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Heads Roll in Chicago — Significant Changes to the Chicago Employer’s Expense Tax, a.k.a. the “Head Tax”

If you are paying Chicago Employer’s Expense Tax (referred to as “Head Tax”), you should be aware of some recent legislative changes that may reduce your tax liability. The salary thresholds in the definition of “full-time employee” and “commission merchant” were increased to $4,300 per quarter, effective July 1, 2011. Previously, employers who had an employee earning $900 per quarter were subject to head tax. This change was a result of the state-mandated increase in minimum wage to $8.25 per hour. 

Another recent development in the Head Tax took place in the courtroom. McDonald’s Corporation argued that the company should not be required to combine employees of different franchises in order to meet the 50-or-more full-time employee threshold required by the tax. The court did not agree and upheld the ordinance’s “unitary group” requirement. Chicago Municipal Code Section 3-20-020(B) states that the threshold encompasses employees in the employer’s “business” and defines a business to include entities that are subsidiary or independent. The court further defined business to include “any activity . . . or undertaking of any nature conducted with the object of gain . . . whether direct or indirect, to the employer.” The ruling determined that the franchises are not separate corporate entities because the commonly owned restaurant owners controlled every aspect of their franchise operations. 

In order to help you deal with the recent tax law changes and court rulings, please consult Laura Miller at lmiller@BlackmanKallick.com or 312-980-3283, Jason Parish at jparish@BlackmanKallick.com or 312-980-2959, or your Blackman Kallick representative. Our thanks to Deb Rood for her contribution to this article.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.