If a municipality hires a private company to collect parking fees and run the payment machines at its parking garages, does the municipality still qualify for the government exemption from Illinois Parking Excise Tax, or does hiring the company make it taxable?

Plain-English summary

The Illinois Department of Revenue ruled that a municipal corporation (called "COMPANY" in the redacted letter) that owns and operates several parking garages remains exempt from the Parking Excise Tax, even though it hired a private business (called "BUSINESS") to handle the day-to-day payment processing, fee collection, and maintenance at those garages.

Illinois's Parking Excise Tax applies to the privilege of using a paid parking space, and normally the "operator" of the garage is responsible for collecting and remitting the tax. Government-operated parking -- run by the State, a State university, or a unit of local government with an active tax exemption number -- is exempt under 86 Ill. Adm. Code 195.115(b), but only if the government entity, not a third party, is the actual "operator."

Here, the municipality and the private business had a principal-and-agent agreement: the business collected parking fees through machines and a mobile app, but all gross receipts were deposited daily into bank accounts held in the municipality's name, belonged solely to the municipality (held in trust if the business ever touched them), and the business could only deduct its flat monthly management fee before passing the rest along. The municipality -- not the business -- set the parking rates, and the signage identified the municipality, not the business, as the operator.

Because payment processors and collection agents don't count as the "operator" under 86 Ill. Adm. Code 195.110(l) when (1) revenues flow directly to the government owner, (2) the owner sets the rates, (3) the contractor is paid a separate flat fee, and (4) signage doesn't identify the contractor as the operator, the Department concluded the municipality remained the operator and the garages' parking revenue stayed exempt from the tax.

What this means for you

Municipalities and local governments

If your municipality, county, township, or special district owns parking facilities and outsources fee collection, maintenance, or payment technology to a private contractor, you can likely preserve your Parking Excise Tax exemption -- but the structure of the arrangement matters. Keep all parking revenue flowing directly into accounts in your own name, retain control over setting parking rates, pay the contractor only a flat or fixed fee (not a cut of receipts), and make sure signage identifies your government entity, not the contractor, as the operator. You should also confirm you hold an active tax exemption number issued under Section 1g of the Retailers' Occupation Tax Act, since the exemption depends on it.

Parking-garage management companies and contractors

If you're hired to run payment machines, mobile apps, collections, maintenance, or security at a government-owned garage, you are not automatically the taxable "operator." Structuring your contract as an agency relationship -- where you deposit collected funds into the owner's accounts, treat any funds you hold as held in trust for the owner, and draw only a separate management fee -- supports the position that the government entity remains the operator responsible (or exempt) for the tax, not you.

Accountants and tax professionals

This ruling illustrates how the Department applies the "operator" test in 86 Ill. Adm. Code 195.110(l) to agency-style parking management contracts. The key facts the Department relied on were: (1) bank accounts titled in the municipality's name, (2) daily deposits of gross receipts by the contractor, (3) receipts treated as the municipality's property (held in trust when in the contractor's possession), (4) a flat management fee rather than a percentage of receipts, and (5) the municipality (not the contractor) setting rates and appearing on signage. Advising clients with similar contracts, make sure the agreement documents these same features to support exempt treatment.

Common questions

Q: Does hiring a private company to collect parking fees automatically make a government parking garage taxable?
A: No. Under 86 Ill. Adm. Code 195.110(l), a company that only provides payment processing, fee collection, maintenance, or security functions is not treated as the "operator" as long as revenues flow directly to the government owner, the owner sets the rates, the company is paid a separate fee, and signage doesn't name the company as the operator.

Q: What made the Department decide the municipality, not the business, was the "operator" here?
A: The agreement established a principal-agent relationship: bank accounts were held in the municipality's name, the business made daily deposits of gross receipts, all receipts belonged to the municipality (held in trust if the business had them), the business was paid only a flat monthly management fee, and the municipality set the rates and appeared on the signage.

Q: What law creates the government exemption from the Parking Excise Tax?
A: 86 Ill. Adm. Code 195.115(b) exempts parking in a parking area or garage operated by the State, State universities created by statute, or a unit of local government that holds an active tax exemption number under Section 1g of the Retailers' Occupation Tax Act -- but only if that government entity, not a third party, actually operates the garage.

Q: Can other municipalities rely on this specific ruling?
A: No. As a Private Letter Ruling, this is binding on the Department only as to the taxpayer (COMPANY) who requested it, and only to the extent the facts it described are correct and complete. Other municipalities with similar arrangements can look to it as an illustration of the Department's reasoning, but should seek their own guidance for their specific facts.

Citations and references

Statutes and rules:

• 35 ILCS 525/10-5 (Parking Excise Tax Act -- imposition of tax; definition of "operator")
• 86 Ill. Adm. Code 195.115(b) (exemption for parking operated by government entities)
• 86 Ill. Adm. Code 195.110(d) (operator's duty to collect tax absent exemption)
• 86 Ill. Adm. Code 195.110(l) (payment processors/collection agents not the "operator")
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure and binding effect)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2021.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2021/st21-0014-plr.pdf

Original ruling text

ST 21-0014 04/12/2021 PARKING EXCISE TAX

This letter discusses the exemption from Parking Excise Tax when parking in a
parking area or garage operated by the State, State universities created by
statute, or a unit of local government, e.g., counties, municipalities, townships,
and special districts. See 86 Ill. Adm. Code 195.115(b). (This is a PLR.)

