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Ruling Shields Moxie Software From Chicago’s ‘Cloud Tax’

Dec. 16, 2019, 9:45 AM

A previously hidden tax ruling exempted Moxie Software Inc. of tax collection duties under Chicago’s cloud computing tax, raising the possibility of tax relief for other tech businesses under audit.

The ruling, known as a Private Letter Ruling (PLR), reveals Chicago’s approach to the critical question of “substantial nexus"—the legal standard by which a business is considered to have a presence within the city for tax purposes because of an economic connection, or nexus. Chicago didn’t address the question of nexus in 2015 when it announced modifications to its Personal Property Lease Transaction Tax, which imposes a 5.25% tax on businesses for their use of internet-based computing services—the so-called cloud tax.

The private ruling provided to Bellevue, Wash.-based Moxie suggests that tech companies with no physical presence in Chicago prior to the U.S. Supreme Court’s South Dakota v. Wayfair ruling have no duty to collect and remit the cloud tax. The issue frequently comes up in audits, said Samantha Breslow, chair of the Chicago Bar Association’s state and local tax committee.

Moxie said it shouldn’t have to collect the cloud tax from Chicago-based customers because it lacked substantial nexus, having no physical presence in the city. Chicago rejected the software vendor’s legal rationale, but conceded the question “is an unsettled area of law.” Chicago’s tax counsel determined Moxie didn’t have to immediately collect from customers under the cloud tax, but reserved the city’s right to change that if its law changes.

Limiting Your Tax Liabilities

While the PLR applies to Moxie, Breslow said some taxpayers might use the ruling to limit their tax liabilities for periods prior to the Wayfair ruling in June 2018. The critical element, she said, is whether the taxpayer had any physical connections to Chicago during the period under audit.

In Wayfair, the court tossed the 1992 standard in Quill Corp. v. North Dakota, which indicated taxpayers had to have a physical presence in a state in order to be taxed. The Wayfair ruling created a way for states to tax remote sellers who were considered to have an economic nexus even if they had no physical presence in the state.

“In these unpublished PLRs, the department takes the position that Quill is not applicable to the transaction tax, yet concedes that this is an ‘unsettled area of law’ and does not require the taxpayer to collect the transaction tax,” said Breslow, an attorney in the Chicago office of Horwood Marcus & Berk Chartered.

The Moxie PLR and 35 additional guidance letters were obtained by Bloomberg Tax following a request to the Chicago Department of Finance, filed under the Freedom of Information Act. Of the 36 letter rulings, 19 involved questions about Chicago’s cloud tax.

To contact the reporter on this story: Michael J. Bologna in Chicago at

To contact the editors responsible for this story: Jeff Harrington at; Cheryl Saenz at