January 9, 2019
Update: Collection of the City of Chicago’s tax on other tobacco products has been moved from a starting date of March 1, 2019 to no sooner than April 1, 2019 or 60 days following the plaintiff’s deadline to file an appeal, according to the City of Chicago’s Office of Budget and Management. Chicago businesses selling smokeless tobacco products are currently being notified about the tax and the remittance process.
Content originally posted January 4, 2019
Annually the Civic Federation releases a report on consumer taxes in the City of Chicago. Consumer taxes are tied to the use or consumption of certain goods and services that can be charged directly to consumers through retail transactions or passed onto consumers by businesses or governments. Consumer taxes in Chicago are imposed at various levels of government including by the City of Chicago, Cook County, the State of Illinois and federal government. This blog highlights the increases and other changes that several consumer taxes have undergone since the Civic Federation’s 2018 consumer taxes report.
Tax Increases Effective in 2019
Home Sharing Tax, City of Chicago – The Chicago City Council approved an additional 2.0% surcharge on shared housing and vacation rentals within the City of Chicago on July 25, 2018, which went into effect on December 1, 2018. The 2.0% surcharge is in addition to a previously approved 4.0% tax on vacation rentals or shared housing units in the City of Chicago, which went into effect on July 1, 2016. The 2.0% increase brings the total taxes imposed on home sharing to 6.0%. However, the home sharing tax is applied in addition to City of Chicago’s composite hotel tax, which is 17.4%. This means that home sharing will now be charged a total tax rate of 23.4%. The stated purpose of the initial 4.0% home sharing tax approved in 2016 was to fund supportive services and housing for the homeless. The stated purpose of the additional 2.0% surcharge is to fund housing and related supportive services for victims of domestic violence.
Liquid Nicotine Tax, City of Chicago – On September 20, 2018 the Chicago City Council approved an increase to the tax on liquid nicotine products used in e-cigarettes, from $0.80 to $1.50 per product unit and from $0.55 to $1.20 per milliliter. Both the City of Chicago and Cook County impose a tax on liquid nicotine. When including the County’s $0.20 per milliliter tax, the composite tax rate on liquid nicotine in Chicago is now $1.50 per product unit plus $1.40 per milliliter. The higher tax rates on liquid nicotine are effective January 1, 2019.
Ground Transportation Tax, City of Chicago – As part of the City of Chicago’s FY2018 budget approval process, the City passed a two-year increase to the ground transportation tax on rideshare companies such as Uber and Lyft from the previous rate of $0.40 per vehicle per trip to $0.55 per vehicle per trip effective January 1, 2018 and $0.60 per ride beginning on January 1, 2019. There is also a $0.10 charge per non-handicap accessible vehicle, which brings the total charge for a typical rideshare ride to $0.70. For rides that include a pick-up or drop-off at O’Hare Airport, Midway Airport, McCormick Place or Navy Pier, which includes an additional rate of $5.00, the rate increased from $5.40 to $5.55 per vehicle per trip in 2018 and will increase again to $5.60 in 2019. With the $0.10 charge for non-accessible vehicles and, the total charge in 2019 is $5.70. The increase to the ground transportation tax was approved in connection with an intergovernmental revenue sharing agreement between the City of Chicago and the Chicago Transit Authority (CTA) that authorizes the City to provide the CTA with $16.0 million annually from the proceeds of the ground transportation tax increase to be used toward capital projects. The City retains any revenue generated above the amount of $16.0 million.
Water and Sewer Utility Tax, City of Chicago – The City of Chicago approved a new tax on the consumption of water and the transfer of wastewater to the sewer system on September 14, 2016. Beginning in March 2017, in addition to the regular water-sewer rate charged on Chicago residents’ utility bills, the City began charging a tax of $0.59 per 1,000 gallons of water-sewer used, with automatic increases over a period of four years to $2.51 per 1,000 gallons in 2020. The 2019 rate effective January 1, 2019 is $2.01 per 1,000 gallons of water used. This rate includes a tax of $1.005 per 1,000 gallons on the water portion and $1.005 per 1,000 gallons on the sewer portion.
