Chicago Personal Property Lease Transaction Tax
Chicago recently amended its lease transaction and amusement tax laws. The City's two new rulings can have significant implications for vendors with nexus in Chicago and users of their services. Read on for more.
Chicago Personal Property Lease Transaction Tax applies to any business or individual that leases or rents personal property in Chicago. The lease of personal property is deemed to take place at the location where the lessee takes possession or delivery of the personal property. However, the lease of a ground transportation vehicle is exempt from the lease transaction tax if the lessor is subject to the city’s ground transportation tax.
Moreover, the lease of personal property is not subject to the lease tax if the lessee and lessor are members of a related group. The term “related group” is defined as companies under a parent corporation/person that owns 100% of the voting stock of each subsidiary, either directly or indirectly. As of January 2024, the Chicago Personal Property Lease Transaction Tax Rate is 9%. This rate has been in effect since January 1, 2021, and there are no planned changes for 2024.
New Chicago Transaction Tax Rulings
The City of Chicago recently issued two new tax rulings (LT Ruling #12 and AT Ruling #5) that significantly broaden the applicability of the City’s Personal Property Lease Transaction Tax and Amusement Tax.1
LT Ruling #12
The first ruling, LT Ruling #12, applies the City’s lease tax to nonpossessory computer leases of software and infrastructure, known as cloud computing, software-as-a-service, and hosted environment services. LT Ruling #12 provides a number of taxpayer-friendly provisions, including the ability to apply apportionment for bundled transactions and clarifying that charges not subject to the lease tax may be subject to other City taxes.
AT Ruling #5
A second ruling, AT Ruling #5, applies the City’s Amusement Tax to leasing electronically delivered amusements. The Amusement Tax is a transaction-based tax that requires lessors to collect and remit the tax on behalf of their customers.
Both of these new rules are significant and will impact vendors with Chicago nexus and users in the City who are subject to the City’s nine percent tax rate on tangible personal property. Businesses with questions about the new rules or who need help determining whether they are subject to these new requirements should contact their BDO tax professional. The BDO Tax team is also available to discuss the new economic nexus standard that will begin applying in 2021 and how it may affect your company’s remittance obligations.
