What is the correct combined Hotel Operators' Occupation Tax rate that a Chicago hotel should charge, and why does the Department-administered portion come out to 11.9% instead of the seemingly simpler 11.5%?

Plain-English summary

A director of tax for a company that manages several Illinois hotel properties wrote to the Illinois Department of Revenue after an online travel booking agency disputed the tax rate the company was charging. The company had been told by IL Department of Revenue staff that the correct rate for the Illinois Hotel Operators' Occupation Tax ("HOOT") in the City of Chicago is 11.9%, but could not find written guidance confirming that number, and asked the Department to confirm it in writing for its property.

The Department responded with a GIL (not the binding Private Letter Ruling process described in 2 Ill. Adm. Code 1200.110) explaining how the 11.9% figure is derived. The State Hotel Operators' Occupation Tax Act, 35 ILCS 145/3, taxes hotel room rentals at 5% of 94% of gross rental receipts, plus an additional 1% of 94% of gross rental receipts, for a combined nominal State rate of 6% of 94% (i.e., roughly 5.64%). Separately, Chicago may levy up to 1% of gross rental receipts under its Municipal Hotel Operators' Occupation Tax (65 ILCS 5/8-3-13), the Illinois Sports Facilities Authority ("ISFA") imposes 2% (70 ILCS 3205/19), and the Metropolitan Pier and Exposition Authority ("MPEA") imposes 2.5% (70 ILCS 210/13(c)). Added together, those four Department-administered/collected rates come to a nominal 11.5% (6% + 2% + 1% + 2.5%).

The reason the real rate is 11.9%, not 11.5%, is that the State tax, the Chicago Municipal tax, and the ISFA tax are each defined so that the taxable "gross rental receipts" for one of them includes the amounts a hotel collects from guests as reimbursement for the other two of those taxes — they pyramid on each other. Only the MPEA tax excludes all state and local hotel taxes from its own base, and only the MPEA tax, the Cook County hotel tax, and Chicago's own home-rule hotel tax are excluded from the others' bases. Working through that circular math (illustrated with a chart in the ruling), the Department calculated the effective combined rate it collects and administers (State + Chicago Municipal + ISFA + MPEA) at 11.9% of gross rental receipts. The Department also noted that Chicago separately administers its own 4.5% home-rule hotel tax and Cook County administers its own 1% hotel tax, both of which exclude state/local hotel taxes from their base, bringing the total effective hotel tax burden in Chicago to 17.4%. The Department cited Sullivan v. Commonwealth Edison Co., 115 Ill. App. 3d 560 (1983), a case involving pyramided utility taxes, as support for including one tax's reimbursement amounts in another tax's base. The Department also confirmed that the Illinois Sports Facilities Tax (70 ILCS 3205/19(c)) and the Chicago Municipal tax (65 ILCS 5/8-3-13) both expressly let a hotel operator pass the tax on to guests as a separately stated additional charge, combined in a single line with other hotel taxes if it wishes, so long as the added charge doesn't exceed the operator's actual tax liability.

What this means for you

Hotel operators in Chicago

If you operate a hotel in Chicago, this GIL confirms that the combined rate for the taxes the Illinois Department of Revenue collects and administers (State Hotel Operators' Occupation Tax, Chicago Municipal Hotel Tax, ISFA tax, and MPEA tax) is 11.9% of gross rental receipts, not the simpler-looking 11.5% you'd get by just adding the nominal rates. You should also separately collect Chicago's own 4.5% home-rule hotel tax and Cook County's 1% hotel tax, for a 17.4% total effective rate. You may pass these taxes on to guests as a separately stated charge (combined into one line if you choose), as long as the charge doesn't exceed your actual tax liability.

Hotels disputing rates with online travel companies (OTCs)

The dispute in this letter arose because an OTC challenged the 11.9% figure the hotel was charging, and no readily available written guidance existed to confirm it. This GIL is now that written confirmation of the math behind the 11.9% Department-administered rate for Chicago properties — useful if you face a similar rate dispute with a booking platform, though remember a GIL is not binding on the Department and does not resolve disputes with third parties like OTCs.

