Effective April 1, 2013, Cook County, Illinois will impose a 1.25 percent use tax on any individual or company based on the value of non-titled tangible personal property acquired from sellers located outside Cook County, when the property is first subject to use in Cook County.1 As discussed below, there are a number of significant statutory and constitutional issues that have been triggered by the enactment of this new tax.

The Ordinance

On November 9, 2012, the Cook County Board of Commissioners passed the use tax ordinance as a component of its budget for fiscal year 2013. In passing the ordinance, the Board justified the ordinance as a means to close purported "tax loopholes" and to incentivize the purchase of non-titled property within the county for use within the county.2

Pursuant to the ordinance, beginning April 1, the use tax will be imposed "upon the privilege of using in the county non-titled personal property which was purchased outside of the county."3 This tax will apply at a rate of 1.25 percent of the non-titled property's value when it is first used within the county.4 Non-titled property purchased outside the county, and delivered to a location within the county, will be presumed to be first used in the county on the date of delivery.5

The purchaser or user of the property is liable for remittance of the tax.6 Sellers are not required to collect and remit the tax on a purchaser or user's behalf.7

Registration Requirement and Filing Returns

Every person in Cook County who, in the course of business, acquires non-titled property from outside the county will be required to register with Cook County's Department of Revenue to remit the tax. There is no explicit requirement for individual residents who are not engaged in business to do so.8 The procedure for registration is to be set forth in rules promulgated by the Department.

Returns are required to be filed on or before the 20th day of each month, remitting tax due on any transaction that occurred in the immediately preceding month.9 The form and precise filing procedures are to be promulgated by the Department.

Annual Tax Credit

A credit will be available for the first non-titled property valued at $3,500 at the time of first use within the county, which is applied against the taxpayer's aggregate county use tax liability for the taxable year.10 As a result of the credit and practical problems associated with tracking purchases made outside the county, it is unlikely that many individual residents will register and pay the tax.

Exemptions

The ordinance exempts food for human consumption that is consumed off the premises where it is sold (i.e. groceries) as well as medicines, drugs, and medical appliances used by public-aid recipients in nursing homes; and insulin, urine testing materials, syringes, and needles used by diabetics.11 In addition, non-titled property that is exempt from the Illinois use tax is also exempt from the Cook County use tax "to the extent that the exemptions contained therein are not inconsistent with the provisions of this article."12

The ordinance also provides that the use tax does not apply to certain "uses" within the county, such as the temporary use of non-titled property by a non-resident who is merely passing through the county, and the temporary storage of non-titled property that is destined for use solely outside the county.13 Moreover, the tax does not apply to non-titled property used by a non-resident individual or business that uses the property in the course of business and relocates to the county, or opens an office, plant or other facility in the county, if the property has been used for at least three months outside the county prior to being brought into the county.14 Rolling stock moving in interstate commerce and used by interstate carriers for hire is also exempt.15

Commentary

While Cook County appears to be following Chicago's enactment of a use tax on non-titled property,16 the Illinois legislature has not granted Cook County the authority to impose a use tax.17 First, it is arguable that on its face, the tax violates both the state constitution and laws. The Illinois legislature, pursuant to its power under the state constitution,18 expressly prohibits Cook County or a "home rule county"19 from imposing a use tax or other tax on the use, sale or purchase of non-titled tangible personal property "based on the gross receipts from such sales or the selling or purchase price of said tangible personal property." The county may try to support its ordinance by arguing that the use tax is not "based on the gross receipts from . . . the selling or purchase price" but rather a tax that applies to the "value" of the property when it is first used within the county. In reality though, the "value" of newly purchased property is the same as the selling or purchase price of the property, making the county's reliance on the contention that the new tax is a tax on value somewhat suspect. Even if the tax is not considered a tax on the selling or purchase price of the item, the Illinois Constitution prohibits the imposition of an "ad valorem personal property tax" or a tax based on value.20

In addition, application of the tax could be deemed to impermissibly discriminate against interstate commerce in violation of the Commerce Clause of the U.S. Constitution. This is due to the fact that the county's new use tax rate exceeds the rate of the corresponding sales tax,21 which, in effect, gives preferential treatment to a Cook County-based vendor versus a vendor located outside the county or state.22 A Cook County purchaser making a purchase of non-titled property from the Cook County-based vendor would pay the reduced sales tax rate, whereas a Cook County purchaser making a purchase of non-titled property from the out-of-state vendor would pay the higher use tax rate.

