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November 9, 2018
State and Local Tax this week
Illinois General Assembly
The General Assembly returns to Springfield for the fall veto session on November 13. The House and Senate are scheduled to be in session November 13 through 15 and November 27 through 29.
The House and Senate Revenue committees have both scheduled hearings for next week. The House Revenue committee will meet on Wednesday at 9:30 and the Senate Revenue committee is scheduled to meet on Wednesday at 4:30. As of this morning, nothing controversial has been posted to either committee for consideration.
New legislation of interest this week:
SB 3633 Amends the Illinois Nuclear Facility Safety Act. Provides that any municipality may establish and collect a nuclear storage impact fee from the entity that operated a nuclear facility within the boundaries of the municipality. Provides that the nuclear storage impact fee shall only be imposed on nuclear facilities that ceased generating electricity on or before the effective date of this amendatory Act. Provides that the fee shall be charged to the entity that operated a nuclear facility within the boundaries of the municipality immediately before the nuclear facility ceased to generate electricity. Provides that the nuclear storage impact fee can only be applied prospectively. Provides that in any calendar year, the nuclear storage impact fee shall not exceed 25% of the average annual amount of property taxes paid to the municipality by the entity that operated the nuclear facility during the last 5 years that the nuclear facility was operational. Provides that the municipality shall conduct a public hearing before imposing the nuclear storage impact fees. Provides that the revenue collected from the fees shall be used to offset property taxes for owners of property within the boundaries of the municipality. Provides that no sale, assignment, lease, or decommissioning agreement that was executed after a nuclear facility ceased generating electricity and before the effective date of this amendatory Act shall assign or transfer the obligation to pay any nuclear storage impact fee imposed.
SB 3635 (Morrison) Amends the Illinois Income Tax Act. Provides that the research and development credit applies on a permanent basis. Effective immediately.
SB 3637 (Morrison and Collins) Amends the State Finance Act to create the Community Mental Health Services Fund as a special fund in the State treasury. Provides that moneys in the Community Mental Health Services Fund shall be used to assist, support, and establish community-based mental health providers and programs. Amends the Use Tax Act, the Service Use Tax Act, the Service Occupation Tax Act, and the Retailers' Occupation Tax Act. Imposes a surcharge of $0.01 per cartridge or shell on firearm ammunition. Provides that moneys from the surcharge shall be deposited into the Community Mental Health Services Fund. Effective immediately.
HB 4560 (SFA 0001) Replaces everything after the enacting clause. Amends the Counties Code. Provides that the special county retailers' occupation tax for public safety, public facilities, or transportation may additionally be imposed for mental health or substance abuse (rather than only public safety, public facility, or transportation) purposes in the county. Makes conforming changes. Amends the Transportation Development Partnership Act and the Simplified Sales and Use Tax Administration Act to make conforming changes.
Expiring home rule tax preemption provision affecting electric co-generation facilities and other electric generating facilities.
" Sec. 1-130. Home rule preemption. (a) The authorization to impose any new taxes or fees specifically related to the generation of electricity by, the capacity to generate electricity by, or the emissions into the atmosphere by electric generating facilities after the effective date of this Act is an exclusive power and function of the State. A home rule unit may not levy any new taxes or fees specifically related to the generation of electricity by, the capacity to generate electricity by, or the emissions into the atmosphere by electric generating facilities after the effective date of this Act. This Section is a denial and limitation on home rule powers and functions under subsection (g) of Section 6 of Article VII of the Illinois Constitution. (b) This Section is repealed on January 1, 2019. (Source: P.A. 95-481, eff. 8-28-07.) "
Currently, this provision prohibits home rule communities from taxing or imposing a fee on the general of electricity or the emissions from electric generation. The sunset of this preemption would appear to affect the ability of home rule units to impose fees and taxes on any type of generation - including co-generation facilities.
We will attempt to extend the preemption during the veto session. Please contact me if you or your clients are affected, or if you have any questions about the provision.
