January 11, 2021
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 changes that several consumer taxes have undergone since the Civic Federation’s 2020 consumer taxes report was released in February 2020.
For a summary of tax changes that went into effect last year, see the Civic Federation’s 2020 blog post on consumer taxes.
The following taxes have undergone changes effective January 1, 2021.
Motor Fuel Tax – Effective January 1, 2021, the composite tax for gasoline in Chicago is $0.72 per gallon and $0.83 per gallon of diesel, an increase of 3 cents from the prior year. The composite tax includes rates charged by the State of Illinois, City of Chicago, Cook County and the federal government. As part of its FY2021 budget, the City of Chicago increased its home rule tax on motor fuel, called the vehicle fuel tax, from $0.05 to $0.08 per gallon. The State of Illinois had previously increased the motor fuel tax by $0.19 per gallon of gasoline to $0.38 cents per gallon and from $0.215 to $0.455 per gallon of diesel fuel, effective July 1, 2019. The State tax rate on motor fuel is scheduled to increase annually every July 1 by an amount equal to the Consumer Price Index percentage increase. From July 1, 2020 through June 30, 2021 the State’s tax rate is $0.387 per gallon of gasoline and $0.462 per gallon of diesel.
Personal Property Lease Transaction Tax – With the passage of the City of Chicago’s FY2021 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.
Prepaid Emergency Telephone System Surcharge – Effective January 1, 2021, the City of Chicago’s 9.0% tax on prepaid wireless service transactions was reduced to 7.0% per a sunset provision included in the State statute passed in 2017. The City of Chicago levies a tax (surcharge) for 911 emergency services at a rate of $5.00 per month for each network connection and wireless number or 7.0% on prepaid wireless service. The purpose of the surcharge is to fund the maintenance and operations of the City’s emergency 911 system. The 911 surcharge on prepaid wireless service has been in effect since January 1, 2012. The rate for prepaid wireless phones increased on September 1, 2014 from 7.0% to 9.0% per retail transaction. However, effective January 1, 2021, the 9.0% tax on prepaid wireless transactions in Chicago was reduced to 7.0%.
Additionally, the following updates have taken place during 2020 since the release of the Civic Federation’s previous annual consumer taxes report.
Sales Tax – Beginning January 1, 2021, remote retailers, including those online, are subject to both state and local retailers’ occupation taxes (sales taxes) based on the delivery address or where possession is taken by the purchaser, regardless of the location of the seller. Sales made by marketplace facilitators like Amazon on behalf of independent marketplace sellers are also based on destination. The sourcing for marketplace facilitators for their own marketplace sales are more complicated, but will also require collection of both State and local sales taxes. Therefore, both the City of Chicago and Cook County will begin collecting sales tax revenue in 2021 based on remote retail transactions.
Prior to January 1, 2021, only state use taxes were required to be collected by such retailers. Following a June 21, 2018 U.S. Supreme Court decision in South Dakota v. Wayfair, remote retailers were required to collect State use tax on products purchased by Illinois residents, even if the retailer does not have a physical presence in the State of Illinois. 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 create more equity between remote sellers and local brick-and-mortar retailers, the new law requires remote sellers without a physical presence in the state and marketplace facilitators (e.g., Amazon and Walmart) to collect both state and local sales taxes effective January 1, 2021.
Amusement Tax – An Illinois Supreme Court action in March 2020 upheld the applicability of the City of Chicago’s 9.0% amusement tax to electronically delivered entertainment (i.e., streaming services). The City issued a ruling on June 9, 2015, Amusement Tax Ruling #5, which stated that the City’s amusement tax applies to charges paid for electronically delivered television shows, movies or videos (e.g., Netflix); electronically delivered music (e.g., Spotify); and games delivered on-line or otherwise. The ruling went into effect on September 1, 2015 and the City amended its Amusement Tax ordinance to incorporate the basic terms of the ruling. A lawsuit filed in Cook County Circuit Court, Labell v. City of Chicago, challenged Amusement Tax Ruling #5. A decision issued by Cook County Circuit Court on May 24, 2018 upheld the City’s interpretation of the amusement tax and dismissed the case. A notice of appeal was filed by the plaintiffs on June 21, 2018 and on September 30, 2019, the Illinois Appellate Court affirmed the Circuit Court’s ruling. On December 20, 2019 the plaintiffs filed a petition asking the Illinois Supreme Court to hear the case. On March 25, 2020, the Illinois Supreme Court declined to review the case, affirming the lower court’s ruling on the City’s Tax Ruling #5 to apply the amusement tax to electronically delivered media and entertainment technology products.
Cannabis Tax – Beginning on July 1, 2020, municipalities and counties were able to start collecting Cannabis Retailers’ Occupation Tax on recreational cannabis sales. Cook County and the City of Chicago both began collecting cannabis tax at a rate of 3.0% each. The highest possible composite cannabis tax rate for recreational cannabis sales in the City of Chicago is now 31.0%, which includes a 25% State cannabis excise tax for cannabis with a THC level above 35%, the 3.0% City of Chicago cannabis retailers’ occupation tax and the 3.0% Cook County cannabis retailers’ occupation tax. Additionally, recreational cannabis purchases are subject to general sales tax, which is 10.25% in Chicago. Therefore, the highest possible total tax paid on a cannabis purchase in the City of Chicago would be 41.25%.
The Civic Federation will be releasing its full 2021 report on selected consumer taxes in Chicago in the coming weeks.