Accountants and tax professionals

When computing the Hotel Operators' Occupation Tax, the Chicago Municipal tax, and the ISFA tax for a Chicago hotel, remember that each one's "gross rental receipts" base includes amounts the operator collects as reimbursement for the other two — but excludes the MPEA tax, the Cook County tax, and Chicago's own home-rule tax. Failing to gross up correctly for this pyramiding effect will understate the tax due. The Department's worked example in this letter (culminating in the 11.9% combined rate) is a useful check figure for Chicago-property clients.

Common questions

Q: What is the correct Hotel Operators' Occupation Tax rate for a Chicago hotel?
A: The taxes the Illinois Department of Revenue collects and administers — the State Hotel Operators' Occupation Tax, the Chicago Municipal Hotel Operators' Occupation Tax, the Illinois Sports Facilities Tax, and the MPEA tax — together come to an effective rate of 11.9% of gross rental receipts. Adding Chicago's own 4.5% home-rule hotel tax and Cook County's 1% hotel tax brings the total effective rate to 17.4%.

Q: Why isn't the rate just 11.5% (6% + 2% + 1% + 2.5%)?
A: Because the State tax, the Chicago Municipal tax, and the ISFA tax are each defined to include, in their own taxable gross rental receipts, the amounts collected as reimbursement for the other two of those three taxes. That pyramiding pushes the nominal 11.5% up to an effective 11.9%. Only the MPEA tax, the Cook County tax, and Chicago's separate home-rule tax are excluded from the others' bases.

Q: What does the State Hotel Operators' Occupation Tax rate look like on its own?
A: 35 ILCS 145/3 sets it at 5% of 94% of gross rental receipts, plus an additional 1% of 94% of gross rental receipts, for a combined nominal 6% of 94% (excluding MPEA taxes from the base).

Q: Can a hotel pass these taxes on to guests as a separate line-item charge?
A: Yes. Both the Illinois Sports Facilities Tax (70 ILCS 3205/19(c)) and the Chicago Municipal Hotel Operators' Tax (65 ILCS 5/8-3-13) let the hotel operator reimburse itself by separately stating the tax as an additional charge, which may be combined with other hotel taxes in a single stated amount, as long as the charge doesn't exceed the operator's actual tax liability.

Q: Is this GIL binding on the Department or on other taxpayers?
A: No. It is a General Information Letter, which directs the requesting taxpayer to the relevant statutes and regulations but is not a statement of Department policy and is not binding on the Department, even as to the requesting taxpayer.

Citations and references

Statutes:

• 35 ILCS 145/3 (imposition and rate of the Hotel Operators' Occupation Tax on gross rental receipts)
• 35 ILCS 145/2 (definition of "rent" or "rental")
• 65 ILCS 5/8-3-13 (Chicago Municipal Hotel Operators' Occupation Tax)
• 70 ILCS 3205/19 (Illinois Sports Facilities Authority hotel tax, including the reimbursement/pass-through provision at 70 ILCS 3205/19(c))
• 70 ILCS 210/13(c) (Metropolitan Pier and Exposition Authority hotel tax)

Regulations:

• 86 Ill. Adm. Code 480.101 (gross rental receipts; exclusion of MPEA-imposed taxes)
• 86 Ill. Adm. Code 480.105 (definition of "rent" or "rental")
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Case law cited by the Department:

• Sullivan v. Commonwealth Edison Co., 115 Ill. App. 3d 560 (1983) (municipal tax collections passed on to customers as additional charges were includable in the tax base for computing a State utility tax; cited here for the same pyramiding principle among hotel taxes)

Other local taxes referenced (not administered by the Illinois Department of Revenue):

• Chicago, Ill., Municipal Code, §3-24-30 (Chicago's own 4.5% home-rule hotel tax)
• Cook County, Ill., Code of Ordinances, §74-802 (Cook County's own 1% hotel tax)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2023.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2023/st23-0028-gil.pdf

