One of the oldest tricks in the money-saving book has been to rent a car in an area that’s not as heavily taxed. For example, it’s often cheaper to rent downtown, rather than at the airport, to avoid the airport “concession fees.” But the city of Chicago is fighting back and taxing renters in ways that can be called “creative,” at best. And it’s landing the city in court:

Enterprise Rent-A-Car has sued the city of Chicago for trying to tax car rentals outside city limits, including far-reaching suburbs.

The St. Louis-based car rental giant filed the suit last week in Kane County after Chicago’s Department of Revenue decided that all car rentals in the Chicago suburbs are subject to the city’s 8 percent “transaction” or leasing tax.

To be excused from the tax, Chicago is requiring rental companies to photocopy customers’ driver’s licenses and obtain a sworn affidavit that they won’t be spending more than half of their time driving in Chicago with their rented car.

Sworn affidavit? That’s just ridiculous. And, may I add, unenforceable.

The city has a history of extra-jurisdictional taxation. When I lived in Chicago, I bought a car at a suburban dealership (in Schaumburg, just west of O’Hare, for those keeping score.) And much to my dismay, I had to pay the higher Chicago sales tax rate, instead of the lower Schaumburg rate, because the tax was based on the zip code of registration, not the location of the seller.

The move to tax rental cars is most likely targeting those suburbs near O’Hare Airport. Drivers there would be nailed with both airport fees and Chicago tax rates if they rented at the airport, and the city wants that revenue. Much like the Washington Airports Authority is trying to nail hotel shuttles with fees, this is a case of the city shifting the goalposts when the rules aren’t working out in its favor.

I don’t think Chicago’s taxation policy will stand up in court. It’s not only logically questionable to have a city taxing services in another city, but it’s an undue burden on both drivers and the rental car companies who have to collect the fees. I think Enterprise will win this case.

In the mean time, watch out for Chicago taxes outside of Chicago. And if you see such a fee on your rental agreement, then your bottom line is simple: Sign the affidavit. Then drive in Chicago with impunity.

pixel Chicago tries to collect taxes on car rentals in other cities.  Huh?

3 Responses to “Chicago tries to collect taxes on car rentals in other cities. Huh?”

  1. Oliver Says:

    I don’t know about Illinois, but the car sales tax issue you describe is per California law:

    http://en.wikipedia.org/wiki/Sales_taxes_in_the_United_States

    “Vehicle purchases are taxed based on the city and county in which the purchaser registers the vehicle, and not on the county in which the vehicle is purchased. There is therefore no advantage in purchasing a car in a cheaper county to save on sales tax (a one-percent difference in sales tax rate would otherwise result in an additional $300 loss on a $30,000 car).”

    I ran into that a few cars ago when the dealer sent me a letter a few weeks after the deal closed because they had charged me the wrong (lower) sales tax.

    Of course, what Chicago is doing here for rental cars is just plain ridiculous.

  2. avoidxtrataxes Says:

    I only spend money in the city of Chgo & Cook county if i have to. It is cheaper for me to drive 1.5 miles to Dupage County and pay 7.75% sales tax and i think 11% on a rental car. Chicago taxes everything why pay $1.20 more for a case of bottle water when the case of water is $ 2.99. So far I have not been asked to fill out the an affidavit for car rental, Enterprise states they will not require their customers to fill it out. Kane county taxes for car rental is 10-12% whereas Chgo is almost 18% because of an additional 5% Mccormick Place Expansion Tax(MPET) if you do not ask you will never know, that any car rental in Cook County pays the additional MPET,crazy. If you have a choice do not spend in Cook County or the city of Chicago.

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