The Governor-elect on Taxes
Mr. Pritzker strongly favors amending the constitution to authorize a graduated income tax. However, the earliest in which the constitution could be amended is calendar year 2020 with graduated tax effective in calendar year 2021. To amend the constitution, each house of the General Assembly must pass a proposed amendment by a 3/5 majority at least 6 months before the general election at which the proposed amendment would be presented to the voters for approval. (General elections are the November elections every other year - either presidential or Illinois governor elections. The next general election will be November 2020.) For a proposed amendment to be enacted, it must be approved by a 60% majority of those voting on the amendment, or a majority of those voting in the election.
In comments earlier in the campaign, Mr. Pritzker proposed an interim plan to create a "graduated-like" tax in the interim. As I understand this idea, the flat tax rate would be increased in combination with increases in deductions and credits provided to individuals who are not "rich." So impose the increased rate would only result in higher taxes on the "rich." However, in interviews after the election Mr. Pritzker has backed off of this idea.
Another source of potential revenue supported by Mr. Pritzker is from legalization and taxation of recreational marijuana. It is unclear at this juncture exactly how much could be raised in additional taxes although proponents have suggested hundreds of millions of dollars. However, legalization would take time to pass and implement. For example, if legalization is passed in the 2019 spring session of the General Assembly it would likely not pass before the end of the spring session in May. There would need to be lead time to place the required regulatory and tax infrastructure in place, license vendors, etc. My best guess is that actual legalization wouldn't occur until January 2020. After that, it would probably take at least another year before the full revenue impact is felt.
Mr Pritzker is also on record as favoring gambling expansion, including legalized sports betting, as an additional source of state tax revenue. Previous gambling expansion proposals have included expanding the number of casinos and including a Chicago casino, as well as allowing various sorts of gaming at the horse racing tracks. Previous proposals have bogged down over opposition from existing casinos who fear cannibalization of the existing customer base, fights over who would own the Chicago casino and how the proceeds from a Chicago would be distributed, and opposition from those philosophically opposed to gambling. There will also be questions in any new proposal about sports betting - will the sports betting occur at existing casinos, will separate and stand-alone sports "books" be allowed, etc. Expanded gambling won't be a quick source of additional state revenues. As with legalization of recreational marijuana, I suspect the state wouldn't see increased revenues from gambling expansion before January 2020.
From comments during he campaign, it doesn't appear that Mr. Pritzker plans to press for expansion of the sales tax base to include services.s
Rulemaking
The November 9 edition of the Illinois Register
contains one new rulemaking and one adopted rulemaking by
the Illinois Department of Revenue.
The Department of Revenue proposed amendments to the income tax rules to implement the provisions of P.A. 100-22 that repealed the unitary business non-combination rule.
The Department of Revenue adopted amendments to the fracking rules.
The November 9 edition of the Illinois Register contains one adopted rulemaking by the Department of Commerce and Economic Opportunity. The rulemaking amends the rules governing state administration of the Federal Community Development Block Grant Program for Small Cities.
Tax Tribunal
No new decisions were issued this week by the Tribunal.
No new cases filed with the Tribunal this week raise issues of interest.
Publications
The Illinois General Assembly bi-partisan Commission on Government Forecasting and Accountability has issued its Monthly Briefing for the Month Ended:
October 2019.
Save the Dates
December 13 - BDO and the Illinois Chamber of Commerce will hold a half -day seminar "The Year in Review of State and Local Taxes." Additional details and registration information will be forthcoming shortly.
The next meeting of the Tax Institute will be on Monday December 17 from 2:00 - 4:00. For now, it is scheduled to be held at the Illinois Chamber Chicago offices at 300 S. Wacker Drive, 8th Floor conference room. Please let me know if you would like to host. We will discuss the impact of the election results on the Illinois tax climate in 2019 and the results of the November veto session. We will also discuss potential legislation for 2019.
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