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June 2, 2009 |
City of Chicago — Chicago Real Property Transfer Tax — Cell Sites The Chicago Department of Revenue recently issued an informational bulletin addressing the application of the Chicago Real Property Transfer Tax (the "Transfer Tax") to real property upon which wireless antennae and network communications equipment are placed ("cell sites"). The bulletin states that consideration received for an easement for a cell site is subject to the Transfer Tax. This interpretation expands the universe of transactions that have commonly been thought to be subject to the Transfer Tax and could have implications beyond cell sites. The Chicago Real Property Transfer Tax Ordinance (Chapter 3-33 of the Municipal Code of Chicago) (the "Transfer Tax Ordinance") imposes a tax upon the privilege of transferring title to, or beneficial interest in, real property located in the city of Chicago. The Transfer Tax Ordinance defines "beneficial interest in real property" to include (but not to be limited to):
The Transfer Tax Ordinance does not specifically list easements as beneficial interests in real property for Transfer Tax purposes. Currently, the Transfer Tax rate is $5.25 per $500 of the transfer price or consideration paid for the real property or interest transferred therein. The buyer is responsible for $3.75 of the Transfer Tax rate, and the seller is responsible for $1.50 of the Transfer Tax rate, although the parties may contractually alter this split. The Transfer Tax is generally due at the time a transfer occurs. Certain transactions are exempt from the payment of the Transfer Tax, including transfers in which the transfer price is less than $500. In the bulletin, the Department of Revenue states that if a taxpayer has given consideration for an easement or has purchased a cell site, the taxpayer may owe Transfer Tax. Therefore, any money or property transferred in consideration for an easement in connection with a cell site is subject to the Transfer Tax, unless the transaction falls within an exemption to the Transfer Tax. The Department of Revenue bases this position on the fact that an easement is an interest in real property, and therefore is a beneficial interest in real property for purposes of the Transfer Tax Ordinance. At this time, the Department of Revenue is not claiming that cell site leases are subject to payment of the Transfer Tax (unless such leases are ground leases with terms of 30 or more years). The bulletin sets forth the penalties and interest that apply if a Transfer Tax declaration was not filed, and the Transfer Tax not paid, at the time of the transfer. If a Transfer Tax declaration was not filed at the time of transfer, a penalty in an amount equal to 100 percent of the Transfer Tax applies, and if the failure to pay the Transfer Tax was negligent or willful, a penalty equal to 25 percent of the Transfer Tax is also due. In addition, interest accrues on unpaid Transfer Tax at the rate of 12 percent per annum, calculated daily on a 365 day year. The Department of Revenue provides taxpayers that failed to pay the Transfer Tax when due with the opportunity to participate in a voluntary disclosure program. As part of the program, a taxpayer who didn't pay the Transfer Tax can disclose such non-payment prior to the discovery of such non-payment by the Department of Revenue. If the taxpayer remits the applicable Transfer Tax and all interest due thereon, the Department of Revenue waives all penalties that would otherwise apply. The State of Illinois and Cook County also impose taxes upon the privilege of transferring title to, or beneficial interest in, real property located within their jurisdictions. Both the state and Cook County use the same definition of "beneficial interest in real property" as the city of Chicago does. In addition, the regulations interpreting the state's Real Estate Transfer Tax Law provide that beneficial interests in real property include any type of interest with the right to use or occupy real property, or the right to receive income from real property, including easements. The county does not provide similar guidance. Therefore, in addition to being subject to the city's Transfer Tax, any money or property transferred in consideration for an easement in connection with a cell site is subject to the state's transfer tax, and may be subject to Cook County's transfer tax, unless the transaction falls within an exemption to those transfer taxes. The interpretation set forth in the bulletin expands the universe of transactions that have commonly been thought to be subject to the Transfer Tax, since easements typically have not been considered to be "beneficial interests in real property" for purposes of the Transfer Tax. Although the bulletin only discusses easements for cell sites, based on the reasoning in the bulletin, any easement in the city for which the grantee pays consideration in excess of $500 to the grantor also requires payment of the Transfer Tax. The practical effect on easements in general should be limited, since most easements are not granted in return for consideration. However, certain easements are granted in return for consideration and may be subject to the Transfer Tax. Even cross or reciprocal easements may trigger Transfer Tax because the grantor receives something of value in return for granting such an easement. The immediate effect of the bulletin is that Chicago Transfer Tax, in addition to state of Illinois transfer tax and possibly Cook County transfer tax, should be paid for any future easement for a cell site for which the wireless service provider pays consideration in excess of $500. Moreover, the issuance of the bulletin suggests that the Department of Revenue will be auditing existing cell site easements, so taxpayers should review existing cell site easements to confirm that all required Transfer Tax was paid in connection with their creation. Please call Schiff Hardin for additional information about the city's informational bulletin or to discuss how the city's new policy affects your property. ABOUT SCHIFF HARDIN LLP Schiff Hardin's real estate practice covers all aspects of real estate. Our attorneys' experience includes a particular emphasis on real estate development, especially multi-use projects — combining residential, retail, parking and public-use areas. We have handled more multi-use projects than most firms in the United States and understand the variety of things that need to come together to complete a project — things that don't always come together easily in a large project. Our depth of experience enables us to advise our clients though the process of developing these projects in an efficient and cost-effective manner. For more information, please feel free to contact us.
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