Original ruling text

ST-23-0028-GIL 08/30/2023 HOTEL OPERATORS’ TAX
In computing the Hotel Operators’ Occupation Tax, the amounts collected by the
hotel operator under each of the Hotel Operators’ Occupation Tax, the Municipal
Hotel Operators’ Occupation Tax, and the Illinois Sports Facilities Tax must be
included in the taxable gross rental receipts for each of the other taxes. See 35
ILCS 145/3, 65 ILCS 5/8-3-13, 70 ILCS 210/13(c), and 70 ILCS 3205/19. (This is
a GIL.)
August 30, 2023

NAME
Director of Tax
COMPANY
ADDRESS1
Dear NAME:
This letter is in response to your e-mail received December 27, 2022, 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.
The nature of your inquiry and the information you have provided require that we
respond with a GIL. In your letter you have stated and made inquiry as follows:
My company manages several hotel properties in IL. We are running into
issues with one of the online travel booking agencies regarding the proper
tax rate to be charged. They are disputing the rate that we are charging. I
have confirmed with the IL Department of Revenue that the rate charged
for IL HOOT should be 11.9% in the City of Chicago. There is no written
guidance that I or the representative with IL DOR could locate that spells
out the 11.9% rate. Would you be able to confirm in writing that the
property should be charging 11.9% at our location at ADDRESS2?

COMPANY/ NAME
Page 2
August 30, 2023

Thank you for your consideration of this request. Any assistance
would be appreciated.
DEPARTMENT’S RESPONSE:
The Hotel Operators’ Occupation Tax Act imposes a tax upon persons engaged
in the business of renting, leasing, or letting rooms in a hotel at the rate of 5% of 94% of
the gross rental receipts, plus an additional 1% of 94% of gross rental receipts from
such guests, for a combined total rate of 6% of 94%. The statute excludes from gross
rental receipts taxes imposed by the Metropolitan Pier and Exposition Authority
(“MPEA”). 35 ILCS 145/3 and 86 Ill. Adm. Code 480.101. The Act defines “rent” or
“rental” to mean the consideration received for occupancy, valued in money, whether
received in money or otherwise, including all receipts, cash, credits and property or
services of any kind or nature. 35 ILCS 145/2 and 86 Ill. Adm. 480.105.
State statute also permits Chicago to levy a tax of up to 1% of gross rental
receipts of hotel operators, excluding from gross rental receipts taxes imposed by the
MPEA. (Chicago Municipal Hotel Operators’ Occupation Tax, 65 ILCS 5/8-3-13). The
Illinois Sports Facilities Authority (“ISFA”) imposes a tax of 2% of gross rental receipts of
hotel operators in Chicago, excluding from gross rental receipts taxes imposed by the
MPEA. (70 ILCS 3205/19). The MPEA imposes a tax of 2.5% of gross receipts of hotel
operators in Chicago, excluding from gross rental receipts taxes that are added on
account of any tax imposed by the State or any governmental agency. (70 ILCS

