Illinois Court Rules Against Chicago Rental Vehicle Tax

- The Illinois Supreme Court has determined that a Chicago city tax violated the state constitution’s provision against extraterritoriality, and was outside the city’s home-rule powers.  

Chicago imposed a tax on the use of rental property, including vehicles, that applied both to property rented inside Chicago and to property rented from a location outside the city but used inside it. Under a rule issued by the city, Chicago applied its tax to all vehicles rented to a city resident from a location within three miles outside the city line and required rental agencies within that border to collect the tax from Chicagoans or get written proof that the vehicle wouldn’t be used primarily in the city. In turn, the city didn’t audit rental locations more than three miles outside city limits.  

Rental companies argued the rule violated several provisions of the U.S. Constitution as well as the home-rule charter under which the city imposed its tax. The court found that the tax involved extraterritoriality. As applied to the rental locations in question, the tax was based not on use of property inside the city, but on the lessee’s stated intent to use it there, or on the lessee’s silence in that regard, if they had not checked the right box on the rental agreement. Since the leases at issue were admittedly concluded entirely outside the city, the tax was beyond the powers of the city to levy.

Find the full court decision online here.

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