United States

Chicago, Illinois: Department of Finance Issues Tax Rulings on Various Electronic Services

Jun 29, 2015
From KPMG TaxWatch

Transcript only

The City of Chicago recently adopted a pair of rulings clarifying the taxation of certain electronic services. Personal Property Lease Transaction Tax Ruling No. 12, which is effective July 1, 2015, addresses the application of the city’s Personal Property Lease Transaction Tax to certain electronic services and applications. The tax is imposed on charges for the use of personal property, including charges paid for a nonpossessory lease of computers, computer software and data processing equipment. The city has interpreted the ordinance as imposing tax on the use of remotely hosted software, access to online data bases, and certain other electronic transactions. The ruling provides clarification on an exemption from the tax, Exemption 11, which exempts transactions in which the customer’s control of the provider’s computer is de minimis and the charge is predominantly for information transferred to the customer’s computer rather than for the customer’s use or control of the provider’s computer. An example in Exemption 11 indicates that current price quotations or other information having a “fleeting or transitory” character would be exempt.

The ruling clarifies that the condition that the information be “fleeting or transitory” in nature is provided as an example and, standing alone,will not be a basis for an exemption. In other words, if the two-pronged test (minimal control and fleeting and transitory) is not otherwise met, the transaction will not be exempt simply because the information is fleeting or transitory. The ruling further clarifies that exempt use may be demonstrated either by access to information or data that is entirely passive and not interactive, or by access to materials that are primarily proprietary, such as copyrighted newspapers. Passive access is one in which the customer’s use of the provider’s computer is de minimis, such as streaming stock quotations. In contrast, charges for access to an interactive website that provides search functionality will be considered taxable even though most of the information provided on the website is of a “transitory and fleeting” nature.  

Under the lease transaction tax, a non-possessory lease of computer time or software is sourced to where the terminal or device used by the customer to access the shared computer resource is located. The ruling clarifies that if the customer has employees or other individuals using the shared computer or software that are located both within and outside the city, the tax on a charge that covers users both within and without Chicago should be apportioned based on the “principal office location” of the individual users. If the provider of the shared computer or software service has no information that any use will occur in the city, the provider is not responsible for collecting the lease transaction tax. However, if the provider has information that some of a customer’s usage will occur in Chicago, but insufficient information to allow a reasonable apportionment, the provider may rely on actual data or estimates from the customer to apportion tax to Chicago. If the customer does not provide such data, the provider shall assume that all use occurs in Chicago. Alternatively, the provider will not be required to collect the tax from the user-customer if the customer has ten or more employees or other individuals authorized to use the shared computer resource and the customer provides the seller with written confirmation from the CDOF that the buyer is registered to pay the lease tax to the city. 

Amusement Tax Ruling No. 5, effective July 1, 2015 addresses the application of the city’s amusement tax to certain types of amusements delivered electronically. The amusement tax applies to charges paid for the privilege to witness, view or participate in amusement. For this purpose, “amusement” includes any exhibition, performance, presentation or show for entertainment purposes; any entertainment or recreational activity offered for public participation or on a membership or other basis; or any paid television programming. The ruling clarifies that that tax applies not only to the privilege of witnessing, viewing or participating in amusements in person, but also captures amusements that are delivered electronically. Thus, charges for streaming or renting shows, movies, videos, music and games are subject to amusement tax. In contrast, the tax does not apply to sales of shows, movies, videos, music or games that are permanently downloaded. The Department relies primarily on the Mobile Telecommunications Sourcing Conformity Act for sourcing the amusement tax, meaning that in general, the tax will apply to customers whose residential street address or primary business street address is in Chicago. For more information on Chicago Department of Finance Personal Property Lease Transaction Tax Ruling No. 12 (June 9, 2015) and Chicago Department of Finance Amusement Tax Ruling No. 5 (June 9, 2015), please contact Drew Olson at 312-665-2897 or Jill Nielsen at (312) 665-2794.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.