When Separate Corporations Are Not Separate for City of Chicago Head Tax

Business owners who have operations at separate locations often set up separate corporations for each location.  There are many good reasons to do this including limiting liability at one location from effecting the other locations.  The separate corporations should have their own bank accounts, bookkeeping, business licenses, corporate records, employees, tax identification numbers.  

But apparently, this is not enough for the City of Chicago.  A recent Illinois Appellate court decision DTCT v. The City of Chicago upheld the City of Chicago’s position. In this case a husband and wife owned several separate corporations.  Each of those corporations owned a different McDonald’s restaurant location. The City of Chicago said that because each of the corporations had the same shareholders then all the corporations would be counted as one business entity for the purpose of calculating the employer’s expense tax (a.k.a. the “head tax”). This tax applies to employers who have 50 or more employees working in Chicago. The tax rate is $4 per employee per month.  The individual restaurants had less than 50 employees, but all of them together had more than 50 employees.

The separate corporations had followed all the corporate formalities.  They had separate bank accounts, separate books and records, each had their own City of Chicago business license, they had separate tax identification numbers and filed separate tax returns.  But this was not enough for the City of Chicago in determining the “head tax.”

Disclaimer This is a passive blog and the materials contained herein are provided for informational purposes only. Nothing contained in this blog should be interpreted as a solicitation of business and none of the information contained herein constitutes legal advice. The law is subject to change without notice, and the local laws of your residence may be different from the general information displayed on this blog. You should not rely on the information provided on this blog without first consulting an attorney. Contacting this website does not establish and attorney/client relationship between you and its publisher Christopher W. Matern. An attorney/client relationship can only be established with Christopher Matern by engaging in direct person-to-person contact with Christopher Matern. Christopher Matern does not intend to practice law in any jurisdiction in which he is not licensed.