January 10, 2020
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 2019 consumer taxes report released on January 16, 2019.
Tax Increases Effective in 2020
Cigarette and E-Cigarette Tax, State of Illinois – Effective July 1, 2019, the State of Illinois tax on cigarettes increased by $1.00 from $1.98 per pack of 20 cigarettes to $2.98 per pack. The State’s increase brings the total composite cigarette tax in the City of Chicago to $8.17 per pack, which includes the cigarette taxes imposed by the federal government, the State, County and City. The State of Illinois also began imposing a tax on liquid nicotine and e-cigarette devices at a rate of 15% of the wholesale price effective July 1, 2019.
Restaurant Tax, City of Chicago – With the passage of the City of Chicago’s FY2020 budget, the City increased its restaurant tax rate by 0.25% to 0.50%. The restaurant tax is imposed in addition to the City’s general sales tax of 10.25%, as well as an additional 1.0% restaurant tax imposed by the Metropolitan Pier and Exposition Authority (MPEA) in the downtown and surrounding area. Therefore, the composite restaurant tax within the MPEA area in Chicago is 11.75%, and within the non-MPEA area it is 10.75%.
Ground Transportation Tax, City of Chicago – With the passage of the FY2020 City of Chicago budget, the City restructured the ground transportation tax rates imposed on transportation network providers such as Uber and Lyft, which are charged to customers. The tax rates now vary depending on whether the vehicle trip is a single occupancy ride or shared ride, the pick-up and drop-off location and the time of day the trip occurs. The new rates are $1.13 per single ride and $0.53 per shared ride citywide. For rides that begin or end within a designated downtown zone between 6:00 a.m. and 10:00 p.m. on weekdays, an additional surcharge of $1.75 for single rides and $0.60 for shared rides will apply. The designated downtown zone includes the Loop, River North and as far north as North Avenue, the West Loop, and the South Loop as far south as Roosevelt Road. It does not include Navy Pier. There continues to be an additional $5.00 charge for rides that include a pick-up or drop-off at O’Hare Airport, Midway Airport, McCormick Place or Navy Pier. The City will also continue to charge an additional $0.10 for non-handicap accessible rides.
Parking Lot and Garage Operations Tax, State of Illinois – Effective January 1, 2020 the State of Illinois began imposing a parking tax at the rate of 6.0% of the purchase price for a parking space paid for on an hourly, daily or weekly basis and 9.0% if paid on a monthly or annual basis. This tax applies to businesses that operate parking lots and parking garages, which must collect the tax from customers.
Vehicle Registration Tax (Wheel Tax), State of Illinois – The State of Illinois increased the vehicle registration fee for passenger vehicles from $98 to $148 per year beginning with the 2021 registration year, effective January 1, 2020 with the adoption of Public Act 101-0032. For large vehicles, the registration fee increases from $98 to $148 for trucks 8,000 pounds or less. For trucks above 8,000 pounds, the registration fee increases by $100 for each weight class. Electric vehicles are now to pay the same amount as gas powered vehicles plus pay an additional $100 per year in lieu of the payment of motor fuel taxes beginning January 1, 2020, or a total of $248. In addition to the vehicle registration fee, the State also imposes a $1.00 surcharge that is collected and deposited into the State Police Vehicle Fund and a $2.00 surcharge collected and deposited into the Park and Conservation Fund.
Motor Fuel Tax, State of Illinois – The State of Illinois increased the motor fuel tax by 19 cents per gallon of gasoline to 38 cents per gallon, effective July 1, 2019. This brings the composite motor fuel tax charged in the City of Chicago to 69 cents per gallon and 77 cents per gallon of diesel fuel. The composite tax includes rates charged by the State, City of Chicago, Cook County and the federal government. This was the first increase in the motor fuel tax since 1990. The enacting legislation, Public Act 101-0032, includes provisions for the Illinois gas tax rate to increase annually every July 1 by an amount equal to the Consumer Price Index percentage increase.
Personal Property Lease Transaction Tax, City of Chicago – With the passage of the City of Chicago’s FY2020 budget, the City increased the personal property lease transaction tax rate for nonpossessory computer leases of software and infrastructure—referred to as “cloud” software or infrastructure—from 5.25% to 7.25%. The rate for all other lease transactions remains the same at 9.0% of the lease or rental price.
