In November 2012, the Cook County Board of Commissioners created a Non-Titled Personal Property Use Tax in order to help close a budget gap and discourage Cook County, Illinois, residents from shopping in neighboring counties with a lower rate of sales tax. On April 1, 2013, Cook County began imposing the use tax “upon the privilege of using in the county non-titled personal property which was purchased outside of the county.” The tax was originally set at a rate of 1.25%; however on June 19, Cook County commissioners reduced the rate to 0.75% and allowed a credit towards the tax in the amount of tax paid for the purchase in another county. 0.75% is the Cook County sales and use tax rate.
Reducing the rate didn’t prevent a lawsuit, or rather three lawsuits. On June 21, 2013, two law firms and the Chicagoland Chamber of Commerce filed suit against the Cook County Department of Revenue, on the following three grounds:
- “[T]he County does not have the authority under Illinois state statute to implement a non-titled use tax;
- [T]he tax violates the Illinois Constitution’s prohibition of ad valorem taxes; and
- [T]he tax collected by the County using a differential in tax rates for purchases made outside of the county prior to the amendment approved on June 19 violates the US Constitution Commerce Clause.”
The Chamber of Commerce sought an injunction on future collection of the tax, and it won.
Home rule counties are permitted under Illinois state to impose use taxes on titled property (automobiles, boats, etc) purchased outside of the county and brought into the county. Whether or not that Illinois state law extends to non-titled property (books, clothes, televisions, etc) is unclear. The parties suing Cook County argue that it does not.
In July, the Cook County Circuit Court issued a preliminary injunction against the county, suggesting that the judge “found that not only was the county highly likely to lose after a full trial but that the Chicago business community was facing irreparable harm as long as the tax stayed in effect.” The county was asked to provide the judge with an accounting of total receipts collected and was forbidden from cashing any checks for the non-titled use tax received after July 20.
The County filed a motion to stay the preliminary injunction. A hearing is set for September 10, 2013.
Sales tax revenues have declined in recent years across the country, thanks, in part, to an increase in Internet sales, which are often not subject to sales tax. (A recent article in Forbes explains how sales tax avoidance has been at the heart of Amazon’s business plan.) As a result, states have intensified efforts to collect use tax. In Tennessee and South Carolina, for example, Amazon is required to notify customers of their use tax obligation. The Cook County Non-Titled Personal Property Use Tax is one of the first attempts by a local jurisdiction to increase revenue through use tax.