Posts from: March 2015

Reminder: City of Chicago Personal Property Lease Transaction Tax Increase

The City of Chicago municipal ordinance imposes a tax on the lease or rental of certain personal property used in the City of Chicago. As of January 1, 2015, the personal property lease transaction tax rate increased to 9% of receipts or charges (up from 8%). The liability for payment of the tax is on the lessee, while the duty to remit the tax to the City is on the lessor.

Personal property subject to the tax includes all property, other than real property, including, but not limited to, motor and other vehicles, construction equipment, household and office equipment, clothing, computing and electronic equipment, sporting and gaming equipment, and lease time on equipment not otherwise itself rented.

The ordinance sets forth certain exemptions to the personal property lease transaction tax. Governmental, charitable, educations, and religious organizations are exempt from the tax.  Additionally, there are twelve types of exempt leases:

  1. Property leased outside the City that is primarily used outside the City;
  2. Property that is leased from a party subject to the City’s occupation taxes;
  3. Leases of “rolling stock” in interstate commerce by an interstate carrier for hire;
  4. Leases of property where the rental price is paid by inserting one or more coins or bills of U.S. currency into an attached mechanism;
  5. Leases of medical equipment or appliances for the purpose of correcting or treating parts of his or her own body;
  6. The lease of a ground transportation vehicle if the lessor is subject to the ground transportation tax;
  7. Leases of property where the lessor and lessee are members of the same related group. “Related” means companies under a parent corporation/person that owns 100% of the voting stock of subsidiaries either directly or indirectly;
  8. Leases by a membership organization to a member of such membership organization;
  9. The nonpossessory lease of computers involving clearing of stock transactions ;
  10. The nonpossessory lease of a computer used to deposit, withdraw, transfer, or lend money or securities (i.e., ATM machines, banking transactions);
  11. The nonpossessory computer lease in which the customer’s use or control of the computer is de minimis and the related charge is predominantly for information transferred (i.e., the nonpossessory lease of a computer to receive current price quotations); and
  12. Lease of motion picture film by theaters (which are subject to the City Amusement Tax).

If your business involves the lease or rental of personal property used in the City of Chicago it is important to know whether your business transactions are subject to the personal property lease transaction tax. The City of Chicago Department of Finance can impose fines and penalties on individuals and businesses that fail to pay the required tax.

If you have any questions or concerns regarding this issue, please contact:

Kristen E. O’Neill at:

(312) 368-0100 or koneill@lgattorneys.com.

Addressing Real Estate Tax Issues Involved in Recently Constructed Property

With increasing real estate development activity, many owners and lenders of recently developed properties are experiencing problems ensuring the correct payment of real estate tax bills during the first year or two after the completion of construction.  In many cases, owners are discovering a couple of years after they have purchased newly constructed property that adequate arrangements were not made to address the complexities of allocating responsibility for pre-construction and initial post-construction tax bills.  This can become quite problematic when undivided tax bills cover parcels owned by multiple owners.

The problem is the result of an incongruity in the time line for the creation of tax parcels for a new project and Illinois practice of paying tax bills in arrears (i.e., tax bills paid in 2015 are for the 2014 tax year).  In the case of newly developed property, this could mean that the tax bills payable in the calendar year after construction is completed could still relate to the property as it existed before construction.

To further complicate matters, if the redeveloped property results in a new ownership structure which does not match the pre-development ownership structure, the old tax bills will not correspond with the new ownership structure.  For example, if a parcel of land which constitutes a single tax parcel (that generates a single tax bill) is redeveloped with two buildings that are sold to separate owners, then the new owners will face a single, undivided tax bill covering both buildings.  Until the County Assessor creates separate tax parcels covering each of the newly constructed buildings, the owners would need to cooperate to cause the combined tax bill to be paid each year.  This situation would lead to all manner of problems because it would not be immediately clear what portion of the tax bill would be attributable to each of the properties.  Furthermore, if one of the owners refused to pay his proportionate share, the other owner might be faced with paying the entire bill to avoiding having the undivided tax bill become delinquent.