Water and Sewer Utility Tax, City of Chicago – The City of Chicago approved a 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. The fourth and final increase to the water-sewer rates took effect January 1, 2020 increasing from $2.01 to $2.51 per 1,000 gallons of water used. This rate includes a tax of $1.255 per 1,000 gallons on the water portion and $1.255 per 1,000 gallons on the sewer portion.
New Taxes Effective in 2020
Cannabis Tax, State of Illinois, City of Chicago and Cook County – On June 25, 2019 Governor Pritzker signed into law Public Act 101-0027, legalizing recreational cannabis for adults over 21 years of age as of January 1, 2020 and implementing a regulatory and taxation regime. Recreational cannabis purchases are currently subject to a combination of excise tax and general retailers’ occupation tax (sales tax). A special local cannabis retailers’ occupation tax (cannabis sales tax) will go into effect July 1, 2020 for jurisdictions that choose to impose a tax and file it with the Illinois Department of Revenue by April 1, 2020. Sales by cannabis cultivators to dispensaries, processors or infusers are also subject to a 7.0% privilege tax, whether for medical or recreational use. Effective beginning July 1, 2020, the highest composite tax rate on cannabis possible for sales in the City of Chicago would be 41.25%, consisting of a 25% State cannabis excise tax for cannabis with a THC level above 35%; the City of Chicago general sales tax rate of 10.25%; a 3.0% municipal cannabis retailers’ occupation tax imposed by the City of Chicago; and 3.0% Cook County cannabis retailers’ occupation tax. The new law does not affect taxation of medical cannabis, which is still subject only to the reduced rate sales tax on food and drugs at a composite rate of 2.25% in Chicago.
Other Tax Changes and Updates
Other Tobacco Products Tax, City of Chicago – In a decision issued on December 19, 2019, the Illinois Supreme Court struck down the City of Chicago’s tax on other tobacco products including smoking and smokeless tobacco and cigars. The City adopted a tax on other tobacco products set to take effect July 1, 2016 at rates of $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. However, a complaint was filed in the Circuit Court of Cook County challenging the City’s authority to impose these taxes and the implementation date was deferred until the matter was resolved by the courts. The Cook County Circuit Court ruled in January 2017 that the City’s tax on other tobacco products violated a state law that prohibited home rule municipalities in Illinois from imposing a tax on other tobacco products after July 1, 1993. The City appealed in April 2017. The Illinois Appellate Court then overturned the Circuit Court decision in December 2018 as too narrow a reading of State statute. The plaintiff appealed to the Illinois Supreme Court, and the Supreme Court overturned the Appeals Court ruling and agreed with the Circuit Court decision.
Vehicle Trade-In Credit, State of Illinois – With approval of Public Act 101-0031, the State of Illinois amended the Retailers’ Occupation and Use Tax Act by changing the definition of “selling price” that is subject to Sales and Use Taxes for sales and purchases of small passenger vehicles that are traded-in. The new definition of selling price limits the value of or credit given for vehicles that are classified as small passenger motor vehicles exceeding $10,000. More simply put, prior to January 1, 2020 no sales tax was applied to small passenger motor vehicles that were traded-in. Beginning January 1, 2020, sales tax will be applied to the dollar amount of the vehicle trade-in above $10,000.
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. Currently all online retailers with or without a physical presence in Illinois that generate more than $100,000 in annual sales from Illinois customers or conduct at least 200 separate transactions per year in Illinois are required to collect the State sales tax of 6.25%. Online sellers currently are not required to collect local sales taxes. On June 28, 2019, Public Act 101-0031, the “Leveling the Playing Field for Illinois Retail Act,” was signed into Illinois law and on December 13, 2019 an amendment to the Act was signed into law in Public Act 101-0604. In an effort to eliminate the tax advantage of online sellers vs. brick-and-mortar retailers, the new law will require remote retailers without a physical presence in the state to collect both state and local sales taxes based on the delivery address beginning January 1, 2021.
The Civic Federation will be releasing its full 2020 report on selected consumer taxes in Chicago in the coming weeks.