Effective April 1, 2008, the Chicago Real Property Transfer Tax ("Transfer Tax") will increase from $3.75 per $500 to $5.25 per $500, representing a 40% increase. While the Transfer Tax is typically paid by the purchaser, 40th Ward Alderman Patrick J. O'Connor has submitted a proposal to the Chicago City Council to amend Chapter 3-33 of the Municipal Code of Chicago, more commonly known as the Chicago Real Property Transfer Tax Ordinance ("Ordinance"), to split the entire Transfer Tax evenly between the purchaser and seller, or, in the alternative, to split just the CTA portion (as defined below) of the Transfer Tax evenly between the parties. Regardless of whether the Ordinance is further amended, the cost of buying and selling property in the City of Chicago has just become more expensive.
Increase in the Transfer Tax
Section 3-33-030 of the Ordinance imposes a tax "upon the privilege of transferring title to, or beneficial interest in, real property located in the city … at the rate of $3.75 per $500 of the transfer price, or fraction thereof, of the real property or the beneficial interest in real property."
At its February 6, 2008 meeting, the Chicago City Council approved a substitute ordinance amending Section 3-33-030 of the Ordinance to impose "a supplemental tax at the rate of $1.50 per $500 of the transfer price, or fraction thereof, … on transfers taking place on or after April 1, 2008, for the purpose of providing financial assistance to the Chicago Transit Authority (for purposes of this section, "CTA")." This supplemental tax is referred to as the "CTA Portion" of the Transfer Tax.
Exemption from the CTA Portion of the Transfer Tax
The substitute ordinance also amends Section 3-33-060 of the Ordinance to exempt purchasers age 65 or older from the CTA Portion of the Transfer Tax, provided that the purchaser "demonstrates, by proof acceptable to the Chicago Tax Assistance Center, (1) that [purchaser] will occupy the property as [purchaser's] principal dwelling place for at least one year following the transfer, and (2) that the transfer price is $250,000 or less." While labeled an "exemption," the purchaser must still pay the CTA Portion of the Transfer Tax at closing, then apply for a refund of the CTA Portion from the Chicago Tax Assistance Center within three (3) years following closing.
Amended Section 3-33-030 also provides for an intergovernmental agreement ("Agreement") between the City of Chicago Department of Revenue ("Department") and the CTA, pursuant to which the Department will administer and enforce the CTA Portion of the Transfer Tax. Under the Agreement, the Department will pay the "Net Proceeds" collected each month to the CTA by the last business day of the following month. "Net Proceeds" is defined as the CTA Portion of the Transfer Tax less: "(a) [a] collection fee equal to 1.0 percent of the gross collections of the CTA Portion of the [Transfer] Tax during the month, (b) any refunds of the CTA Portion of the [Transfer] Tax paid during the month, and (c) the CTA's pro rata share of any agreed-upon collection enhancement costs incurred by the Department during the month such as computer system enhancements."
A form of Agreement was attached to the substitute ordinance. Based on the proposed Agreement, it is anticipated that the CTA Portion of the Transfer Tax for 2008 will generate an estimated $63 million in additional revenue for the CTA, $630,000 of which will be paid to the City of Chicago.