Chicago’s Lease Tax: Rate Increase and New Economic Nexus Rules for SaaS Providers and Users
The City of Chicago imposes a lease tax that applies to software as a service (SaaS) receipts. Effective January 1, 2021, the lease tax rate is 9% for all taxable transactions. In addition, Chicago will begin applying an economic nexus standard to remote vendors starting July 1, 2021.
Chicago imposes lease tax on leases/rentals of all property, other than real property, in Chicago. As such, rentals of tangible property, including car rentals and equipment rentals, are subject to the tax. Lease tax also applies to applications available to customers through access to a provider’s computer and software (e.g., cloud computing, cloud services, hosted environment, SaaS, platform as a service (PaaS), and infrastructure as a service (IaaS)).
Under the new economic nexus standard that applies starting July 1, 2021, businesses located outside of Chicago may be required to administer Chicago’s lease tax—even if the business has no physical presence in Chicago—if the business derives receipts in excess of $100,000 (measured over the most recent consecutive four calendar quarters).
Businesses located in Chicago, as well as businesses that have employees working from home in Chicago, may also have a lease tax liability if their suppliers do not charge the lease tax.
Businesses that have a historical lease tax liability or that want to learn more about various exemptions and other ways to mitigate their lease tax exposure should contact their BDO tax professional.
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