In a previous article, I shared our insights related to the Cook County Department of Revenue ("Department") audit and administrative hearings process. That article focused on the Department's appeals process and, more importantly, the affirmative steps that taxpayers must take to formally protest an assessment issued by Department. This article focuses on one of the County taxes that has recently been targeted by the Department, the Parking Lot and Garage Operations Tax ("Parking Lot Tax"). In the past 3-5 years, we have seen a significant uptick in the Department's audit activity, and challenges to Taxpayer positions. The Department's audit efforts have primarily focused on the enforcement of its Amusement, Tobacco, and Gasoline and Diesel Taxes. However, more recently, the Department has turned its attention to its Parking Lot Tax.

The Parking Lot Tax is imposed upon the use and privilege of parking a motor vehicle in or upon any parking lot or garage in Cook County.[1] The tax is collected by the operator of the parking lot from any person who "seeks the privilege of occupying space in or upon any parking lot or garage."[2] The tax rates imposed upon the "use and privilege of parking a motor vehicle in or upon parking lots or garages" vary based upon the duration of the parking spot.[3] The tax is six percent imposed on "the charge or fee paid for parking" for a 24-hour period or less.[4] The tax rate is nine percent "of the charge or fee paid for parking for a weekly or monthly period."[5] Notably, no such tax is due if the fee paid for parking does not exceed $2.00 for a 24-hour period, $10.00 for a weekly period, or $40.00 for a monthly period.[6]

In addition to the de minimis daily, weekly, and monthly exceptions to the Parking Lot Tax, the tax identifies three additional exemptions.[7] First, residential off-street parking of house, apartment or condominium occupants where parking is provided for in a written lease agreement is exempt from the Parking Tax. Similarly, residential parking provided for condominium occupants pursuant to a written agreement between the condominium association and the owner, occupant or guest is also exempt. Lastly, the tax does not apply to hospital and medical center employees parking at a parking lot or garage where the hospital or medical center is the employer and operator of the lot or garage.

Although the reading and interpretation of the Parking Lot Tax seems straightforward, we have been made aware of the Department recently taking an aggressive enforcement position of the Parking Lot Tax. In a recent matter that was litigated at the County's administrative hearings, the Department disallowed a de minimis exception claimed by the taxpayer.[8] At issue was a garage operator who rented parking spaces to a third-party car dealership who needed parking for its overflow inventory. There, the dealership was authorized to park or store up to 95 new, but unsold, vehicles in the parking garage for $3,000 per month. Among other arguments, the Taxpayer contended it was not subject to the Parking Lot Tax on the basis that it qualified for the de minimis exemption ($3,000 / 95 spaces = $31/space). However, the Department, and ultimately, the administrative law judge disagreed with this interpretation, and instead determined that unless the taxpayer was able to tie each individual space to an individual motor vehicle, the Parking Lot Tax was due. 

Based on the recent administrative law ruling in North Riverside Park, it is conceivable that the Department may attempt to expand the interpretation of the Parking Lot Tax by allocating a portion of commercial rent to individual parking spaces irrespective of whether the tenant is charged a "charge or fee" for parking. Often, the lease agreements do not include a separate charge or fee for parking. The Department's apparent disregard of the lease agreement in North Riverside Park suggests it may next attempt to impose Parking Lot Tax under a lease agreement that identifies no-charge parking spots for the tenants.

This interpretation would raise a couple of immediate issues. First, it disregards the plain language of the Ordinance, which clearly states that the tax is imposed on the fee or charge for parking. Secondly, the ultimate incidence of liability of the tax is on the person who seeks the privilege of occupying the space in or upon the lot or garage. The Department's purported interpretation effectively prohibits the operator from collecting a tax from the user of the space since there is no fee or charge imposed on the user of the space. Because this interpretation forces the garage operator to bear the burden of this tax, the Department's enforcement of the tax renders the Parking Tax an unenforceable occupation tax, which is prohibited by the Illinois Constitution.[9]

The Parking Lot Tax is just one of a handful of taxes that historically were not actively audited by the Department. Taxpayers who operate or own a parking lot or garage in Cook County must be aware of the requirements of the Parking Lot Tax. However, mere ownership or operation of a garage does not automatically subject a taxpayer to the Parking Lot Tax. Instead, taxpayers who are audited for this tax, or any home rule tax, should immediately question not only whether the home rule has the authority to impose the tax but also whether the taxing authority is properly interpreting and enforcing its Ordinance.

_{[1] Cook County Municipal Ordinance ("Ordinance") Section 74-512.}

_[2] Id.

_[3] Id.

_[4] Id.

_[5] Id.

_[6] Id.

_[7] Id.

_{[8] County of Cook v. North Riverside Park Associates, LLC, RP-160040 (September 17, 2018)}

_{[9] We have previously discussed Illinois home rule authority to impose taxes at the County and City levels.}