I was born in Chicago, I love Chicago, and even though I now live just outside Chicago I still say “Chicago” if someone from out of state asks me where I’m from.
If you’re a Chicago land resident, you know that Chicago is deeply in debt, and they have a long list of miscellaneous taxes they charge in an attempt to close their budget gap.
Parking Tax, Leased Property Tax, Ground Transportation Tax, Fountain Soft Drink Tax, and the list goes on. Chicago.gov keeps a list of them, and if you count them up there are 29 different miscellaneous Chicago taxes.
If you live in Chicago or do business in Chicago and are subject to any of these 29 taxes, the Chicago Department of Finance could select you for an audit to determine if you are complying with the law.
When the Chicago Department of Finance decides to audit you, they start by sending a letter called an Initial Discovery Notice. The Notice gives the period under investigation (typically a period of between 3 and 6 years or so), gives the contact information for your specially assigned Chicago Department of Finance Auditor, and provides a pretty narrow window of time, often 10 days, to submit a questionnaire about how your business operates.
Eventually you will need to submit sales or other data to the Chicago Department of Finance to determine what sales may be subject to Chicago tax. And to complicate things further, many of these taxes Chicago taxes have pretty sizeable exceptions.
For example, the 23.25% Chicago parking tax does not apply to residential off-street for those that live within two blocks of the parking lot.
Another example is the Chicago Lease Tax, if you bundle a non-taxable service with a taxable lease of property and can prove the service accounts for over 50% of your invoice, only the portion not allocated to the service is taxable. So a business that rents table cloths to catering companies is likely subject to the lease tax, but maybe not 100% of its revenue if it also provides a service transporting and cleaning those table cloths.
But if you want Chicago to grant you the benefits of these exceptions in an audit, you have to assemble and present documentation to Chicago and ultimately convince them that you qualify for the exception.
To give yourself the best chance of paying nothing more to Chicago Department of Finance than the law requires, you need detailed understanding of the law, a well put-together document submission, and you must successfully present it to the Chicago Auditor.
If you are the subject of an audit from the Chicago Department of Finance and would like some help, check the link in my bio.
I’m tax attorney Dan Urban, I’ll see you around the City.