The City of Chicago imposes a use tax on the purchase of non-titled tangible personal property for use in Chicago and purchased at retail from a retailer located outside Chicago. The use tax applies to non-titled property purchased at retail for consumption and not for resale. People located in Chicago who, in the course of business, buy non-titled tangible personal property subject to Use Tax must register with the City of Chicago Department of Finance and pay tax monthly.
What does this use tax for non-titled personal property mean for construction contractors?
A construction contractor permanently affixing tangible personal property to real property deems the contractor the end-user of the tangible property. As the end-user, construction contractors are subject to use tax on the tangible property purchased outside Chicago to use in Chicago. To clarify, “construction contractor” includes general and subcontractors (including landscape, electrical, masonry and plumbing contractors, etc.). If the tangible personal property is used outside Chicago and then brought into Chicago, the purchase price may be reduced by depreciation using a straight-line method and useful life. The U.S. Internal Revenue Code provides the depreciation method.
Examples of taxable and nontaxable uses are:
Example 1 – A plumbing contractor purchases tools from a retailer in Naperville to be used on a construction job in Chicago. Accordingly, the contractor owes use tax on the price of the tools used on the job.
Example 2 – A construction contractor purchases lumber from a supplier in Chicago to use on a construction job in Chicago. The contractor does not owe use tax on the purchase because the purchase occurred in Chicago, and sales tax was already paid at the Chicago rate.
Example 3 – A dental office purchases dental supplies from a supplier located in Naperville for use in Chicago. For this reason, the office owes use tax on the price of the dental supplies used for services.
How is the use tax calculated?
Use tax applies at a rate of 1% of the purchase price of all the items of non-titled tangible personal property purchased. Purchases made at retail from a retailer located outside of the City and used in the City are eligible. The first $2,500 of purchases made each year are exempt from use tax. After that exemption, use-tax should be remitted at a specific time. Typically, on or before the fifteenth day following the end of the monthly tax period in which the liability occurred. Furthermore, every taxpayer is entitled to an annual tax credit of $25 to applied against the taxpayer’s tax liability for each tax year. The annual tax form is due on or before the 15th of August of each year and shall report all taxable purchases and uses for the preceding year.
Additionally, a taxpayer who purchases non-titled tangible personal property for use in the city from a retailer located outside the city may take a tax credit. In short, the credit equals any municipal tax paid with respect to the purchase or use of the property.
Exemptions to the Non-Titled Personal Property Use Tax
Use tax for non-titled personal property does include exemptions for uses and property purchases. The term “use” means a person exercising the right to or power over tangible personal property as an owner.
“Use” does not include:
- Sale of the property,
- Use of the property for demonstration purposes,
- Interim use by a retailer before sold,
- Physical incorporation of tangible personal property,
- As an ingredient into other tangible personal property transported out of the city
There are some use tax exemptions, such as:
- Items of property which are food for human consumption consumed off-premises
- Prescription medicines for human use
- Temporary storage in the city of property used in the city,
- Property delivered outside the city by a common carrier,
- Purchases made by insurance companies.
How can DHJJ help?
For more information or if you have any questions or concerns with regards to use tax for non-titled personal property, please contact our State and Local Tax (SALT) Group at 630-420-1360 or with the form below.