April 12, 2021
Dear: NAME

This letter is in response to your letter dated January 27, 2021, in which you
requested information. The Department issues two types of letter rulings. Private Letter
Rulings (“PLRs”) are issued by the Department in response to specific taxpayer
inquiries concerning the application of a tax statute or rule to a particular fact situation.
A PLR is binding on the Department, but only as to the taxpayer who is the subject of
the request for ruling and only to the extent the facts recited in the PLR are correct and
complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General
Information Letter (“GIL”) is to direct taxpayers to Department regulations or other
sources of information regarding the topic about which they have inquired. A GIL is not
a statement of Department policy and is not binding on the Department. See 2 Ill. Adm.
Code 1200.120. You may access our website at www.tax.illinois.gov to review
regulations, letter rulings and other types of information relevant to your inquiry.

Review of your request disclosed that all the information described in paragraphs
1 through 8 of Section 1200.110 appears to be contained in your request. This Private
Letter Ruling will bind the Department only with respect to COMPANY, for the issue or
issues presented in this ruling, and is subject to the provisions of subsection (e) of
Section 1200.110 governing expiration of Private Letter Rulings. Issuance of this ruling
is conditioned upon the understanding that neither COMPANY, nor a related taxpayer is
currently under audit or involved in litigation concerning the issues that are the subject
of this ruling request. In your letter you have stated and made inquiry as follows:

This letter is submitted as a request for a private letter ruling regarding
the application of the Illinois Department of Revenue's (" IDOR")
Parking Excise Tax to the COMPANY ("COMPANY"). The COMPANY
is a municipal corporation, which exists and operates pursuant to (70
ILCS 210).

This ruling is requested for all taxable periods from and after its
issuance until COMPANY's material facts that are the basis of this
ruling change. Such a private letter ruling request is proper under 86
Ill. Adm. Code § 1200.110. To the best of our knowledge, no authority
exists that is contrary to the positions expressed in this request for a
private letter ruling. Nor are the issues in this request part of a current
audit or litigation matter with the IDOR concerning COMPANY or any
related company. There are no regulations that are clearly dispositive

COMPANY
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April 12, 2021

of the issues in this request. To the best knowledge of COMPANY, the
IDOR has not previously ruled on the same or similar issue for
COMPANY or a predecessor. COMPANY has not previously
submitted the same or a similar issue to the IDOR and, there are no
authorities that COMPANY is aware of that are contrary to the ruling
request made herein by COMPANY. There is no information herein
that is considered a trade secret that COMPANY requests be
redacted/omitted from publicly disseminated versions of the private
letter ruling.

Statement of Facts/Background

The COMPANY, a municipal corporation, owns and operates the
LOCATION, including several parking lots. The COMPANY holds a
contract with BUSINESS to manage the parking lots, including
collection of parking fees and remitting those revenues to COMPANY.
Under that contract, BUSINESS is paid a flat management fee. The
parking management contract is included as an attachment for
reference. The COMPANY has been issued a _ governmental
exemption from IDOR for sales taxes (letter attached). BUSINESS
holds a certificate of registration/license for the parking excise tax
(attached) and has been filing and submitting PE-100-Parking Excise
Tax Return (sample attached).

Applicable Laws/Requlation
COMPANY requests that IDOR confirm that it falls within an exemption
from The Parking Excise Tax, 35 ILCS 525/10-5.

Title 86 Part 195 Section 115 Exemption from Tax
The tax imposed by the Act shall not apply to:

(b) parking in a parking area or garage operated by the State, State
universities created by statute, or a unit of local government (e.g.,
counties, municipalities, townships, and special districts) that have
been issued an active tax exemption number by the Department under
Section Ig of the Retailers' Occupation Tax Act. For this exemption to
apply, the parking area or garage must be operated by the State, State
universities created by statute, or the unit of local government. The
exemption under this subsection (b) does not apply if the parking area
or garage is operated by a third party, whether under a lease or other
contractual arrangement, or held in any other manner whatsoever;

From the IDOR website

COMPANY
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April 12, 2021

httos://www2. illinois.gov/rev/research/taxinformation/excise/Pages/Par
king FAQ. aspx#ast11

What if | operate a parking area owned by an entity that is exempt
from the Parking Excise Tax Act?

If you operate a parking area owned by an exempt entity, you may still
be required to collect and remit the Parking Excise Tax. See 86 Il.
Admin. Code 195.115.

Example 2: A municipality owns a parking area. The parking area has
signs that indicate the lot is owned and operated by the municipality. It
retains a company to install machines on the lot that accept electronic
payments. The company also provides a mobile application that
permits a person to pay for parking electronically. All payments made
by a customer either by using the machine on the lot or the mobile
application go directly to the municipality. The company subsequently
receives a fee for its services from the municipality. The municipality is
the operator of the lot and pursuant to Section 195.1 15(b) is not
required to collect and remit the tax.

