Chicago’s Personal Property Lease Transaction Tax

The City of Chicago imposes a tax on the lease or rental of personal property within its jurisdiction. This tax also extends to nonpossessory computer leases, which cover the use of another party’s computer and software. As a source of revenue for the city, the tax is collected by the lessor from the lessee at the point of transaction. Businesses that lease property in Chicago are responsible for registering with the city, collecting the tax, and remitting it on a regular basis.

Scope of the Personal Property Lease Transaction Tax

The Chicago Personal Property Lease Transaction Tax applies to two categories of transactions. The first is the traditional lease or rental of tangible personal property used within the city. This encompasses a wide range of items, from office furniture and construction equipment to vehicles and formal wear. For the tax to apply, the lessee must use the property in Chicago, regardless of where the lease agreement is signed or where the property is delivered. The tax is calculated on the total rental charge.

A second category subject to the tax is the nonpossessory lease of a computer. This occurs when a person gains access to a provider’s computer and software to input, modify, or retrieve their own data. This provision brings many digital services under the tax’s purview, including Software-as-a-Service (SaaS), Infrastructure-as-a-Service (IaaS), and Platform-as-a-Service (PaaS). A Chicago-based customer paying a subscription fee to use a cloud-based accounting platform is an example of a taxable transaction.

The tax rate for both categories is 11% of the lease price or rental charge. The “lease price” is defined to include the base rental payment and any additional mandatory charges the lessee must pay to use the property. This can include maintenance fees, insurance charges required by the lessor, and other similar costs. If a charge is required to secure the lease, it becomes part of the taxable base amount.

The location of use is a determining factor in whether the tax applies. If tangible property is leased outside Chicago but is used in the city more than 50% of the time, the tax is applicable. For nonpossessory computer leases, the tax applies if the user is located in Chicago. This means businesses located outside of Chicago that lease tangible or digital property to customers within the city are required to collect and remit the tax.

Exempt Transactions and Lessees

The Chicago Municipal Code provides specific exemptions for certain organizations and transactions. Leases made to government bodies, whether federal, state, or local, are not subject to the tax. Qualifying charitable, religious, and educational organizations are also exempt from paying the tax on their leases.

Certain types of transactions are also exempt, regardless of who the lessee is. These include:

• Property that is leased for the purpose of being re-leased to a subsequent customer, which prevents tax pyramiding.
• The lease of “rolling stock,” such as trucks and trailers, to interstate carriers for hire, provided the property is used in interstate commerce.
• Leases where the payment is made by inserting coins or bills into a machine, like a vending machine or laundromat washer.
• The nonpossessory lease of a computer used for financial transactions, such as using an ATM to withdraw cash.
• A “de minimis” nonpossessory lease where the customer’s use of the computer is minimal and the main purpose is to passively receive information, such as stock market quotes.

An exemption exists for small businesses concerning nonpossessory computer leases. To qualify, a business must have less than $25 million in prior year gross receipts and have been in operation for less than 60 months. This exemption is specific to nonpossessory computer leases and does not apply to the lease of tangible personal property.

Lessor Registration and Calculation Requirements

Before a business can remit the tax, it must complete a business registration with the city’s Department of Finance. This process results in the issuance of a unique account number and a Business Tax Registration number, necessary for all subsequent tax filings and correspondence. This registration can be completed online through the city’s business portal.

The designated document for reporting and paying the tax is Form 7550, the Personal Property Lease Transaction Tax Return. Blank copies of Form 7550 and its instructions can be downloaded from the City of Chicago’s website. It is important to use the most current version of the form.

Completing Form 7550 requires a systematic calculation. A lessor must first determine its total gross receipts from all lease transactions during the reporting period. From this total, the business subtracts receipts from exempt transactions, such as leases to government agencies or qualifying re-leases, to yield the net taxable receipts.

The final step is to apply the tax rate to the net taxable receipts. This represents the total tax that must be remitted. The form requires the lessor to report gross receipts, exempt receipts, net taxable receipts, and the final tax amount. Accurate record-keeping throughout the month is necessary to ensure these calculations are correct.

Filing and Remitting the Tax

Once the tax return is completed, the business must file it and remit the collected tax to the Chicago Department of Finance. The primary method for submission is through the city’s online tax portal. This system allows businesses to input their figures directly and make a payment via electronic check or other digital payment methods. The online portal provides an immediate confirmation receipt.

For those unable to use the online portal, a paper filing option is available. A physical copy of the completed Form 7550 must be mailed with a check or money order for the total tax due, made payable to the Chicago Department of Finance. It is advisable to use a mailing service that provides tracking to ensure the submission is received by the deadline.

The deadline for filing the return and remitting the payment is the 15th day of the month that follows the reporting month. For example, taxes collected on leases during July are due by August 15th. Late filings and payments can result in penalties and interest charges assessed by the city.

Businesses should maintain a copy of the filed Form 7550 and the corresponding payment confirmation for their records. These documents are necessary for internal accounting controls and in the event of a future audit or inquiry from the Department of Finance.