s motion to dismiss, concluding
that the TIA divested the court of jurisdiction and that
the Kathreins did not have standing to challenge the
TIA or the Demolition Tax. The Kathreins appealed. We
appointed amicus curiae to provide briefing and argu-
ment on the Kathreins’ behalf.


                      II. A NALYSIS
  We review de novo the district court’s conclusion that
the TIA divests it of jurisdiction over the Kathreins’
4                                                No. 09-3673

claims. Hager v. City of West Peoria, 84 F.3d 865, 868-69 (7th
Cir. 1996). We also review de novo the district court’s
dismissal for lack of standing. Arreola v. Godinez, 546 F.3d
788, 794 (7th Cir. 2008). But we review for clear error
any factual findings upon which the court based its
standing decision. Id.


    A. The Tax Injunction Act
  The TIA provides that federal district courts “shall not
enjoin, suspend or restrain the assessment, levy or col-
lection 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 TIA applies to any claim
in federal district court seeking declaratory or injunctive
relief from state or municipal taxes, even when the
claim challenges the constitutionality of the tax. Scott Air
Force Base Props., LLC v. Cnty. of St. Clair, Ill., 548 F.3d
516, 520 (7th Cir. 2008).


    1. Distinguishing Taxes from Non-Taxes
  The TIA does not apply to every transfer of money to
a government, but only to taxes. See Hager, 84 F.3d at 872.
The quintessential tax is imposed upon a broad popula-
tion by a legislature to raise the revenue a govern-
ment needs in order to function. Id. at 870. Courts have
identified four types of payments to a government that
are not taxes. Though courts have not consistently
labeled each type of non-tax payment, we will call them:
“user fees,” “regulatory devices,” “compensation charges,”
No. 09-3673                                               5

and “market exchanges.” Before classifying Evanston’s
Demolition Tax, we briefly describe each of these non-
tax payments.
   A user fee generates only enough revenue to defray
the costs of providing the service to which the user fee
is attached. Bidart Bros. v. Cal. Apple Comm’n, 73 F.3d 925,
933 (9th Cir. 1996). The attached “service” may be agency
regulation. See San Juan Cellular Tel. Co. v. Pub. Serv.
Comm’n of Puerto Rico, 967 F.2d 683, 686-87 (1st Cir. 1992).
The revenue from a user fee often goes to the reg-
ulatory agency providing the service, but a government
cannot turn a user fee into a tax merely by directing
the revenue to a general fund. Hager, 84 F.3d at 871.
Regardless of where the revenue is directed, a charge is
a user fee if—after offsetting the cost of the ser-
vice—the charge does not generate significant revenue.
See San Juan Cellular, 967 F.2d at 687.
  A regulatory device, in contrast, directly regulates
behavior by means of financial incentives. RTC Com-
mercial Assets Trust 1995-NP3-1 v. Phoenix Bond & Indem.
Co., 169 F.3d 448, 457-58 (7th Cir. 1999). Typically, courts
have found a charge to be a regulatory device if the
charge is attached to a behavior that is a clear candidate
for deterrence. See, e.g., Chambwer of Commerce v.
Edmondson, 594 F.3d 742, 763-64 (10th Cir. 2010) (failure
to verify employees’ legal employment status); RTC
Commercial, 169 F.3d at 457-58 (tax delinquency). The
identifying characteristic of a regulatory device is the
incentive structure it creates to deter the targeted be-
havior. See Edmondson, 594 F.3d at 762-63.
6                                                 No. 09-3673

  A compensation charge is imposed upon those who
cause a negative externality, and its proceeds are used
to compensate those affected by the externality. See
Trailer Marine Transp. Corp. v. Rivera Vazquez, 977 F.2d 1, 5-6
(1st Cir. 1992). In implementing a compensation charge,
“the state is little more than a middleman for the involun-
tary transfer of property from one private owner to an-
other.” Empress Casino Joliet Corp. v. Blagojevich, ___ F.3d
___, ___, 2011 WL 710467, *12 (7th Cir. March 2, 2011).
In other words, a compensation charge is not a tax
because it does not contribute “to the central stream
of tax revenue relied on by [the government].” Trailer
Marine, 977 F.2d at 6.
  A market exchange is a payment to the government
that is part of an exchange in which the government acts
as if it were “any ordinary market participant.” Am. Civil
Liberties Union of Tenn. v. Bredesen, 441 F.3d 370, 374-75
(6th Cir. 2006); cf. Choose Life Ill., Inc. v. White, 547 F.3d
853, 858 n.3 (7th Cir. 2008). The key question for distin-
guishing a market exchange from a tax is whether the
payment is exchanged for a good or service that the
government provides—but does not require. See Arizona
Life Coal. Inc. v. Stanton, 515 F.3d 956, 962-63 (9th Cir.
2008) (explaining that the extra amount charged for a
“special organization [license] plate” is not a tax because
the government does not require a special plate).