COMPANY/ NAME
Page 3
August 30, 2023
210/13(c)). The Illinois Department of Revenue collects all three taxes and distributes
the funds accordingly.
Additionally, the City of Chicago administers its own 4.5% home rule hotel tax
(Chicago, Ill., Municipal Code, §3-24-30) and Cook County administers its own 1% hotel
tax (Cook County, Ill., Code of Ordinances, §74-802), both of which exclude from gross
rental receipts taxes that are added on account of State or local hotel taxes. The total
effective hotel tax rate on hotels in Chicago is 17.4%. That is because, due to the
differing definitions of “gross rental receipts” as discussed above, the gross rental
receipts of the State tax, Chicago Municipal Tax (administered by the Illinois
Department of Revenue), and ISFA tax each includes the other two of those taxes,
while the gross rental receipts of the MPEA tax, the Cook County-administered county
hotel tax, and the Chicago-administered city hotel tax each do not include any State or
local hotel taxes. As such, Chicago hotels are advised to collect a total tax rate of
17.4%, of which the Department collects and administers 11.9%, Chicago collects and
administers 4.5%, and Cook County collects and administers 1%. While the nominal
total tax rate for taxes administered by the Department is 11.5% (State 6% + ISFA 2% +
Chicago Municipal 1% + MPEA 2.5% = 11.5%), the State tax, ISFA Tax, and Chicago
Municipal Tax each includes the taxes imposed by the other as part of gross rental
receipts subject to tax, so the effective tax rate rounds to 11.9%.
In computing the Hotel Operators’ Occupation Tax (i.e., the State tax), the
amounts collected by the hotel operator as reimbursement for the Hotel Operators’
Occupation Tax, as well as the sums for the Chicago Municipal Hotel Operators’
Occupation Tax and the Illinois Sports Facilities Tax, must be included in the gross
rental receipts. With respect to the State tax, the tax is reduced by the amount of the
reimbursement of the tax inasmuch as the rate is 6% of 94% of gross receipts. 35 ILCS
145/3 and 86 Ill. 480.101. Thus, the State tax is not imposed on the amount collected
by the hotel operator as reimbursement for the State Hotel Operators’ Occupation Tax.
The amounts collected by the hotel operator as reimbursement for the Chicago
Municipal Hotel Operators’ Tax and the Illinois Sports Facilities Tax are included in the
tax base for the other tax. Thus, the tax base for the State tax would include collections
of the Chicago Municipal Tax and the Illinois Sports Facilities Tax; the tax base for the
Chicago Municipal Tax would include collections of the State Tax and the Illinois Sports
Facilities Tax; and the tax base for the Illinois Sports Facilities Tax would include the
collections of the State tax and the Chicago Municipal Tax. While each of the taxes
properly includes the collection of the other taxes in their respective tax bases, none of
the taxes are imposed upon the collection of that tax itself.
This procedure was the subject of litigation in the case of Sullivan v.
Commonwealth Edison Company, 115 Ill. App.3d 560 (1983). That case dealt with the
various taxes imposed on utility service in Illinois and held that municipal tax collections
passed on to customers as additional charges were includable in the tax base for the
computation of the State utility tax.

COMPANY/ NAME
Page 4
August 30, 2023
The Illinois Sports Facilities Tax specifically provides that “persons subject to any
tax imposed pursuant to authority granted by this Section may reimburse themselves for
their tax liability for such tax by separately stating such tax as an additional charge,
which charge may be stated in combination, in a single amount, with State tax imposed
under [other hotel taxes].” 70 ILCS 3205/19(c). The Chicago Municipal Hotel
Operator’s Tax includes virtually the same provision. (65 ILCS 5/8-3-13). These
provisions authorize the hotel operator to charge customers the amount necessary to
reimburse the hotel operator for the tax liabilities. Inasmuch as the tax base may
exceed the room rental charge, hotel operators would be authorized to make an
additional charge which would be in excess of the room rental fee, as long as that
charge did not exceed the hotel operator's liability for tax. See the chart below
explaining the effective tax rate for hotel taxes in Chicago that are administered by the
Illinois Department of Revenue.
Effective tax rate for Illinois Department of Revenue-administered Hotel
Operators’ Occupation Tax – Chicago Example
State
6% State
+
(6% of 94%) x (1% Chicago + 2% ISFA)
= 6.17
[0.0564 x 3 = 0.17]
%
Chicago
1% Chicago +
(1% of 99%) x (6% State + 2% ISFA)
= 1.08
(Municipal
[0.0099 x 8 = 0.08]
%
)
ISFA
2% ISFA
+
(2% of 98%) x (6% State + 1% Chicago)
= 2.14
[0.00196 x 7 = 0.14]
%
MPEA
2.5% MPEA
2.5%
TOTAL
11.9
I hope this information is helpful. If you require additional information, please
visit our website at www.tax.illinois.gov or contact the Department’s Taxpayer
Information Division at (217) 782-3336.
Very truly yours,

Samuel J. Moore
Associate Counsel
SJM:rkn