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The final payment of a lease-to-own transaction of tangible personal property was not subject to Illinois sales tax because the lease agreement constituted a true lease. In Illinois, sales tax is due on lease transactions that are deemed conditional sales where the lessor is guaranteed a sale of the leased property to the lessee by a nominal or one dollar purchase option at the end of the lease term. In this case, the lease did not guarantee a sale of the property at the inception of the contract.  Title to the leased property was transferred to the lessee after the final payment was made and there was no nominal or one dollar option to purchase at the end of the lease. The lease agreement also allowed the lessee to walk away at the end of the lease term without further obligation or penalty. (Private Letter Ruling, ST 15-0013-PLR, Illinois Department of Revenue, October 15, 2015)

(12/09/2015)

The City of Chicago is offering a debt relief program from November 15, 2015 through December 31, 2015 that will provide individuals and businesses the opportunity to resolve outstanding debt and avoid further costs and collection activity. Included in the eligible debt are unpaid tax liabilities (for both non-filers and tax assessments) incurred prior to January 1, 2012. Tax obligations that are in a payment plan or pending legal activity with the City are not eligible for the program. Penalties, interest, and collection costs associated with the eligible debt will be waived during the debt relief program. To participate in the program, taxpayers must complete a Tax Debt Relief application to register with the city and will need to file applicable tax returns. For information and application to the Debt Relief Program click here. Note that this debt relief program is separate and apart from the special voluntary disclosure program offered through December 31, 2015 related to cloud transactions. For more information on this program visit Chicago Enacts Amendments to Chicago Cloud Tax Ruling. (Most Recent News (Finance), Debt Relief Program, City of Chicago, November 3, 2015)

(11/23/2015)

The Illinois Department of Revenue has issued guidance to a taxpayer regarding exemptions for nonprofit organizations. Nonprofit organizations that receive an exemption identification number (E number) from the Department are exempt from state sales and use tax when purchasing tangible personal property in furtherance of their organizational purposes. However, organizations that have an E number are liable for excise taxes, such as the Electricity Excise Tax, the Gas Revenue Tax and other charges, fees, and costs that may be added to utility bills. The Department does not collect or administer local utility taxes and recommended that the taxpayer contact the municipality to see what exemptions may be available. (General Information Letter ST 15-0054-GIL, Illinois Department of Revenue, August 27, 2015)

(11/23/2015)

The City of Chicago has released an information bulletin providing additional guidance on Personal Property Lease Transaction Tax Ruling #12, which addresses Chicago’s taxation of cloud services. On October 28, 2015, the Chicago City Council enacted amendments to the Lease Tax Ordinance. In the case of a nonpossessory lease of a computer primarily for the purpose of allowing the customer to use the provider’s computer and software to input, modify or retrieve data or information that is supplied by the customer, a reduced tax rate of 5.25% applies to the lease or rental price.

 

An exemption for small new businesses was also enacted. A small new business that is the lessor of a nonpossessory computer lease is not required to collect tax on its charges for the lease. A small new business that is the lessee of a nonpossessory computer lease is not required to pay tax on its charges for the lease. A “small new business” is a business that holds a valid and current business license issued by the City or another jurisdiction, had under $25 million in gross receipts or sales during the most recent full calendar year prior to the annual tax year for which the exemption is sought, and has been in operation for fewer than 60 months. Customers of small new businesses that are not charged the tax by the provider that do not otherwise qualify for an exemption must self-remit the tax to the City.

 

In order to minimize the exposure to taxpayers, the City has announced that it will offer a voluntary disclosure program specific to the cloud issue. Any provider or customer that files a voluntary disclosure application by January 1, 2016 and that qualifies for the City’s standard voluntary disclosure program will receive the following terms, provided that it comes into compliance with the Lease Tax Ordinance and Ruling #12 by January 1, 2016 (or a later date that the Department may agree to for good cause):

 

  • No liability for tax, interest or penalties on charges for nonpossessory computer leases that qualified for Exemption 11 (fleeting and transitory information) under the Department’s interpretation of the exemption before the issuance of Ruling #12.
  • For other nonpossessory computer leases including Saas, PaaS, Iaas or other non possessory computer leases, tax will be due for the period of January 1, 2015 through December 31, 2015, and no liability for interest or penalties.Any liability for periods prior to 2015 will be waived
  • For any other taxes owed, the terms of the City’s standard voluntary disclosure program will apply. For these other tax liabilities, penalties will be waived, and there will be no more than four years of liability for tax and interest. This would apply to leases of computer software that qualify for the 5-prong test under Illinois law.

 

Neither Ruling #12 nor the Bulletin specifically addresses the issue of nexus. The new bulletin states that providers must rely on their own attorneys to advise them on the application of the law to their particular facts. The Department will, in conjunction with the Department of Law, attempt to assist where appropriate on a case-by-case basis. The bulletin also contains FAQs addressing other questions regarding the application of the lease tax. For our previous news item on the Chicago cloud tax, visit Mayor Emanuel Reveals Proposed Changes to Chicago Cloud Tax Ruling. We will continue to monitor this issue for clarification of issues that we have presented to the City and will update this tip as new information is made available.  For assistance filing an application for voluntary disclosure please feel free to contact us.

 

(November 2015 Transaction Tax Information Bulletin, November 19, 2015)

(11/21/2015)

On September 30, 2015 the U.S. House of Representative passed H.R. 719, which includes a provision that would extend the Internet Tax Freedom Act (ITFA) through December 11, 2015. The ITFA was scheduled to expire on October 1, 2015. The bill will now go to President Obama for signature.

 

To see our previous news item on the ITFA, visit Internet Tax Freedom Act Extended Until October 1, 2015, Permanent Extension Introduced.

 

To see an update on this news item, visit Internet Tax Freedom Act Extended Through October 1, 2016,

 

(H.R. 719)

(10/26/2015)

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