Earlier this year, the City of Chicago’s Department of Finance issued“Personal Property Lease Transaction Tax Ruling #12 (clarifying Exemption 11),” originally effective as of July 1, 2015, clarifying the City’s position on the taxation of cloud computing services. Generally, the City’s position is that cloud computing services are subject to the City’s lease tax on non-possessory access to personal property, unless either the services or the users qualify for an exemption. The tax is imposed on the user if the user is located in the City, and the seller is liable for collecting the taxes if the seller has substantial nexus with the City. This is not a new tax, but in Tax Ruling #12, the Department clarified that the existing exemption for one-way receipt of streaming information that is “fleeting or transitory” is not available if the contract for such information includes financial research capabilities or other analytical tools.
In an undated Information Bulletin issued by the City subsequent to the issuance of Tax Ruling #12, the City announced a new exemption for small business that will become effective as of January 1, 2016. The City also announced that the City is offering the opportunity for taxpayers who are not under audit by the City, and who are not currently in compliance with the City’s lease tax with respect to cloud computing services, to submit an application for voluntary disclosure to the City. Under the terms of the voluntary disclosure offer:
- If a taxpayer claimed exemption from the tax under Exemption 11, but would not qualify under the City’s new clarification of it published in Tax Ruling #12, the City will waive all taxes, penalties and interest for all periods ending before January 1, 2016.
- If a taxpayer is not in compliance with the other non-possessory computer lease provisions, the City will waive the penalties and interest for the 2015 calendar year if the noncompliant taxpayer volunteers to pay the tax owed for that period.
- If a taxpayer is not in compliance with any other taxes owed pursuant to the lease tax provisions (i.e., excluding taxes based on non-possessory computer leases), the City’s normal voluntary disclosure provisions will apply, and the taxpayer can apply for relief of penalties only for a four year period.