Unfortunately, the time line for creating new tax parcels does not correspond with the with the payment dates for real estate tax bills.  For example, an application for a tax division (i.e., the procedure for creating new tax parcels) in Cook County, Illinois is filed a year in advance, meaning a division filed in 2015 will result in new tax parcels in 2016 which will not be payable until 2017.  If the division (other than condominium properties) isn’t filed before the October 31st filing deadline, a division filed in November or December 2015 will result in new tax parcels in 2017 and initial tax bills payable in 2018.

In light of the foregoing, a prudent purchaser of newly developed real estate will need to make certain that adequate provisions have been made to assure the owner that (i) a new division will take place, (ii) that sufficient funds have been collected or will be available from the seller post-closing to pay the seller’s share of the undivided tax bill for the year of closing and any prior years, and (iii) sufficient steps have been taken or are available to protect the purchaser with respect to the payment of undivided tax bills in the periods occurring prior to the issuance of separate, divided tax bills.  Without taking adequate steps to protect themselves, many property owners may be faced with significant real estate tax problems years after the initial construction of their properties.  Thankfully, with some planning, these issues can be avoided.

For further information regarding the real estate tax issues involved in recently constructed property, the procedures which may be employed to address these issues and real estate development and related issues in general, please contact:

Jeffrey M. Galkin at:

jgalkin@lgattorneys.com or 312-368-0100.

The Illinois Independent Tax Tribunal: A New Forum for Certain Tax Protests

For years, Illinois taxpayers have been complaining about the Illinois Department of Revenue’s (the “Department”) handling of tax disputes. Complaints ranged from long delays in the Department’s administrative process to taxpayers not feeling like they were properly heard or their disputes fairly considered. Well, the Illinois General Assembly answered taxpayer’s calls in its creation of a new administrative forum, separate and apart from the Department, to handle certain types of tax disputes called the Illinois Independent Tax Tribunal (the “Tribunal”). The Tribunal’s self-proclaimed purpose is, among other things, “to increase public confidence in the fairness of the State tax system.” See 35 ILCS 1010/1-5(a).

In most cases, the Tribunal only has jurisdiction over protests filed after January 1, 2014. Any protests filed prior to January 1, 2014 continue with the Department. Typically, the Tribunal only has jurisdiction over protests if the amount of the tax liability exceeds $15,000, exclusive of penalty and interest. In situations where there is no additional tax liability assessed, but the total penalties or interest or both exceed $15,000, the Tribunal has jurisdiction.

Only certain types of tax protests may be heard by the Tribunal. These include tax liability under the:
• Illinois Income Tax Act
• Tobacco Products Tax Act of 1995
• Motor Fuel Tax Law
• Cigarette Tax Act
• Hotel Operators’ Occupation Tax Act

Other types of tax protests do not fall within the jurisdiction of the Tribunal. These include tax liability under the:
• Charitable Games Tax
• Cigarette Machine Operators’ Occupation Tax
• County Motor Fuel Tax
• Private Party Vehicle Use Tax
• Real Estate Transfer Tax

The Tribunal maintains its principal offices in both Sangamon County and Cook County, Illinois. A protest must be filed within the time permitted by statute and in the form prescribed by the Tribunal (which is similar to a complaint filed in state court). The Department is required to answer, in writing, within 30 days after a protest is filed. The Tribunal charges a $500 fee for the filing of a petition and the discovery process is governed by the Illinois Supreme Court Rules and the Illinois Code of Civil Procedure. Following the completion of discovery, a hearing will be held before an administrative law judge, independent of the Department, and the Tribunal will issue its decision in writing no later than 90 days after the completion of the hearing.

To discuss a tax dispute you have with the Illinois Department of Revenue, please contact:

Jonathan M. Weis at:

jweis@lgattorneys.com or 312-368-0100

or

Dean J. Tatooles at:

dtatooles@lgattorneys.com or 312-368-0100

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