January 5, 2017
Annually the Civic Federation releases a report on consumer taxes in the City of Chicago. Consumer taxes are charges for the consumption of goods or services and can be charged directly to consumers through retail transactions or passed onto consumers by businesses. This blog highlights the new consumer taxes that have been approved in the past year which go into effect in 2017, as well as changes to several taxes that were approved in 2016.
New Taxes Approved in 2016:
The following four taxes were newly added by the City of Chicago and Cook County in 2016. They are listed in order of their effective date.
Home Share Tax, City of Chicago – On June 22, 2016 the Chicago City Council approved a shared housing ordinance that included a 4.0% tax on the gross rental charge of vacation rentals or shared housing units in the City of Chicago, in addition to the 4.5% hotel operators’ tax already imposed on shared housing under the City’s home rule authority. The total effective composite hotel tax in Chicago is 17.4% and includes State of Illinois, City of Chicago, Illinois Sports Facilities Authority, Metropolitan Pier and Exposition Authority and Cook County tax rates. The stated purpose of this home share tax was to fund supportive services and housing for the homeless. The tax does not apply to bed and breakfasts, hospitals, non-profit medical institutions or rental accommodations that are considered to be the permanent residence of the occupant.
The new home share surcharge went into effect on July 1, 2016. Several other provisions of the ordinance were set to take effect on December 17, 2016. However, two lawsuits challenging several new home sharing regulations in the ordinance were filed against the City in November in the Cook County Circuit Court and the U.S. District Court for the Northern District of Illinois. Following the U.S. District Court challenge, the parties to the case agreed to the City pushing back implementation of some of the regulations to February 28, 2017.
Water and Sewer 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 January 1, 2017, in addition to the regular water-sewer rate charged on Chicago residents’ water and sewer bills, the City will charge a tax of $0.59 per 1,000 gallons used, increasing over a period of four years to $2.51 per 1,000 gallons in 2020.
Checkout Bag Tax, City of Chicago – The City of Chicago previously passed an ordinance prohibiting the use of certain checkout bags by retailers. However, the ordinance caused unintended consequences, such as the retailers offering a thicker plastic checkout bag. As part of the FY2017 budget approval process, the City of Chicago passed an ordinance imposing a $0.07 tax on the sale and use of both paper and plastic checkout bags at all retailers in the City of Chicago. The City will collect $0.05 of the tax and the retailer will keep the remaining $0.02 of the tax per bag. This ordinance was originally scheduled to begin January 1, 2017, but has since been postponed to February 1, 2017 to allow retailers and distributors additional time to comply.
Sweetened Beverage Tax, Cook County – On November 10, 2016, the Cook County Board of Commissioners voted to approve a new County tax on sweetened beverages that charges one cent per ounce purchased. The tax will go into effect on July 1, 2017 and will apply to both fountain and bottled beverages containing real or artificial sweetener.
Recent Changes to Consumer Taxes:
The following consumer taxes have undergone changes within the last year.
Amusement Tax, City of Chicago and Cook County – The City of Chicago made changes to the way ticket resales are taxed in fall 2016. Previously, the amusement tax on ticket resales applied to the price of the mark-up. As part of its FY2017 budget process, the City simplified the ticket resale tax to a flat rate of 3.5% of the full resale price, regardless of the mark-up. The City also clarified the application of the amusement tax related to satellite TV, requiring Chicago businesses, including bars and restaurants that subscribe to and use satellite TV, to pay the 9.0% amusement tax. In addition, Cook County amended its amusement tax ordinance on October 26, 2016 by clarifying that live musical performances, including certain DJ performances, in venues with a capacity of 750 or less are exempt from paying the Cook County amusement tax.
Compassionate Use of Medical Cannabis, State of Illinois – In August 2013, the Illinois General Assembly passed and then-Governor Quinn signed into law Public Act 98-0122 (the Compassionate Use of Medical Cannabis Pilot Program Act), which went into effect on January 1, 2015. On December 10, 2014 the Chicago City Council passed Substitute Ordinance 2014-8106, which enacted certain regulations related to medical cannabis cultivation centers and dispensing facilities in the City of Chicago. In June 2016, the Illinois General Assembly amended and Governor Rauner extended the Pilot Program for an additional two-and-a-half years under Public Act 99-0519 to be in effect until July 1, 2020. The first medical marijuana dispensary opened in the City of Chicago in mid-2016. The sale of medical marijuana products by licensed medical marijuana dispensaries is taxed at a rate of 1.0%.
Female Hygiene Product Tax Exemption, City of Chicago, Cook County and State of Illinois – Beginning in 2009, personal grooming and hygiene products that were previously taxed at the reduced 1.0% food and drugs sales tax became subject to the full sales tax on general merchandise, which is now 10.25% in Chicago. As such, in addition to shampoo, soap and antiperspirant, certain female hygiene products were subject to the full 10.25% sales tax rate. However, in 2016 the State of Illinois, Cook County and the City of Chicago all approved legislation that made tampons, menstrual pads and menstrual cups exempt from the full sales tax. The sales tax exemption for these products became effective January 1, 2017.
Ground Transportation Tax, City of Chicago – On June 22, 2016 the Chicago City Council changed the tax on rideshare trips through an ordinance that eliminated the classification between Class A and Class B rideshare drivers. Previously, Class A rideshare vehicles, or those in operation for fewer than 20 hours per week on average, were charged $0.40 per ride and Class B vehicles, or those in operation for more than 20 hours per week on average, were charged $0.80 per ride. The elimination of the rideshare driver classification effectively reduced the Class B surcharge to $0.40 per ride. Currently the tax for any rideshare trip is $0.40, or $5.40 for rides that include a pick-up or drop-off at O’Hare Airport, Midway Airport, McCormick Place or Navy Pier.