Illinois Supreme Court Rules Against Property Tax Expansion
The Illinois State Supreme Court has ruled against the City of Chicago, finding that their tax authority cannot extend beyond the city limits. The case, The Hertz Corporation, et al. v. City of Chicago, focused on the city of Chicago's attempt to expand its Personal Property Lease Transaction Tax (PPLTT), to require leasing companies based in Chicago with rental locations outside of the city limits to pay the PPLTT on transactions with Chicago residents.
This decision ends a multi-year struggle between leasing companies and the city of Chicago which had been forcing leasing companies to pay taxes on transactions outside of the city's jurisdiction.
For several years, the city of Chicago had been collecting PPLTT from leasing companies with locations inside and outside of the city, on transactions outside of the city. The PPTLL had been imposed under Chicago's "Home Rule" authority under the Illinois Constitution, and the PPLTT taxes the lease or rental or personal property in the city or the use of personal property that is leased outside of Chicago but used in the city. This could have allowed the city of Chicago to charge PPLTT on any rental transaction within the state of Illinois if a leasing company simply had the majority of their leases originated inside the city limit and the renter lived in Chicago. Additionally, the Chicago Department of Revenue issued Ruling 11, which gave guidance to all leasing and rental companies with locations within a three-mile radius of the city border. Ruling 11 stated that "in the event of an audit, the Department would hold the suburban rental agencies responsible for paying the tax unless there was written proof that the lessee was exempt from paying the tax based upon the use of the leased vehicle outside Chicago. Absent such proof, Ruling 11 provided that the Department would assume any customer who was a Chicago resident would use the leased vehicle primarily in Chicago, and that any customer who was not a Chicago resident would use the vehicle primarily outside Chicago."
The Illinois Supreme Court found that Ruling 11 violated the Illinois Constitution and the Constitution of the United States. By deciding against Ruling 11, locations within 3-miles of the city limits will no longer be forced to collect PPLTT from Chicago residents based upon their stated location of use. The court ruled "that Ruling 11 violates the home rule article of our constitution because it has an extraterritorial effect and is therefore an improper exercise of the City's home rule powers." Additionally, the court ruled that the home rule does not allow for a city to tax a lessor based upon where the lessee states the property will be used. While the court decision ends Ruling 11, Chicago will continue to enforce the lease tax within the city limits, and TRALA expects further efforts from the city to tax leases in the city.
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If you have any questions on this decision please contact Andrew Stasiowski at email@example.com or at (703)299-9120.