Other Tax Changes and Updates
Other Tobacco Products Tax, City of Chicago – On December 20, 2018 the Illinois First District Appellate Court ruled that the City of Chicago may impose a tax on other tobacco products including smoking and smokeless tobacco, cigars and pipe tobacco. The City of Chicago had originally adopted an ordinance in March 2016 imposing a tax on other tobacco products that would have gone into effect July 1, 2016. However, a complaint was filed in the Circuit Court of Cook County challenging the City’s authority to impose a tax on these products and the July 1, 2016 implementation date was deferred until the matter was resolved by the courts. On January 20, 2017, the Cook County Circuit Court ruled that the City’s tax on other tobacco products violated a State law. The City appealed in April 2017. The Appeals Court then overturned the Circuit Court decision on December 20, 2018 as too narrow a reading of the State statute. The City’s tax rates on the other tobacco products will be $1.80 per ounce for both smoking tobacco and smokeless tobacco, $0.20 per cigar for both little and large cigars and $0.60 per ounce of pipe tobacco. Collection of these taxes will begin on March 1, 2019.
Amusement Tax, City of Chicago – The City of Chicago imposes a tax on amusements in the City such as live performances, movies and sporting events at a rate of 9.0% of admission fees, with exemptions including venues that have a capacity of fewer than 1,500 persons and some other qualifying events. A lawsuit filed in Cook County Circuit Court, Labell v. The City of Chicago, challenged the City’s interpretation of the amusement tax as described in Amusement Tax Ruling #5. The City’s ruling, issued in June 2015, stated that the amusement tax applies to TV, movies, music and video games that are streamed electronically. A decision issued by the Circuit Court on May 24, 2018 upheld the City’s interpretation of the amusement tax as it relates to streaming services and dismissed the case. Therefore, streaming services such as Netflix and Spotify are still subject to the 9.0% amusement tax rate as of January 1, 2019. A notice of appeal was filed by the plaintiffs on June 21, 2018.
Parking Lot and Garage Operations Tax, Cook County – On October 17, 2018, the Cook County Board of Commissioners approved an amendment to Cook County’s parking tax that reduced the rate charged for hourly parking spaces reserved through booking intermediaries, such as parking apps like SpotHero and ParkWhiz, from the regular tax rate of 6.0% to 1.75%. The rationale behind the amendment was that parking apps do not have control over the garages and number of parking spaces available. The reduced rate would have taken effect on January 1, 2019. However, the ordinance was repealed by the Board of Commissioners on December 12, 2018 on the basis that the parking tax be administered uniformly. Therefore, the tax rate charged for parking spaces reserved through parking apps will remain at 6.0% as of January 1, 2019.
Sales Tax, State of Illinois – Following a June 21, 2018 U.S. Supreme Court decision in the case of South Dakota v. Wayfair, online retailers are now required to collect sales tax on products purchased online by Illinois residents, even if the retailer does not have a physical presence in the State of Illinois. Previously, only retailers with a physical presence in Illinois, such as a store or distribution center, were required to collect the state sales tax of 6.25%. The Illinois General Assembly, through the FY2019 budget implementation bill approved June 4, 2018, created a threshold requiring retailers to collect sales tax if they generate more than $100,000 in annual sales from Illinois customers or conduct at least 200 separate transactions per year in Illinois. Beginning October 1, 2018, all retailers with or without a physical presence in Illinois but that meet the criteria are required to collect the Illinois sales tax of 6.25%. The ruling is expected to generate an additional $200 million in sales tax revenue for the State. This change only affects the 6.25% portion of the sales tax that is imposed by the State of Illinois and does not impact other portions of sales tax that are imposed by local governments through their home rule authority or the Regional Transportation Authority.
The Civic Federation will be releasing its full 2019 report on selected consumer taxes in Chicago in the coming weeks.
 Iwan Ries & Co., et al. v. City of Chicago, Cook County Circuit Court Case No. 2016-L-050356.