Court Ruling Overview
An Illinois Court of Appeals ruled that a lease agreement requiring the lessor to pay ad valorem tax and local sales tax on the lease of vehicles and equipment did not obligate the lessor to collect and pay the Chicago personal property lease transaction tax (“lease tax”).
Key Determinations by the Court
- Not an Ad Valorem Tax:
The court found that an ad valorem tax is imposed on the value of something, as determined by a third-party assessment or appraisal, while the lease tax is proportional to the contract price, not value. - Not a Local Sales Tax:
The court clarified that the lease tax is not a local sales tax. This is because the lease tax applies to leases and rentals rather than the sale of tangible personal property.
Case Reference
RN Acquisition, LLC v. Paccar Leasing Company
Ill. Ct. App., 1st Dist., Dkt. No. 1-21-1314
Decision Date: November 9, 2022
The Chicago personal property lease transaction tax concerns leases, not purchases, and is calculated on lease payments, not on assessed value.
Frequently Asked Questions
What did the Illinois Court of Appeals decide in this case?
The court determined that a lease agreement obligating the lessor to pay ad valorem and local sales taxes did not also require the lessor to pay the Chicago personal property lease transaction tax. The lease tax was considered distinct from the taxes referenced in the agreement.
Why is the lease transaction tax not considered an ad valorem tax?
Because an ad valorem tax is based on the value of property, typically determined through assessment or appraisal, while the lease transaction tax is based on the lease payment amount as defined in the contract.
How is the lease transaction tax different from a local sales tax?
The court clarified that the lease tax applies to rental or lease transactions, not sales. Local sales taxes are imposed on the sale of tangible personal property, which is not the case here.
What case was reviewed by the Illinois Court of Appeals?
The case in question is RN Acquisition, LLC v. Paccar Leasing Company, decided on November 9, 2022, by the Illinois Court of Appeals for the First District.
How is the Chicago lease transaction tax calculated?
The lease tax is computed based on the lease payments agreed upon in the contract, not on the assessed value of the leased property or its sale price.