Chicago Mayor Brandon Johnson declined to veto the city's alternative budget bill (Record No. SO2025—0021719), approved by the Chicago City Council on December 19, 2025, allowing it to become law without his signature.¹ The bill creates new and modifies existing taxes, including a new social media amusement tax, and increases the rates of the personal property lease tax and the sports betting tax. Notably, the mayor's proposed corporate head tax, which would have been imposed on businesses with 500 or more employees at a rate of $33 per employee per month, was not included in the final bill.

The changes discussed in this Tax Alert take effect January 1, 2026, unless otherwise noted.

Social media amusement tax

Beginning January 1, 2026, the city will impose a new social media amusement tax (SMAT) on social media businesses that provide individuals access to their social media and collect consumer data² on more than 100,000 Chicago consumers³ in a calendar year. Social media encompasses any content shared and viewed on social platforms, including but not limited to, images, videos, audio recordings, live streamed material such as performances, and memes, as defined in Municipal Code of Chicago Section 41561010. The tax is imposed at a rate of $0.50 per month for each Chicago consumer in excess of 100,000.

For a detailed discussion of the new SMAT and implications of the new tax, see Tax Alert 2026-0377.

Personal property lease tax

Effective January 1, 2026, the rate of the personal property lease tax is increased to 15% (from 11%) of the lease or rental price. Chicago's personal property lease tax is imposed on leases, rentals of personal property or nonpossessory computer leases of software, cloud software and cloud infrastructure. The law bars any increase to the rate of tax before January 1, 2028.

Sports betting

The Illinois Sports Wagering Act,⁴ which took effect in 2019, allows a holder of a master sporting wagering license to conduct sports wagering in-person, over the Internet or through a mobile application (hereafter, online sports wagering). Chicago, however, had not previously imposed its local wagering tax on businesses generating revenue from online betting activity taking place within the city.

Under amendments included in the budget bill, the Chicago sports wagering tax⁵ has been broadened to apply to primary licensees'⁶ gross sports wagering receipts generated in the city via online sports wagering. Additionally, the tax rate has been increased from 2% to 10.25%. With this expansion, businesses that are primary licensees offering online and in-person sports wagering services to users located within Chicago will now face significantly higher and broader tax obligations. The location restrictions, however,⁷ allow only master sporting wagering license holders to conduct both online and in-person sports wagering.

This expansion of the tax to "online betting" does not come without challenges. On December 30, 2025, the Sports Betting Alliance, who represents major sportsbook operators, filed a verified complaint for declaratory judgment and permanent injunction in the Cook County Chancery Division, challenging the constitutionality and validity of Chicago's expansion of the tax to online sports wagering. The hearing is currently scheduled for March 3, 2026.

Ground transportation tax

Effective July 1, 2026, the rate of the ground transportation tax imposed on ground transportation vehicles (other than taxicabs and pedicabs) that seat 10 or fewer passengers (hereafter, public passenger vehicles) is changed from $3.50 for each vehicle for each day used in the city to a rate of:

1. $98 for each licensed/required to be licensed public passenger vehicle for each calendar month it is used in the city to provide ground transportation and
2. $3.50 for each public passenger vehicle not required to be licensed for each day it is used in the city, capped at $98 per month

These same tax rates apply to ground transportation vehicles that are taxicabs.

The tax imposed on the privilege of leasing a motor vehicle within the city to a lessee on a daily or weekly basis is reduced from $2.50 to $0.50 per vehicle per rental period. Effective February 1, 2026, the law increases the license fees imposed on various public passenger vehicles and provides that the fees are non-refundable and generally are not prorated.

The law repeals the definition of "downtown zone" and replaces it with "congestion zone one" and "congestion zone two" (each term defined by the law). For singe rides provided by transportation network drivers in the city, an additional $1.50 tax applies per vehicle per ride accepted for every ride that includes a pick-up and/or drop-off between 6:00 a.m. and 10:00 p.m. in congestion zone one or congestion zone two. On weekdays, the additional tax is reduced to $0.60 for each ride that is a shared ride. Guidance issued by the Chicago Department of Finance indicates that this rate change applies beginning January 6, 2026.

Other tax changes

Other tax changes in the budget bill include:

• Increasing the checkout bag tax to 15 cents (from 10 cents) per bag sold or used in the city; stores remitting the tax are eligible to retain 1 cent per checkout bag sold or used
• Increasing the boat mooring tax to 23.25% (from 7%), the rate of tax assessed on nonprofit corporations remains 7%
• Increasing the fine imposed on businesses operating without a license to a minimum of $500 up to $1,000 (from a minimum of $250 up to $500) for each offense (note: each location of a business must be separately licensed and each day a violation continues constitutes a separate offense)
• Increasing various business license fees, including the limited business license (from $250 to $500), the regulated business license (from $250 to $1,000) and regulated business license — hotels (from $250 to $1,000, plus $2.20 per room)
• Establishing a video gaming location license fee and a video gaming terminal license fee, each imposed at a rate of $500 plus $1,000 per video gaming terminal
• Imposing a 1.5% tax on the sale of alcoholic beverages for off premises consumption; this tax does not apply to retail or wholesale alcoholic beverage dealers
• Suspending the annual increase in the property tax levy for fiscal year 2026

Implications

Chicago's budget deficit continues to widen despite the city's repeated efforts to raise tax rates and broaden the tax base through new and expanded tax measures. While temporary pauses on increases to certain taxes — such as the personal property lease transaction tax and the property tax — may offer short-term relief from annual tax-burden fatigue, they do not reduce the long-term compliance responsibilities businesses face.

Given the city's growing reliance on revenue-generating taxes and fees, it is increasingly important for taxpayers operating in Chicago to proactively evaluate their compliance posture. This includes identifying and properly applying exclusions, exemptions and apportionments appropriately. For example, Chicago imposes the personal property lease transaction tax on certain on-premises software and cloud-based products, with differing rules depending on whether the transaction qualifies as a non-possessory lease or involves taxable downloaded software. Conducting a detailed review of software contracts can help taxpayers determine whether certain charges may be exempt or subject to apportioned tax treatment if usage occurs partially outside Chicago. Certain taxpayers — such as insurance companies — may also qualify for statutory exclusions from specific Chicago taxes, such as the personal property lease transaction tax. Properly categorizing the business customer is necessary to determine proper tax obligations.

In light of Chicago's expanding tax landscape and sustained budget pressures, taxpayers should reassess their overall compliance approach, as well as confirm that tax is not being over-accrued and that all available exclusions, exemptions and apportionment methods are correctly applied.