    2. Categorizing Evanston’s Demolition Tax
  Evanston’s Demolition Tax lies between the quintessen-
tial tax and the quintessential regulatory device. To
No. 09-3673                                              7

categorize the Demolition Tax, we must decide whether
its purpose is to regulate behavior or to raise revenue.
See RTC Commercial, 169 F.3d at 457-58.
  The statute or ordinance creating a charge may
provide evidence of its purpose, though the enacting
government’s characterization of a charge is not deter-
minative. Trailer Marine, 977 F.2d at 5. Evanston’s ordi-
nances call the charge a “tax,” and the stated purpose of
the charge is “to provide a source of funding for the
creation, maintenance, and improvement of safe and
decent affordable housing.” Evanston, Ill., Code §§ 4-22-1,
4-22-3. This language suggests the Demolition Tax is a
tax, but other features of the ordinance weigh against
this suggestion.
  When a charge creates an incentive structure that has
the clear effect of regulating disfavored behavior, it is
probably a regulatory device. See RTC Commercial, 169
F.3d at 457-58. Here, Evanston was apparently con-
cerned that developers were demolishing too many low-
income homes and replacing them with high-
income housing. The Demolition Tax raises the cost of
demolition, and the exceptions were carefully constructed
not to deter those demolitions Evanston deemed benefi-
cial—or at least less harmful. The two main exceptions
apply to: (1) any building or unit in which the owner
has lived for three years before demolition and will live
for three years after the new construction and (2) any
owner who will provide affordable housing to replace
the demolished building. By designing a complex scheme
deterring only the demolitions it deems most harmful,
8                                               No. 09-3673

Evanston reveals the likely purpose of the charge—to
deter precisely those demolitions.
  We must note that not every charge attached to an
undesirable behavior is a regulatory device. In fact, a
tax imposed only upon a socially disfavored behavior
is often a more politically feasible way to raise revenue
than a broad-based tax. See Jendi B. Reiter, Essay, Citizens
or Sinners?—The Economic and Political Inequity of “Sin
Taxes” on Tobacco and Alcohol Products, 29 Colum J. L. &
Soc. Probs. 443, 445-51 (1996). So we must look to other
factors to determine the purpose of a charge imposed
on undesired behavior.
  Perhaps the most informative factors are the amount
of the charge and the price elasticity of the behavior. Cf.
Retail Indus. Leaders Ass’n v. Fielder, 475 F.3d 180, 189
(4th Cir. 2007) (concluding that a charge calculated to
exactly offset the benefits of undesired behavior was a
fee). Here, the charge for demolition is $10,000—roughly
4.4% of the price at which the Kathreins claim to have
found a purchaser. While we cannot directly measure
price elasticity, we note that existing homes are close
substitutes for newly-built homes that have replaced
demolished homes. Presumably, Evanston has a sub-
stantial supply of existing homes, and any developer
who plans to demolish and rebuild must compete with
sellers of these existing homes. The $10,000 Demolition
Tax makes building new homes in place of demolished
homes significantly less profitable for developers, thereby
deterring developers from buying and demolishing low-
income homes—hence, the plaintiffs’ frustration with
the ordinance.
No. 09-3673                                                   9

  Another useful factor is the amount of revenue raised
by the charge. If the purpose of the Demolition Tax is to
raise revenue—as the ordinance purports—we should
expect it to actually raise significant revenue. We recog-
nized this common sense notion in Hager: “It places
form over substance to conclude that $20.00 actually
collected and deposited in the city’s general coffers
render these ordinances tax legislation.” 84 F.3d at 871. In
Fiscal Year 2006-07, Evanston’s Demolition Tax raised
$90,000, while the city’s total general fund revenues were
roughly $88 million. City of Evanston, FY 2008-09 Budget
69, 443 (2008). In 2007-08, the Demolition Tax again
raised $90,000, while general fund revenues were roughly
$92 million. City of Evanston, FY 2009-10 Budget 68, 433
(2009). While the Demolition Tax has raised more
revenue than the charge in Hager, it has raised only
about one-thousandth the amount of general fund reve-
nues. This ratio suggests that federal court review of the
Demolition Tax “poses no threat to the central stream
of tax revenue relied on” by the city.1 Trailer Marine,
977 F.2d at 6.
  We are especially sure that review of the Demolition
Tax will not threaten the revenue on which Evanston
relies because proceeds of the Demolition Tax do not
supply the city’s general fund. Rather, the proceeds



