Supreme Court Shuts Down Chicago’s Bullish Tax on Car Rentalskeys

Up to now, Chicago mandated that car rental companies in nearby suburbs like Oak Lawn, Cicero, and Burbank collect a tax for the city of Chicago. The Illinois Supreme Court ruled this tax unconstitutional. That’s right, unconstitutional!

The city collects tax on cars rented within its city limits. Recently, though (in 2011), Chicago was allowed to charge the same 8% tax (now 9%) upon its city residents if they rented cars from companies located anywhere within 3 miles of the city’s limits.

Some larger suburbs were never affected. Rental companies in suburban cities like Naperville, which is located 32 miles from Chicago’s city center, and Joliet, at 45 miles from the Chicago loop, were just too far away to be considered for the tax.

chicagoflagChicago’s justification was that, unless proven otherwise, the city assumed the vehicle would be used more than half of the time actually within Chicago. An appeals-level court supported the argument, rationing that the city has the authority to tax cars rented by city residents within 3 miles of the city’s border. The appellate court allowed this assumption that the car would be used primarily within the city. The lower court said Chicago was justified, partly because any resident renting the vehicle use the city’s roads and/or police.

But the counter-argument was that because of Chicago land’s size, the number of suburbs, and local politics if any nearby town tried to impose tax the same way, there could be a completely chaotic situation.

vThe Illinois Supreme Court gave a better analysis. It said: “The fact is that, at the time of the lease transaction, the use of the leased vehicle has not taken place and may never take place within Chicago’s borders.” And therefore, it overruled the tax.
This was one example of how a large tax authority (like the City of Chicago, even the Internal Revenue Service) can be brought to justice over unfair tax collection. Chicago’s tax, imposed as a requirement on suburban companies, was defeated when those companies stood against the city.

Sometimes, in order to reach tax resolution, you just have to get your case in front of the Court. Sometimes, you just have to stand up and fight. If you are searching for a tax attorney who may be able to help you reach a tax resolution, be sure to contact our offices today.

Adapted from an article by