121 Report – CRMA – November 2015

 In This Issue

CHICAGO BUDGET TAKES EFFECT
COUNCIL INTRODUCTIONS

BUDGET BATTLE COMES TO A CLOSE AS TAXPAYERS OPEN THEIR WALLETS

 

Last week, Mayor Emanuel and the City Council passed a budget for 2016 that addresses, in part, the tough realities that the city is facing right now concerning its underfunded police and fire pensions. After years of coming up short on pension payments, engaging in long-term borrowing for short-term investments and preserving a payroll that was unsustainable, the City Council passed a revenue package that left no constituency unscathed.

While there were legitimate attempts to cut costs, trim department budgets and negotiate other savings, the outcome is that property owners will experience the highest property tax increase in Chicago’s history over a four-year period. And Chicago’s employer community will pick up more than its fair share of the tab.

Due to Cook County’s unfair property tax system, employers pay 25% of their property’s assessed value, while homeowners pay 10%. Wondering which taxpayers will be hardest hit by this scheme? Neighborhood businesses. Competing with their suburban counterparts, neighborhood businesses have a much tougher fight to maintain sales and a solid customer base. An increase in property taxes is a direct hit to their bottom line which is difficult enough to absorb. Add on top of this that Mayor Emanuel has gone to the General Assembly to ask for a doubling of the homestead exemption which will have the effect of exempting homes with a value of less than $250,000 from the increase. As property taxes go, that means that all of the rest of the taxpayers will have to swallow what those homeowners don’t have to pay. Yet, homeowners and businesses alike use the services of the police and firefighters whose pensions will be helped by the tax increase. Therefore, no one should be exempt from doing their part. While we are neutral on a tax increase, we oppose this attempt to force neighborhood businesses to pay more than their fair share.

In addition to the property tax, the Council passed a new tax on e-vape products. While some states and Washington, DC have already passed a tax on nicotine liquid, Chicago decided to go in a different direction. The city is taxing the product that is actually consumed which is consistent with how cigarettes are taxed. But in a baffling move, it will now also tax

any item that contains nicotine liquid. That would include everything from a plastic bottle, to a refill cartridge, to a disposable e-cigarette. The argument for taxing the packaging is that it will help deter the “youth” from purchasing the product. If the “youth” is anyone under the age of 18, then it is already illegal for them to purchase these products and for retailers to sell the products to them. If the “youth” is anyone 18 and over, then this inconsistent tax will absolutely deter them from purchasing the product…in Chicago. Retailers ought to get a fair shot at competing for sales of this popular product especially since so many have lost sales to Indiana, the suburbs and illegal sellers, not to mention those that have lost flavored cigarette sales because they had the unfortunate luck of being within 500 ft. of a school. Chicago’s tobacco tax policies are inconsistent with the rest of the country and now its policies are even inconsistent with itself. CRMA is working to get this law changed so that Chicago’s policy reflects its concern about the product without shifting sales outside of the city.

Tax policy should be effective, consistent and based on verifiable data. Chicago’s ordinances should reflect this principle.

CRMA will continue to work to make reasonable changes regarding the property tax exemption and the e-vape tax in the coming months.

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CITY COUNCIL ORDINANCES AND RESOLUTIONS

 

INTRODUCTIONS

Ban on the Sale of Nail Polish Containing Triphenyl-phosphate

Sponsors: Alderman Edward M. Burke (14th Ward), Alderman Margaret Laurino (39th Ward) and Alderman Pat O’Connor (40th Ward)

Committee on Finance

Citing concerns about the potential for triphenyl-phosphate to be a hormone-disrupting chemical, this proposal would ban the sale of nail polish containing the ingredient. It is unclear whether it would also be unlawful for salons and spas to use nail polish with the ingredient.

Amendment of E-Vape Tax

Sponsor: Alderman Joe Moreno (1st Ward)

Committee on Finance

The revenue ordinance includes a tax on containers of nicotine liquid of $1.25 and a tax on nicotine liquid of $0.25/milliliter. This proposal would decrease the tax on the container to $0.80 and increase the tax on the liquid to $0.55. This proposal purportedly addresses concerns expressed by the industry regarding distortion of the market pushing users of e-vape products to larger volume refill bottles. Another concern is that the city is adding a tobacco tax to products that are not consumable. This is inconsistent with how cigarettes are taxed.  This issue also doesn’t address the significant cost difference that this product will have between Chicago and surrounding areas. The proposal would reduce the overall tax on the product by $0.15.

 

PASSED INITIATIVES

Resolution Urging the General Assembly to Expand Chicago’s Authority to Tax

Sponsors: Alderman John Arena (45th Ward) and 29 additional co-sponsors

Home Rule jurisdictions are currently given broad authority to tax, but there are a number of taxes that are solely the purview of the General Assembly. The city would like to have the ability to implement taxes that target employers and residents that are wealthy…however that is defined. Included in this wish list of taxes is a graduated income tax, a financial transaction tax that targets Chicago’s mercantile and stock exchanges, a sales tax on services and a tax on luxury goods.