1
  We would put Evanston’s revenue stream at greater risk
by reviewing the city’s library fines and fees, which accounted
for $182,477 in 2006-07 and $177,962 in 2007-08. Evanston, 2008-
09 Budget at 72; Evanston, 2009-10 Budget at 71.
10                                              No. 09-3673

supply an Affordable Housing Fund, which helps low-
and moderate-income residents afford housing in
Evanston. The Fund gives these residents an incentive
to remain in their homes in Evanston, further
promoting the maintenance of affordable housing in
the city. When a government directs proceeds from a
charge to a separate fund, it suggests the purpose of the
charge is not to raise revenue. See id. Here, the use of the
proceeds strongly supports our conclusion that the pur-
pose of the charge is to regulate behavior because the
proceeds are used, in part, to amplify the regulatory
efficacy of the charge.


  B. Standing
  One of the Kathreins’ claims challenged the constitu-
tionality of the TIA. Because the TIA does not divest
jurisdiction from the Kathreins’ challenge to Evanston’s
Demolition Tax, it has caused them no injury, and they
have no standing to challenge its constitutionality. The
only remaining issue is whether the Kathreins have
standing to challenge the Demolition Tax.
  We begin our analysis of this issue by noting that
the Kathreins did not forfeit or waive their standing
arguments in the district court. In response to Evanston’s
motion to dismiss for lack of jurisdiction, the Kathreins—
citing Supreme Court standing decisions—argued that
they had met the requirements for Article III standing.
Confusingly, Michael Kathrein made—and Victoria
adopted—this argument under the heading “Plaintiff’s
Relief Sought is Outside the Scope of the Act.” This
No. 09-3673                                                 11

mistake makes the court’s task more difficult, but it
does not foreclose a standing argument on appeal. See
Balentine v. Thaler, 626 F.3d 842, 849 (5th Cir. 2010) (“Errant
headings . . . do not waive arguments.”).
  As plaintiffs, the Kathreins bore the burden of proof as
to standing. See Apex Digital, Inc. v. Sears, Roebuck & Co.,
572 F.3d 440, 443 (7th Cir. 2009). Because Evanston
launched a factual challenge, the Kathreins must have
shown their standing by the preponderance of the evi-
dence. See Lee v. City of Chicago, 330 F.3d 456, 468 (7th
Cir. 2003). To establish standing, the Kathreins must
have shown: “(1) that [they have] suffered an injury in
fact (2) that is fairly traceable to the action of the
defendant and (3) that will likely be redressed with a
favorable decision.” Books v. City of Elkhart, Ind., 235
F.3d 292, 299 (7th Cir. 2000).
  The parties, amicus curiae, and the district court
have identified several injuries, alleged injuries, and
theories that do not give the Kathreins standing. We
begin with the district court’s conclusion that the
Kathreins’ status as taxpayers does not confer them
standing. This conclusion is certainly true, see
DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 345-46 (2006),
but the Kathreins do not rely on their status as tax-
payers for standing. Rather, they claim the enactment of
the Demolition Tax caused them direct financial injury.
  Next, as Evanston correctly argues, the Kathreins have
not shown they were injured by the increased cost of
demolishing the house on their property because they
have shown no past, present, or future interest in
12                                               No. 09-3673

having the house demolished. They are far more likely
to sell the property to a developer, who would demolish
the building, replace it with a more valuable one, and
then resell the property.
  Finally, amicus curiae argues the Kathreins’ “injury
in fact” was the failed real estate transaction with Ouzan.
But there is no reason to believe this injury would be
redressed by a favorable decision—after all, the failed
transaction took place more than three years ago. This
injury does not create standing for the Kathreins.
  The failed real estate transaction does provide
evidence of a related injury that is remediable: a
decrease in the value of the Kathreins’ property.2 A demon-
strable reduction in the market value of one’s property
is an injury in fact for standing purposes. See Marusic
Liquors, Inc. v. Daley, 55 F.3d 258, 260 (7th Cir. 1995). And
an ordinance that meaningfully restricts the salability
of property necessarily reduces the property’s market
value. See MainStreet Org. of Realtors v. Calumet City, Ill.,
505 F.3d 742, 744 (7th Cir. 2007).
  Though the Demolition Tax does not attach directly to
the sale of property, it nonetheless affects the market
value of a certain class of Evanston residential proper-


