## Facts

- Chicago, a home-rule municipality, imposed a personal property lease transaction tax on (1) leases occurring in the city and (2) the privilege of using in the city personal property leased outside the city.
- The City issued Personal Property Lease Transaction Tax Second Amended Ruling 11 (Ruling 11), directed at suburban vehicle-rental agencies located within three miles of Chicago’s borders, including Hertz and Enterprise.
- Under Ruling 11, during audits the City would hold suburban agencies liable for the tax unless the agency had written proof the lessee was exempt based on use of the vehicle outside Chicago.
- Ruling 11 presumed Chicago residents would use a rented vehicle primarily in Chicago, while nonresidents would use it primarily outside Chicago.
- Hertz and Enterprise challenged the tax as applied to short-term vehicle rental transactions completed entirely outside Chicago, arguing the City lacked authority to tax those transactions based on presumptions about later use.
- The circuit court enjoined enforcement of the tax against plaintiffs for short-term rentals occurring outside Chicago; the appellate court reversed; the Illinois Supreme Court granted review.

## Issues

1. Whether Chicago may, under the Illinois Constitution’s home-rule provision, apply its personal property lease transaction tax (via Ruling 11) to short-term vehicle rental transactions occurring wholly outside the city based only on lessee residency or stated intent of use.

## Decision

- The Illinois Supreme Court reversed the appellate court.
- The Court held Ruling 11 unconstitutional under the Illinois Constitution’s home-rule provision as applied to short-term vehicle rental transactions occurring wholly outside Chicago.
- The Court ruled the City may tax only leases with an actual connection to Chicago; Ruling 11’s residency-based presumption and intent-based approach exceeded the City’s home-rule taxing authority.

## Legal Principles

- A home-rule unit’s taxing power is limited to matters of local government and affairs and requires a sufficient local nexus.
- A municipality may not impose a tax on transactions occurring wholly outside its borders absent an actual connection between the taxed activity and the municipality.
- A tax scheme that effectively imposes liability based on conclusive presumptions (such as residency-based presumed in-city use) rather than demonstrated local activity exceeds home-rule authority.
- An ordinance may permissibly reach out-of-city leases only to the extent it taxes actual use within the city; it cannot convert predicted or presumed use into a tax on the out-of-city transaction itself.

## Conclusion

The Illinois Supreme Court invalidated Chicago’s application of its personal property lease transaction tax to suburban, short-term vehicle rentals completed outside city limits where liability depended on presumptions about future in-city use rather than proof of actual use in Chicago.


Hertz Corp. v. City of Chicago, 77 N.E.3d 606 (Ill. 2017)