Resolution Urging the General Assembly to Either Pass an Increase in the Homestead Exemption or to Encourage the City Council to Develop a Property Tax Rebate Program for Certain Homeowners

Sponsors: Alderman Michele Smith (43rd Ward) and 32 additional co-sponsors

This resolution asks the General Assembly to pass SB 1488 which is Mayor Emanuel’s doubling of the homestead exemption which will shift more of the property tax increase to employers and renters. The bill recently passed the House Revenue and Finance Committee but has not been called for a full House vote. In anticipation of a tough House vote, the resolution looks ahead and calls for the City Council to adopt a rebate program in the event SB 1488 fails.

2016 Revenue Ordinance

Sponsor: Mayor Rahm Emanuel and 24 co-sponsors

The budget passed by a vote of 36-14.  The following are revenue items of interest to the retail community.

1. Personal Property Lease Transaction Tax and Amusement Tax

This item changes the lease tax to include nonpossessory computer leases where a customer accesses the provider’s computer from a mobile device. If customers are accessing the computer to input, modify or retrieve data, then the transaction will be taxed at 9% of the lease/rental price. If the access is to input, modify or retrieve data that is supplied by the customer, then the transaction is taxed at the lower rate of 5.25% of the lease/rental price.

Small, new businesses will be exempt from having to collect or pay this tax. Businesses eligible for the exemption are defined as licensed businesses (in any jurisdiction) during the most recent year prior to the taxing year which had under $25 million in sales and has been in operation for less than 60 months. Businesses will be combined into one unitary business group depending upon how they are formed and how revenue/management is shared.

EFFECTIVE DATE: January 1, 2016

A separate, but related item seeks to add amusements delivered electronically to mobile devices to the amusement tax. This will make video and audio streaming, and on-line games subject to the tax.

EFFECTIVE DATE: November 18, 2015

2. Liquid Nicotine Product Tax

This item will tax closed-unit e-cigarettes as well as all products intended for vaping that contain nicotine. The tax on closed-unit devices is $1.25/unit and the tax on the liquid is $0.25/milliliter. Chicago will be the only jurisdiction in the country to tax closed-unit devices. All other jurisdictions that are taxing or proposing to tax e-cigarettes are taxing the consumable product only. Chicago’s version will unnecessarily distort the market for e-cigarettes, creating winners and losers in an open, competitive market. Vape pens (largely sold by vape shops) would be the winners and e-cigarettes (largely sold by grocers and convenience stores) would be the losers.

 EFFECTIVE DATE: January 1, 2016

3. Increased Fees

Overweight Truck permit fees will increase annually according to CPI-U.

EFFECTIVE DATE: January 1, 2016

Building Permit fees needing plan review for the construction of new buildings, or renovations and/or repair of existing buildings will be increased. Related fees are increasing anywhere from 25% on the low end to 100%.

EFFECTIVE DATE: January 1, 2016

 

2016 Management Ordinance

Sponsor: Mayor Rahm Emanuel

The annual Budget Management Ordinance which generally focuses on matters not directly related to revenue, but can contain fee increases, has a number of items of interest to the retail community:

1. Driveway Permit Fees

Businesses seeking these permits will pay different amounts depending on their location. Businesses inside the Central Business District (CBD) will pay $500 for sign installations related to the permit along with any other fees directly related to the sign installation. Businesses outside of the CBD will pay $110. The annual maintenance fee will be equal to the amount of the sign installation fee.

2. Debt Relief Program

The city is establishing a debt relief program for taxpayers for debts incurred during the period ending December 31, 2011. Taxpayers must apply for the relief.

3. Sale of Tobacco

The prohibition on the sale of tobacco within 100 ft. of a school, child care facility or place of education/recreation of minors was changed to reflect how the property is measured for the prohibition on the sale of flavored tobacco. It will be measured from property line to property line.

4. Tobacco License Revocation and Fines

A license shall be revoked for 3 or more violations within a 24-month period of the following: failure to pay the cigarette tax, mutilated stamps, interference with inspections/recordkeeping, purchase of tobacco products from unlicensed wholesalers, violations of the 100 ft./500 ft. rules regarding the sale of tobacco/flavored cigarettes, sale to minors, sale outside of original packaging, failure to post warning to minors and interference with ID cards of inspection officials. Fines have also increased for these violations by 100% in most cases.

All relevant items in the Management Ordinance have an EFFECTIVE DATE of January 1, 2016.

 Links to the Property Tax Levy Increases:

2015

2016

2017

2018

 

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CONTACT INFORMATION:

TanyaTriche

 

Tanya Triche
Vice President
General Counsel
312-726-4600
ttriche@irma.org