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January 4, 2019
State and Local Tax this week
Illinois General Assembly
The House and Senate are scheduled to return to Springfield on January 7 and 8th for 2 days of "lame duck" session before the new 101st General Assembly is sworn in on January 9.
The new General Assembly is scheduled to be in session on January 9 and 10. After this week, the House and the Senate are not scheduled to return to Springfield until January 29 through January 31.
Governor-elect Pritzker will be sworn into office on January 14.
We are tracking a couple of bills that could be considered during the lame duck session next Monday and Tuesday.
SB 3197 passed the Senate last spring. When it passed the Senate, the bill amended the Property Tax Code to create a homestead exemption for police officers and firefighters receiving disability benefits. The bill was amended in the House in the final week of the veto session to turn it into a "shell" bill. On December 30, the final action deadline in the House was extended to January 8. As of yet, no substantive amendment has been filed to the bill, but we will watch to see if it is amended and moved during the lame duck session.
SB 3238 - passed the Senate last spring as a bill that extended the sunset date for the exemption from the Retailers' Occupation Tax for coal and aggregate mining equipment. However, an identical House bill later passed both houses of the General Assembly and was signed into law by the Governor. This bill was amended in the House in the latter days of the spring session provide a work around for the federal $10,000 SALT deduction cap. The bill as amended was not considered by the House during the fall veto session, but on December 30, the final action deadline for the bill was extended to January 8.
As amended the bill provides a work around to the federal SALT deduction cap through allowing taxpayers to make charitable contributions that will be credited against local property tax and state income tax liabilities. In my estimation, this mechanism will not result in charitable contributions accepted by the Internal Revenue Service - especially in light of guidance that has been issued by IRS. We will watch to see if this bill moves next week during the lame duck session.
Illinois Department of Revenue news
As you are probably aware Connie Beard's last day as Director of Revenue was Monday December 31. Mark Dyckman, IDOR General Counsel and Kevin Conner, IDOR Chief of Staff also retired on December 31.
Representative David Harris has been announced as the new Director of Revenue. Representative Harris has been the Republican Minority Spokesperson on the House Revenue committee for a number of years. Here is a link to Representative Harris's
bio.
Rulemaking
The December 28 edition of the
Illinois Register did not contain any new rulemakings by the Illinois Department of Revenue or the Illinois Department of Commerce and Economic Opportunity.
The December 28 edition of the Illinois Register contained a "Notice of Withdrawal In Response to Statement of Objection" by the Property Tax Appeal Board. At its meeting of November 13, 2018, the Joint Committee on Administrative Rules voted to object to the rulemaking and prohibit its filing with the Secretary of State. JCAR found that the adoption of the rulemaking would constitute a serious threat to the public interest, safety or welfare. The JCAR concluded the Property Tax Appeal Board has no statutory authority to take the action embodied in the rulemaking.
The proposed rulemaking by the Property Tax Appeal Board purported to prohibit members of the Illinois General Assembly from representing clients before the Property Tax Appeal Board.
PTAB withdrew the proposed rulemaking In response to the JCAR objection and filing prohibition.
The January 4 edition of the Illinois Register has not yet been published this morning. I will report on any rulemaking activities of consequence in next Friday's newsletter.
Court cases
The dispute involves the City of Chicago's interpretation of the language of Section 8-11-6a(2) of the Illinois Municipal Code which provides in pertinent part that "a home rule municipality that has not imposed a tax based on the number of units of cigarettes or tobacco products before January 1, 1993 shall not impose such a tax after that date."
The City of Chicago imposed a tax on cigarettes before January 1, 1993, but did not have a tax on tobacco products until it enacted the tax on March 16, 2016.
A number of plaintiffs challenged the tax, including Illinois Chamber of Commerce Tax Institute member Arangold Corporation. The plaintiffs argued that under state law, the City lacked the authority to impose a tax on tobacco products because no such tax was in effect before January 1, 1993.
The City argued that under the statute, it only had to show that it had enacted a tax on cigarettes prior to January 1, 1993. It read the statute to authorize the tax if it had imposed a tax either on cigarettes
or tobacco products prior to January 1, 1993.
The circuit court sided with the plaintiffs and ruled the city lacked the authority to tax tobacco products. The appellate court reversed the circuit court. In reversing the circuit court, the appellate court went through an analysis of the meaning of the word "or" in the state statute and sided with the City's construction of the statute - the City was entitled to impose a tax on tobacco products in 2016 if it had in place a tax on either cigarettes or tobacco products before January 1, 1993.
In my estimation, the appellate court got it wrong. I don't know yet whether the plaintiffs will appeal the case to the Illinois Supreme Court.
The appellate court ruled in
Hau v. Department of Revenue, a sales tax case, that the taxpayer did not rebut the Department of Revenue's prima facie case of assessed tax deficiencies where the audit was conducted under minimally reasonable standards and the taxpayer failed to present documentary evidence supporting his claims.
Even though this is a "Rule 23" case and is not precendential, the case provides a good explanation of how the Department of Revenue establishes a prima facie case, and burdens on taxpayers to rebut the prima facie case of the Department at a hearing.
There is also a discussion of the imposition of fraud penalties by the Department of Revenue.
Goldberg v. Frerichs is an Unclaimed Property Act case decided by the U.S. Court of Appeals for the Seventh Circuit. As explained by the court, in an earlier opinion in this case, the appeals court concluded that people whose property is taken into custody under the unclaimed property act are entitled to receive the time value of their property (interest or other earnings), less reasonable custodial fees.
After the earlier opinion, upon remand to the lower court, the district court ruled that owners of property in the state's custody are entitled to be compensated for the time value of money only if the property was earning interest at the moment the state took it into custody.
The lower court ruling was again appealed.The appeals court ruled that the property's owner is entitled to income that the property earns less custodial fees and whether the owner of the property is entitled to interest earned while the property is in the custody of the Treasurer does not depend on whether and what the property had been earning in the owner's hands.
The court did leave open the possibility that the sate could contend that it does not owe interest on small amounts - such as the $100 it held on behalf of Goldberg.
The court stated that amounts as slight as $100 probably cannot earn net interest. But, the court explained that this has nothing to do with how the owner held or invested the money or other property before it came into the state's hands.
The court once again remanded the case back to the lower court.
Tax Tribunal
No new decisions were issued this week by the Tribunal. No
new cases of note were filed with the Tribunal this week.
Publications
The Illinois General Assembly bi-partisan Commission on Government Forecasting and Accountability (COGFA) issued its Monthly Briefing for the Month Ended:
December 2018.
COGFA also recently issued a report entitled
2018 Illinois' National Rankings. This report provides a state-by-state comparison of tax rates, tax revenues, government spending, business climate and employment trends.
The Comptroller reports that as of this morning the state's
bill backlog is $7.1 billion.
The Comptroller recently issued the Fiscal Year 2017
Tax Expenditure Report A "tax expenditure" in government finance parlance is a tax credit, deduction or exemption granted to taxpayers. For fiscal year 2017, the largest "tax expenditure" was the exemption from state sales tax for food, drugs and medical appliances at $1.981 billion. The next largest exemption was the income tax subtraction for federally taxed retirement and social security at $1.804 billion. The largest exemption granted to the business community was the farm chemicals exemption from the sales tax at $238 million followed by the manufacturing machinery and equipment exemption at $160 million.
The Comptroller's data once again makes clear that tax base erosion is overwhelmingly a factor of credits, exemptions and deductions granted to individuals, not tax "loopholes" provided to Illinois businesses.
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