CollectTaxesonWeb-BasedTransactions

CollectTaxesonWeb-BasedTransactions:TheCityisabletotaxsomebutnotallofthesalesandothertransactionsthatoccuronweb-basedforums.

BackgroundTheU.S.SupremeCourthasruledthattheremustbea‘nexus’betweenthetaxingbodyorjurisdictionandtheentitybeingtaxedorrequiredtocollectthetax.Thebasicrationaleisthatagovernmentmaynotimposetaxcollectionresponsibilitiesonabusinessthatdoesnotbenefitfromatleastsomeprotectionsorotherbenefitsprovidedbythestate.ThisfederalconstitutionalrequirementimpactstheCity’sabilitytotaxcertaintransactionsthatoccurovertheinternet.ThefollowingoutlinesthestatusoftheCity’sabilitytocapturetaxrevenuefromsalesandothertransactionsthatoccuronlineorviamobileapps.SalesTax

• Duetothe‘nexus’requirement,onlineretailerscannotberequiredtocollectsalestaxesfromcustomersinstateswheretheretailerhasnophysicalpresence.However,ifabusinesssellsgoodsovertheInternetandalsohasaphysicalpresenceinthestate–suchasanoffice,awarehouse,orastore–theycanberequiredtocollectsalestaxes.TheStateandCitycurrentlyreceivesalestaxesfromthese‘present’businessesfortheironlinesales.

• FederallegislationknownastheMainStreetFairnessAct,whichwouldrelaxthecurrent‘nexus’requirement,iscurrentlypending.ThisAct,ifpassedbyCongress,wouldrequiresellerswithoutaphysicalpresencetocollecttaxespursuanttocertaintermssetforthintheAct,whichwouldgenerallymakeitlessburdensomeonthesellers–forexample,asingleuniformtaxreturnandsinglesetofrulesforallstates.

AmusementTax

• TheCityalreadyrequireslicensedticketbrokerstocollecttheamusementtaxonsalesthattakeplaceovertheInternet.However,theCitycannotrequirewebsitessuchasStubHub,whichofferaforumforindividualstobuyandselltickets,tocollectthetaxontransactionsthattakeplacethroughwebsites.Statelegislationwouldbenecessarytorequirecollectionbysuchcompanies.

• TheCity’samusementtaxalsoappliestovideos,music,andgamesdeliveredthroughmobileapps,andproviderswitha‘nexus’tothecitymustcollectthetaxfromtheirChicagocustomers.

HotelTax

• OnlinehotelsalesaresubjecttotheCity’shoteltax,andtheCitycollectsthistaxfrominternettravelcompaniessuchasExpedia.

• Priorto2015,AirBnB/VRBO-typetransactionsweresubjecttotheCity’shoteltax,butsuchwebsitefacilitatorswerenotrequiredtocollectthetax,makingenforcementdifficult.Aspartofthe2015budget,theCityamendedtheMunicipalCodetorequirewebsitefacilitatorstocollectthefull4.5%hotelaccommodationstaxontransactionsthatoccurthroughtheirwebsites.Thisamendmentisexpectedtohaveanestimatedannualrevenueimpactof$1million.

GroundTransportationTaxes

• TheCityimposesagroundtransportationtax(GTT)andaccessibilityfeeonbothtaxisandridesharesarrangedthroughmobileapps.TheCityanticipatesapproximately$4millioninrevenuein2015fromtheapplicationofthesetaxestoridesharesarrangedthroughmobileapps.

LeaseTax

• TheCity’sleasetaxappliestoanysoftwarelicensesnotsubjecttothesalestax,aswellasto‘nonpossessorycomputerleases’,includingremotelyaccessedcomputerdatabases,softwareprograms,andotherinformationdatabasesforwhichpaymentismade.

ParkingTax• Onlineandmobileapp-basedparkingpaymentsaresubjecttotheCity’sparkingtax,andthe

Citycollectsfromcompaniesthatoperatethesesitesandapps.