Analysis/ Rulings Requested

The COMPANY is a municipal corporation that owns and operates the
parking lots. The parking lots have signs that indicate that the lots are
owned and operated by COMPANY. COMPANY receives the parking
revenues directly and COMPANY sets and approves the parking rates.
COMPANY holds a contract with BUSINESS to manage its parking
lots, including the installation of machines and a mobile application to
collect parking fees. BUSINESS is paid a flat fee for its services
independent of the parking fees collected. COMPANY believes that
the fact pattern described in the FAQs listed above apply and therefore
COMPANY is not required to collect and remit the parking excise tax.
COMPANY requests that IDOR provide a private letter ruling confirming
this interpretation regarding the applicability of the exemption.

DEPARTMENT’S RESPONSE:

The Illinois Parking Excise Tax Act (the “Act”) imposes a Parking Excise Tax (the
“Tax”) effective January 1, 2020 “on the privilege of using in this state a parking space
in a parking area or garage”. 35 ILCS 525. The Tax is on the purchaser of the parking
and is collected by the operator. The total purchase price paid for parking is taxable
under the Tax. 35 ILCS 525/10-5. This includes “the consideration paid for the
purchase of the parking space” including all convenience fees, markups, service fees,
facilitation fees, and other charges. /d.

COMPANY
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April 12, 2021

Under the Act, an “operator” required to collect the Tax is any “person who
engages in the business of operating a parking area or garage, or who, directly or
through an agreement or arrangement with another party, collects the consideration for
parking ....” 35 ILCS 525/10-5.

The operator of a parking area or garage must collect the tax on the purchase of
all parking spaces in a parking area or garage unless the operator is exempt from
collecting the tax or the tax is not due on the transaction. 86 Ill. Adm. Code 195.110(d).

The tax imposed by the Act does not apply to

b) parking in a parking area or garage operated by the State, State
universities created by statute, or a unit of local government, e.g.,
counties, municipalities, townships, and special districts, that have been
issued an active tax exemption number by the Department under Section
1g of the Retailers' Occupation Tax Act. For this exemption to apply, the
parking area or garage must be operated by the State, State universities
created by statute, or the unit of local government. The exemption under
this subsection (b) does not apply if the parking area or garage is operated
by a third party, whether under a lease or other contractual arrangement,
or any other manner whatsoever.

86 Ill. Adm. Code 195.115(b).

A person that provides payment processing, collection functions, parking area
maintenance, or security functions is not an operator subject to the tax when:

1) all parking revenues flow directly to the operator;
2) the operator sets the parking rates;
3) the person is paid a separate fee for the service provided; and

4) the sign at the parking area or garage does not identify the person as the
operator.

86 Ill. Adm. Code 195.110(I).

COMPANY states in its request that COMPANY and BUSINESS have entered
into an Agreement whereby BUSINESS provides payment processing, collection
functions, parking area maintenance, or security functions in garages owned and
operated by COMPANY, COMPANY is a municipal corporation, has an exemption
number issued to it by the Department, receives the parking revenues collected by

COMPANY
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April 12, 2021

BUSINESS on a daily basis, sets the parking rates, pays BUSINESS a separate
management fee, and the signage bears the name of COMPANY. All payments made
by customers, either by using a machine on the lot or by mobile app, go directly to
COMPANY. These statements are confirmed by a review of the Agreement between
COMPANY and BUSINESS.

The Agreement states, among other things, that the relationship between
COMPANY and BUSINESS shall be that of principal and agent. One or more bank
accounts in the name of COMPANY shall be created pursuant to the Agreement, and
BUSINESS must make daily deposits of gross receipts received from customers into
one or more accounts. All gross receipts collected by BUSINESS are the sole property
of COMPANY; and, if any time held by BUSINESS, the receipts are held in trust for
COMPANY. On a monthly basis BUSINESS may deduct its management fee from
gross receipts. BUSINESS is permitted to draw upon the operating account to pay
operating expenses incurred by it in performance of its responsibilities pursuant to the
Agreement.

It is the Department’s ruling that COMPANY is the operator of the garage, that
BUSINESS is not an operator of the parking areas or garages subject to the Agreement,
and the gross receipts collected from customers parking in parking area or garages
subject to the Agreement are exempt from tax pursuant to Section 195.115(b).

The factual representations upon which this ruling is based are subject to review
by the Department during the course of any audit, investigation, or hearing and this
ruling shall bind the Department only if the factual representations recited in this ruling
are correct and complete. This Private Letter Ruling is revoked and will cease to bind
the Department 10 years after the date of this letter under the provisions of 2 Ill. Adm.
Code 1200.110(e) or earlier if there is a pertinent change in statutory law, case law,
rules or in the factual representations recited in this ruling.

| hope this information is helpful. If you have further questions concerning this
Private Letter Ruling, you may contact me at (217) 782-2844. If you have further
questions related to the Illinois sales tax laws, please visit our website at
www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217)
782-3336.

Very truly yours,

Richard S. Wolters
Chairman, Private Letter Ruling Committee

RSW:rkn

COMPANY
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April 12, 2021