United States: Chicago City Council Approves Budget Significantly Raising Property Taxes

On October 28, 2015, the Chicago City Council approved Mayor Rahm Emanuel's spending plan and proposed revenue package for the 2016 fiscal year that runs from January 1 through December 31, 2016.1 The $7.84 billion budget provides a substantial increase in property taxes and "revenue enhancements" that include new or increased fees on rideshare providers and taxis, a solid waste removal fee, a tax on e-cigarettes and increases to numerous building permit fees.2 Also, the budget amends the city's personal property lease transaction tax and amusement tax that apply to certain cloud computing transactions.3

Property Tax Increase

In his budget proposal, Mayor Emanuel cited raising city property taxes as a "last resort" to emphasize the severity of the pension challenges the city faces.4 In a 36-14 vote, the City Council followed the lead of the Mayor and swiftly approved a historic property tax increase of $543 million that will be phased in over four years. There has been no significant increase in the Chicago property tax since 2008.5 The plan frontloads much of the revenue estimated to be generated by the city, with a planned tax increase of $318 million in 2015, $109 million in 2016, $53 million in 2017 and $63 million in 2018.6 Increased property taxes will be used to cover state-mandated increases to the pension funds of city police and firefighters.7 However, the budget does not address pension funds for municipal workers and laborers, which issue is the subject of litigation set for oral argument in the Illinois Supreme Court on November 17, 2015.8 Also included is a $45 million property tax increase which will benefit Chicago Public Schools' capital projects.9

As a means to ameliorate some of the property tax increase for lower-valued properties, Mayor Emanuel is urging the Illinois legislature to enact legislation that would expand the homeowners' exemption so that homes valued at $250,000 or less would not be subject to the property tax increase.10 However, this legislation would require action by the legislature as well as approval by the governor, an outcome that currently is uncertain on both fronts. As an alternative to state legislation, Chicago could consider fashioning a targeted rebate program in order to provide relief to low-income and senior households.

Additional Taxes and Fees

The budget includes revenue enhancements that are projected to produce over $125 million in revenue for the city.11 Under these provisions, various fees on rideshare providers and taxis are imposed or increased.12 Also, a monthly solid waste removal fee of $9.50 will be imposed on over 600,000 residents that receive waste removal collection from the city.13 Furthermore, Chicago will become the first major city in the United States to tax e-cigarettes.14 Specifically, a tax is imposed on the retail sale of liquid nicotine products in the city at a rate of $1.25 per product unit, plus an additional $.025 per fluid milliliter of consumable liquid, gel or other solution contained in the product.15 Also, numerous building permit fees have been increased.16

Cloud Computing Tax

On June 9, 2015, the Chicago Department of Finance issued two rulings that expanded the city's ability to tax cloud-based products and services.17 First, an amusement tax ruling extended the tax to electronically delivered entertainment.18 Also, a personal property lease transaction tax (lease tax) ruling extended the tax to certain specified computer products and services.19 Both tax rulings originally were effective July 1, 2015, but the Department agreed to limit the effect of the rulings to periods on and after September 1, 2015 to allow businesses sufficient time to make required system changes.20 However, on August 7, 2015, the city announced that it would postpone the effective date of the lease tax ruling from September 1, 2015 to January 1, 2016. Effective January 1, 2015, the amusement tax and lease tax both are imposed at a rate of 9 percent.21

The budget includes amendments to the lease tax.22 An exemption from the tax is provided for nonpossessory computer leases of small new businesses (those with less than $25 million in annual sales and that have been in operation for fewer than 60 months).23 Also, the tax rate is reduced from 9 percent to 5.25 percent for the nonpossessory lease of a computer primarily for the purpose of allowing a customer to use the provider's computer and software to input, modify or retrieve data or information that is supplied by the customer.24 In the case of a nonpossessory computer lease where the user accesses the provider's computer from a mobile device, the rules provided in the Illinois Mobile Telecommunications Sourcing Conformity Act25 may be used to determine which customers and charges are subject to the tax.26 If these rules indicate that the tax applies, it is presumed that the tax applies unless the contrary is established by books, records or other documentary evidence.

The amusement tax also has been amended.27 In the case of amusements that are delivered electronically to mobile devices, as in the case of video streaming, audio streaming and online games, the rules provided by the Illinois Mobile Telecommunications Sourcing Conformity Act28 may be used to determine which customers and charges are subject to the tax. Similar to the amendment to the lease tax, if these rules indicate that the tax applies, it is presumed that the tax applies unless the contrary is established by books, records or other documentary evidence.