2
   The district court may have found that the Demolition Tax
did not cause the Kathreins’ property value to decrease by
$10,000. If the district court did make such a finding, it was
not clearly erroneous. But it also does not preclude our
finding that the property decreased in value by some lesser
amount sufficient to confer standing.
No. 09-3673                                            13

ties—those that are more valuable because of the option
to demolish and replace the existing building. As sug-
gested above, the owner of a property that is a can-
didate for demolition is unlikely to have the building
demolished herself unless she is in the business of real
estate development. Rather, she will sell the property
to a developer who will demolish and replace the
building, thereby triggering the Demolition Tax. But the
Demolition Tax decreases the value of the option to
demolish, so developers will offer less for the property.
The Demolition Tax thus decreases the market value of
any property for which the option to demolish the
existing building has non-negligible value.
  Not every property in Evanston meets this criterion.
For example, a one-acre property that houses a million-
dollar home is extremely unlikely to be a candidate
for (non-emergency) demolition in the foreseeable fu-
ture. Because demolition is extremely unlikely, the
option to demolish is essentially worthless. The Demoli-
tion Tax likely would not affect the value of such a prop-
erty. The Kathreins, in contrast, have provided evi-
dence—their own deposition testimonies and Ouzan’s
signed affidavit—of the value of the option to demolish
the structure on their property. Once Ouzan learned of
the Demolition Tax, he refused to buy the Kathreins’
property unless they would sell it for a lower price to
offset the cost of the Demolition Tax. This failed sale
shows that the property was more valuable because of
the option to demolish. Based on this evidence, and
because Evanston did not effectively contest the truth
of Ouzan’s testimony or present countervailing evi-
14                                            No. 09-3673

dence, the Kathreins have demonstrated a reduction in
the value of their property.
  Evanston’s final argument is that the Kathreins have
not been injured because they have no current plans to
sell their property. But this argument ignores our
decision in Marusic Liquors, where we recognized that a
restriction on selling a property injures the property
owner even if he has “no immediate plan to sell.” 55 F.3d
at 260. The plaintiff in Marusic Liquors challenged an
ordinance that limited the transfer of businesses that
had liquor licenses in certain geographic zones. Id. We
noted that, because of the ordinance, potential buyers
would ignore the affected liquor store, thereby lowering
the chances of an attractive purchase offer. Id. at 261.
We also noted that the owner would under-investigate
alternative business and employment opportunities
and under-invest in making the store attractive to
potential buyers. Id.
  The Kathreins face similar costs to those mentioned
in Marusic Liquors. Developers will likely look elsewhere,
thereby reducing the chances of the Kathreins receiving
an attractive offer. And the Kathreins will likely under-
investigate other housing options and over-invest in
making their home attractive to potential non-developer
buyers. Moreover, the Kathreins will be less able to
obtain a favorable mortgage because the Demolition
Tax makes their home less valuable to potential
mortgage holders.
  In sum, the Kathreins have suffered an actual injury—
a demonstrable reduction in property value—that is
No. 09-3673                                                 15

sufficiently concrete and particularized to constitute an
“injury in fact.” See Lujan v. Defenders of Wildlife, 504
U.S. 555, 560 (1992). That injury was caused by the en-
actment of the Demolition Tax, and an injunction
against enforcing the Demolition Tax will restore the
property to its full value.3 Based on this injury, then,
the Kathreins have standing to challenge the Demoli-
tion Tax.


    C. Ripeness
  The district court hinted that some of the Kathreins’
claims are not ripe for consideration in federal court.
Federal courts lack jurisdiction to consider an unripe
claim, Flying J Inc. v. City of New Haven, 549 F.3d 538, 544
(7th Cir. 2008), so any question of ripeness should be
decided before consideration of a claim’s merits. The
parties did not thoroughly brief any ripeness arguments
on appeal, so we leave this issue to the parties and the
district court on remand.




3
   The Kathreins claim an injunction will return their property
to its pre-ordinance value. But the Demolition Tax was en-
acted in 2005. Since then, market-wide forces likely have
affected the value of their property. See Al Yoon, Home price
drops exceed Great Depression: Zillow, Reuters Newswire
(Jan. 11, 2011), available at http://www.reuters.com/article/
idUSTRE70961E20110111. We expect that an injunction, if
issued, would remedy only the damage caused by the Demo-
lition Tax.
16                                           No. 09-3673

                   III. C ONCLUSION
  Because the Kathreins have no standing to challenge the
TIA, we A FFIRM the district court’s dismissal of Count I
for lack of jurisdiction. Because the Tax Injunction Act
does not apply to the Kathreins’ challenge of Evanston’s
Demolition Tax and because the Kathreins have
standing to challenge the Demolition Tax, we R EVERSE
the district court’s dismissal of Counts II through
VII for lack of jurisdiction and R EMAND for further pro-
ceedings.




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