The Personal Property Lease Protection Tax, or "Cloud
Tax" as it is more commonly known, was implemented this year.
However, if you'll forgive the pun, a "cloud" of
confusion still surrounds it.
Let's Break it Down, Shall We?
As stated by the City of Chicago, "the
Personal Property Lease Transaction Tax applies to businesses or
individuals that either are a lessor or lessee of personal property
used in Chicago. The tax base as of 1/1/2016: 5.25% of charges for
the non-possessory lease of a computer to input, modify or retrieve
data supplied by the customer."
If software is leased and is being used in Chicago, then it is
subject to the 5.25% tax. This means that companies using
leased software, or companies offering leased software,
are required to either pay or charge the tax, respectively.
Does My Company Have to Pay or Charge This Tax?
The biggest risk for companies to be aware of is whether they
should, in fact, be charging the tax. If your company should have
been charging this tax to its customers, but doesn't, then the
liability still rests on you to submit the tax to the City. This
could mean your company has to pay the tax out of pocket if you did
not realize it should have been collecting it all along.
This tax is only relevant if both the company and its customer
are located in Chicago.
Most Subscription-as-a-Service (SaaS) companies are licensing
their software, which qualifies as leasing in this case, so they
should be collecting this tax. Crain's gives a concise
idea of some of the companies that want to pay special
"The law applied to businesses accessing software and
data 'in the cloud' on servers provided by companies such
as Amazon Web Services, Microsoft andSales-force.com. Chicago tech
companies that provide cloud-based software and services also must
collect the tax from customers."
– John Pletz, Crain's Chicago Business
It is important to note that there are a number of companies
that fall under exemptions for both paying and/or charging the
If your company falls under one of the following categories,
then it would be exempt from paying the Cloud Tax:
Charitable, Educational & Religious Organizations; and
There are a number of exemptions to be aware of in terms of
charging the Cloud Tax, the predominant one being if the
property is leased outside the City of Chicago. In addition, after
cutting the tax to 5.25%, the City created an exemption for
start-ups less than 5 years old and with less than $25 million in
revenue. A complete list of exemptions can be found here on the City of Chicago website. If
you qualify for any of the exemptions you can fill out this form to apply
for exemption from the tax.
How to Register
If you do have to charge/pay the Cloud Tax here are some
important steps to take:
The Treasury Department's Financial Crimes Enforcement Network (FinCEN) announced an automatic six-month extension for taxpayers required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).
One of the most publicized and long-awaited business provisions contained in the Omnibus Budget Reconciliation Act of 1993, P.L. 103-66, 107 Stat. 312 (1993) (the "1993 Act") was section 197 of the Internal Revenue Code of 1986 (the "Code"), which governs the tax treatment of acquired intangible assets. However, section 197 cannot be analyzed in isolation. Since it comes into play whenever there is an allocation of consideration to an amortizable section 197 intangible, a basic understanding of
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