At this point, there are many unanswered questions concerning the administration of the new tax. For example, the ordinance does not indicate when people are required to register. Also, it is not clear whether taxpayers are required to register and file monthly returns beginning April 1 to document the annual tax credit or they should wait until they reach the full credit amount and then register. The Cook County use tax appears to require monthly reporting, but the Chicago use tax only requires annual reporting. Thus, until the county issues guidelines and rules (and no date for release of such guidance has been indicated), there is considerable uncertainty regarding how the tax will be administered.

Footnotes

1 Cook County Ordinance 12-O-63, enacted Nov. 9, 2012. This is entitled the Cook County Use of Non-Titled Personal Property Tax Ordinance and enacted as Cook County Code §§ 74-650–74-662.

2 Cook County Ordinance 12-O-63 provides "there has appeared a widening tax loophole through which persons in Cook County are in a position to purposely avoid the sales tax associated with the acquisition of non-titled personal property for use within Cook County . . .."

3 Cook County Code § 74-652. "Non-titled personal property" means "tangible personal property, as set forth in the Illinois Use Tax Act, other than tangible personal property that is registered or titled with an agency of the State." Cook County Code § 74-651.

4 "Value" is defined as "an accurate assessment or evaluation of a non-titled personal property's worth when first subject to use in the county." Cook County Code § 74-651.

5 Cook County Code § 74-652(c).

6 Cook County Code § 74-652(b).

7 Because the tax is on purchases from retailers located outside the county, the county would have no authority to attempt to mandate collection from any sellers.

8 Cook County Code § 74-653.

9 Cook County Code § 74-657.

10 Cook County Code § 74-654.

11 Cook County Code § 74-655. Note that the following items are taxable: alcoholic beverages, soft drinks, and food which has been prepared for immediate consumption within the county.

12 Cook County Code § 74-655(a). Note that it is not clear what may qualify as exempt from Illinois use tax that is specifically taxed pursuant to this ordinance.

13 Cook County Code § 74-656.

14 Cook County Code § 74-656(h). For example, a company with locations in DuPage County and Cook County could not avoid the tax by buying office furniture, using the furniture in DuPage County for three months and then moving the furniture for use in the Cook County location. The company would be required to pay the tax because it has not relocated or opened a new office.

15 Cook County Code § 74-656(b), (c).

16 Chicago Mun. Code §§ 3-27-010–3-27-120.

17 Analysis of Proposed Cook County Use of Non-Titled Personal Property Tax Ordinance, Taxpayers' Federal of Illinois, Oct. 2012.

18 Illinois Constitution, Article VII, § 6(g) states that "[t]he General Assembly . . . may deny or limit the power to tax and any other power or function of a home rule unit not exercised or performed by the State . . .."

19 Cook County is the only county deemed a "home rule county" by the Illinois Constitution's definition.

20 Illinois Constitution, Article IX, § 5(c) reads, "[o]n or before January 1, 1979, the General Assembly by law shall abolish all ad valorem personal property taxes . . .."

21 Cook County's retailer's occupation tax (sales tax) is 0.75 percent whereas the use tax on non-titled property will be 1.25 percent.

22 Missouri imposed a uniform statewide use tax, but local jurisdictions imposed local sales taxes at rates that widely varied. In many jurisdictions, the use tax exceeded the sales tax. The U.S. Supreme Court held that Missouri's sales and use tax scheme violated the Commerce Clause of the U.S. Constitution in localities where the use tax exceeded the sales tax. Associated Industries v. Lohman, 511 U.S. 641 (1994).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.