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Rental Cars Used in Chicago Are Subject to Personal Property Lease Transaction Tax


Hospitality
Leasing

A car rental company’s short-term vehicle rental that occurred outside Chicago was subject to the Chicago personal property lease transaction tax since the vehicle was used in Chicago. The tax is imposed on a lessee who is a Chicago resident as shown by the renter’s driver’s license who leases personal property in Chicago or primarily uses leased property for more than 50% of the time in Chicago. A Department of Finance ruling stated that the tax applies to rentals made by car rental companies inside Chicago and within three miles of Chicago’s border. An appellate court reversing the Trial Court, found that taxing non-Chicago rental transactions did not exceed Chicago’s home-rule authority since the connection between the rental company, the use of the car, and the city of Chicago is reasonable and clear. The Court discussed the nature of the tax as being more of a use tax than a transaction tax and therefore the City has the right to require a retailer who has nexus with the City to collect the tax on transactions that occur outside its jurisdiction.  Rental companies do not have standing to challenge the federal constitutionality of the ordinance since it imposes tax on the use of the property in Chicago, which is not an extraterritorial transaction. Imposition of the tax and the city’s guidance on keeping vehicle use records do not exceed the scope of the ordinance. The lessor has options on how to document the use occurs outside the City.  It is reasonable to require a taxpayer to document an exemption from the tax.  (Hertz Corp v. City of Chicago, Appellate Court of Illinois, First District, No. 1-12-3210, 1-12-3211, September 22, 2015, released December 10, 2015)

(07/25/2016)
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