Hertz Corp. v. City of Chicago
2017 IL 119945
| Ill. | 2017Background
- Chicago levies a personal property lease transaction/use tax on leases or the privilege of using leased property in the City; exemption if property is used >50% outside the City.
- In 2011 the City issued Ruling 11: suburban rental locations within three miles must keep written proof of lessees’ intended use or face audit; absent proof, the Department will treat Chicago residents as using the vehicle primarily in Chicago and nonresidents as using it primarily outside Chicago. A 25% "safe harbor" option was provided.
- Enterprise and Hertz sued, challenging Ruling 11 as exceeding Chicago’s home rule authority (extraterritoriality), and raising federal due process and commerce-clause claims; the trial court granted summary judgment for plaintiffs and enjoined enforcement; the appellate court reversed.
- Key disputed facts: suburban leases are executed and vehicles delivered outside Chicago; Ruling 11 imposes tax collection duties based on lessee intent or, if none, residency on the driver’s license.
- The Supreme Court reviewed de novo and focused on whether Ruling 11 unlawfully exercises extraterritorial home rule taxing power.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Ruling 11 unlawfully exercises home rule power extraterritorially | Ruling 11 taxes transactions that occur entirely outside Chicago by imposing tax-collection duties based on future intent or residency | Ruling 11 taxes only the privilege of using property in Chicago; plaintiffs do business in Chicago and can be required to collect the tax | Held unconstitutional: Ruling 11 has an impermissible extraterritorial effect and exceeds home rule authority |
| Whether Ruling 11 unlawfully taxes 100% of a rental when only >50% use in Chicago is required | City improperly taxes the whole charge though taxable use may be only half the rental period | A use tax on the full charge is permissible because it taxes the privilege of using property in Chicago | Court relied on extraterritoriality principle and did not uphold the ruling; declined to accept City’s distinction between service/use tax |
| Whether plaintiffs’ mere residency-based presumption suffices to connect transaction to City | Presumptions based on driver’s license residency are too tenuous to establish use in Chicago | Residency is a reasonable basis to administer the tax when lessee gives no statement of intent | Court held the residency presumption insufficient to justify extraterritorial tax collection duties |
| Whether due process / commerce clause arguments support Ruling 11 | Ruling 11 violates federal due process and commerce clause (as argued below) | Ruling 11 satisfies minimum contacts and apportionment principles of due process cases | Court did not decide federal claims because it resolved the case on Illinois home rule grounds |
Key Cases Cited
- Commercial Nat’l Bank of Chicago v. City of Chicago, 89 Ill. 2d 45 (1982) (invalidated Chicago service tax as an impermissible extraterritorial exercise of home rule taxing power)
- Mulligan v. Dunne, 61 Ill. 2d 544 (1975) (upheld requiring out-of-county sellers to collect tax when selling to in-county retailers doing business in the county)
- Irwin Indus. Tool Co. v. Dep’t of Revenue, 238 Ill. 2d 332 (2010) (upheld use tax where tangible property had physical presence and sufficient nexus to Illinois)
- City of Evanston v. Create, Inc., 85 Ill. 2d 101 (1981) (upheld city regulation limited to property located within the city and rejected extraterritoriality challenge)