The 2016 budget is designed to address Chicago's substantial pension liability. Although Mayor Emanuel's budget included a historic property tax hike as well as other tax and fee increases, the Chicago City Council approved the budget by a large margin due to the city's severe financial situation. The budget followed feedback received in conferences initiated by Mayor Emanuel with city aldermen and residents as well as three town hall meetings held throughout August and September. As a result of the large pension liabilities, credit agencies have reduced the ratings of Chicago's bonds. This increases the interest that must be paid when Chicago borrows money. Due to the fact that the state of Illinois also has its own substantial unfunded pension liability and has been operating without a budget since July 1, 2015, Chicago is unlikely to receive any assistance from the state.

The cloud computing taxes have received considerable attention as well as criticism from the business community. As noted above, the lease transaction tax on cloud computing transactions was previously delayed to January 1, 2016. The amendments made to the lease transaction tax provide some relief by exempting small new businesses and lowering the tax rate for data provided by the customer. Also, the amendments to the sourcing provisions of both the amusement and lease taxes conform to the rulings issued by the Department of Finance. The amendment to the amusement tax also is designed to conform the municipal code to the ruling by specifically referencing video streaming, audio streaming and online games. Undoubtedly, further guidance will be issued concerning the imposition of these taxes to cloud computing transactions.


1 City of Chicago 2016 Budget Overview, Chicago Mayor Rahm Emanuel.

2 Chicago Ordinance SO2015-7403, approved by Mayor Rahm Emanuel on Nov. 2, 2015.

3 Id.

4 Chicago Mayor Rahm Emanuel's 2016 Budget Address, Sep. 22, 2015.

5 City of Chicago FY 2016 Proposed Budget: Analysis and Recommendations, Civic Federation, p. 7. However, the Civic Federation notes that the city has increased the tax to widen its umbrella to cover expiring tax increment financing (TIF) and new property since FY 2011.

6 Chicago Mayor Rahm Emanuel's 2016 Budget Address, Sep. 22, 2015.

7 See Public Act 96-1495 (2010).

8 Jones v. Municipal Employees' Annuity and Benefit Fund of Chicago, Illinois Supreme Court, Nos. 119618, 119620, 119638, 119639, 119644.

9 Chicago Board of Education Resolution 15-0826-RS4; Chicago Ordinance SO2015-7403, Art. X, § 1.

10 Chicago Mayor Rahm Emanuel's 2016 Budget Address, Sep. 22, 2015.

11 City of Chicago 2016 Budget Overview, p. 17; Chicago Ordinance SO2015-7403.

12 City of Chicago 2016 Budget Overview, p. 25; Chicago Mun. Code §§ 3-46-020; 3-46-030; 3-46- 065; 9-112-150; 9-112-230; 9-112-430; 9-112-600; 9-115-140.

13 City of Chicago 2016 Budget Overview, p. 27; Chicago Mayor Rahm Emanuel's 2016 Budget Address, Sep. 22, 2015; Chicago Mun. Code § 7-28-235.

14 City of Chicago 2016 Budget Overview, p. 12; Chicago Mun. Code §§ 3-47-010--3-47-150.

15 Chicago Mun. Code § 3-47-030.

16 Chicago Mun. Code §§ 13-32-300; 13-32-310.

17 For further discussion of these taxes, see GT SALT Alert: Chicago Department of Finance Addresses Sales Taxation of Cloud Computing Transactions.

18 Amusement Tax Ruling #5, City of Chicago Department of Finance, June 9, 2015.

19 Personal Property Lease Transaction Tax Ruling #12, City of Chicago Department of Finance, June 9, 2015.

20 However, this does not release or otherwise affect the liability of any business that failed to comply with existing law prior to July 1, 2015.

21 On November 19, 2014, the City of Chicago raised the rate of the amusement tax and lease tax from 8 percent to 9 percent effective January 1, 2015. Chicago Mun. Code §§ 3-32-030(B); 4-156- 020(A).

22 Ordinance SO2015-7403.

23 Chicago Mun. Code § 3-32-050(A)(13).

24 Chicago Mun. Code § 3-32-030(B)(1).

25 35 ILL. COMP. STAT. 638.

26 Chicago Mun. Code § 3-32-020(I).

27 Chicago Mun. Code § 4-156-020(G)(1).

28 35 ILL. COMP. STAT. 638.

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