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Monday, December 16, 2019

IL Supreme Court to decide if Chicago can slap use tax on cars rented just outside city limits

By Jonathan Bilyk | Jan 20, 2016


The Illinois Supreme Court will decide whether the city of Chicago needs to garage its controversial tax on cars rented from businesses located outside the city, but within three miles of Chicago city limits.

On Wednesday, Jan. 20, the state high court announced it would hear arguments in the lawsuit brought against City Hall by auto rental companies Hertz and Enterprise, who challenged the tax as an illegal extension of the city’s authority.

The city has collected the so-called use tax on all car rentals in the city since 1990. However, the city in more recent years extended the collection of the tax on rented vehicles to include vehicles rented at outlets within a three-mile radius of the city. In 2011, the Chicago Revenue Department issued a ruling clarifying the tax extension would apply to city residents who the city believes would use the rented vehicles primarily within the city of Chicago. The ruling has applied solely to rental car companies with locations in the city, as well as within the three-mile radius of city limits. The ruling granted exemptions to people using the rental cars outside the city for more than half the rental period. However, the ruling allows city auditors to presume the car was used primarily within city limits, unless car rental companies can provide written proof to the contrary.

Hertz challenged the tax in 2010, and Enterprise followed in 2011. The companies have argued the Revenue Department’s ruling amounted to “an extraterritorial exercise of Chicago’s home rule authority,” violating the scope of the ordinance and the U.S. Constitution’s due process and commerce clauses. They have asserted the tax is an illegal transaction tax disguised as a use tax.

In Cook County court, Associate Judge Daniel T. Gillepsie sided with the rental companies, finding the tax unconstitutional.

However, the city appealed, and in September 2015, a panel of justices of the Illinois First District Appellate Court reversed the circuit court decision, saying they believe the tax holds up under constitutional scrutiny as a tax on use, rather than on the rental transaction itself.

“The use tax operates as a tariff protecting city revenue by taking from city residents the advantage of resorting to a nearby suburban location of a national rental agency to lease a vehicle in order to avoid a use tax otherwise imposed were the vehicle leased within the city itself,” wrote Justice Daniel J. Pierce, who authored the appellate opinion.

Since the city has intended the tax to apply only to Chicago residents using rental cars in the city, it has passed constitutional muster, the justices said.

The Supreme Court has not yet set a date for arguments in the case. The court’s next scheduled term in which it could hear the case is in March, though circumstances may compel the court to push its hearing on the matter to another term later this year.

The case was among 11, including seven civil cases, in which the court granted petitions to litigants requesting the state Supreme Court hear an appeal. The court denied 203 appeals outright, including 74 civil cases, while denying an additional 26, including one civil case, with a supervisory order.

Other civil cases in which the state Supreme Court granted leave to appeal included:

William Bremer vs. the city of Rockford, two consolidated cases, Nos. 119889 and 119912 (Second District)

Scott Bueker, et. al., vs. Madison County, etc., et. al., No. 120024 (Fifth District)

Jagoda Trzop, et. al., vs. Anna M. Hudson, etc., two consolidated cases, Nos. 120034 and 120051 (First District).

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Illinois Supreme CourtCity of Chicago