Chicago releases economic nexus guidance for personal property lease transaction, amusement taxes

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February 2021

Overview

The Chicago Department of Finance released an information bulletin January 21, 2021 providing guidance on the City’s nexus requirements and establishing an economic nexus safe harbor for the City’s Personal Property Lease Transaction and Amusement taxes. The information bulletin indicates that out-of-state entities with less than $100,000 of sales to customers in the City may not be required to collect these taxes as of July 1, 2021. This bulletin represents the Department’s first formal nexus guidance since the US Supreme Court’s Wayfair decision. The Department’s position is that the safe harbor protection will be limited to out-of-state entities’ obligation to collect the tax on nonpossessory computer leases or amusements delivered electronically, and only if such entities have no “other significant contacts” with the City.  City of Chicago Information Bulletin – Nexus and Safe Harbor (1/21/21)

Out-of-state businesses with more than $100,000 of sales that may be subject to the City of Chicago’s Personal Property Lease Transaction or Amusement tax should consider the bulletin a notification of Chicago’s intention to enforce economic nexus. The City’s Audit Division has indicated its willingness to attempt to enforce economic nexus back to the state of Illinois’ enactment date of October 1, 2018.

The takeaway

Effective July 1, 2021, out-of-state businesses with no physical presence in the City of Chicago and less than $100,000 of sales will not be required to collect the City’s Personal Property Lease Transaction or Amusement taxes unless they have “other significant contacts” with the City. However, given the caveats provided by the City, it remains to be seen whether this safe harbor will provide a practical limitation on the City’s enforcement of these taxes. Companies should review business activities in the City of Chicago, including sales to customers located in Chicago, and may wish to seek advice prior to engagement with the City of Chicago on issues of nexus.

Out-of-state businesses with more than $100,000 of sales within the City of Chicago for Personal Property Lease Transaction or Amusement tax purposes should consider the bulletin a notification of Chicago’s intention to enforce economic nexus in keeping with the State’s economic nexus provisions date as far back as October 1, 2018. This assertion has been made by the City, in practice, subsequent to the issuance of the bulletin. Taxpayers with these fact patterns should seek assistance to determine the best means of managing their compliance obligations with the City.

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Peter Michalowski

State and Local Tax Leader, PwC US

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