Illinois General Assembly 

The House and Senate were in session this week from Monday, Memorial Day, through Friday May 31.  The House and Senate overwhelmingly approved a budget. The Governor issued a statement indicating that he  will take action quickly to enact the budget into law. 

The General Assembly adjourned last night until the commencement of the fall veto session on November 13.

The FY 2019 budget consists of two pieces of legislation. HB 109 contains the appropriations language. The budget implementation language, the substantive language that is necessary to implement the appropriations, is contained in HB 3342. 

We lobbied hard against including any new tax burdens on Illinois businesses as a way to balance the budget.  We also lobbied hard to include elements of our legislative package in the final budget agreement.

The good news is that the budget does not contain any tax increases either in the form of rate increases or elimination of so-called "corporate loopholes."  The budget implementation bill does not contain any provisions decoupling from 100% expensing contained in the federal tax law changes. The budget implementation bill does not contain any provisions attempting to tax income subject to federal deemed repatriation.  I am delighted to say that my prediction that there would be an attempt to balance the budget through decoupling from federal tax reform was wrong.

The bad news is that we weren't able to incorporate elements of our legislative package into the final budget agreement.  However, on the whole the business community came out okay in budget in the sense that we escaped any new tax burdens.

There are a number of tax provisions in HB 3342: 

The Illinois income tax credit granted to for-profit hospitals for the provision of charity care was extended to tax years ending on or before December 31, 2022.The credit is a credit for charity care up to the amount of real property taxes paid by the hospital on property used for hospital purposes.

HB 3342 contains a new adoption tax credit for individual taxpayers. The Illinois credit is a credit in an amount equal to the amount of the federal adoption tax credit up to $2,000 ($1,000 in the case of a married individuals filing a separate return).  The credit is increased up to $5,000 in the case of the adoption of a child of at least one year of age who resides in Illinois at the time the expenses are paid or incurred.

HB 3342 amends the nexus provisions of the Use Tax Act to adopt the language currently before the U.S. Supreme Court in South Dakota v. Wayfair, Inc.  This particular provision is scheduled to become effective beginning October 1, 2018.  I suspect that by making the language effective October 1, it is anticipated that the U.S. Supreme Court will have ruled on the constitutionality of the South Dakota language in Wayfair.  The legislation provides that a retailer making sales of tangible personal property to Illinois purchasers from outside the state will be required charge and collect Illinois use taxes if the cumulative gross receipts from sales of tangible personal property to Illinois purchasers are $100,000 or more or the retailer enters into 200 or more separate transactions for the sale of tangible personal property to purchasers in Illinois.

HB 3342 adjusts the contributions to the Income Tax Refund Fund. The Illinois Tax Act provides that a portion of income tax receipts are placed in a fund for the payment of refunds.  Each year, as a portion of the budget the percentage of individual and corporate receipts are adjusted to ensure there are sufficient funds to pay refunds.  for FY 2019 the individual percentage is changed from 9.8% to 9.7% and the corporate percentage is changed from 17.5% to 15.5%.  In my estimation, this slight reduction should not result in a lack of funds for corporate income tax refunds during the new fiscal year.  The reduction stems from a determination by the budget folks that there were excess funds diverted to the refund fund of approximately $200 million during the current fiscal year.

HB 3342 extends the Natural Disaster Income Tax Credit to taxable years that begin prior to January 1, 2019 from the current deadline of 2018.

Additional legislation that passed both chambers this week:

I did a quick review last night and this morning of tax-related legislation that passed both houses of the General Assembly this week.  This is a quick review which I will refine over the next week and I will provide an update to include anything I missed in next week's newsletter.  

SB 3527 - River Edge Redevelopment Tax Credit - The bill expands the River Edge Credit to c reate an income tax credit equal to 25% of the qualified expenditures incurred by a qualified taxpayer undertaking a qualified rehabilitation plan of a structure that is located in Illinois and is defined as a certified historic structure under Section 47(c)(3) of the federal Internal Revenue Code. Provides that, to be eligible for the credit, the taxpayer must apply with the State Historic Preservation Office. Provides that the credit is subject to certain limitations. Amends the Illinois Income Tax Act to make conforming changes. It appears that under the plain language of the bill, a taxpayer could claim both a River Edge and the expanded historic structure credit.  The sponsor indicated that the intent is to eliminate the ability to claim both credits for the same structure through rulemaking.  However, it is unclear to me that rulemaking can be used to restrict the scope of a statute.

SB 3141 - This is an Illinois Department of Revenue initiative. The bill includes provisions amending various sales and excise tax acts to provide for the imposition of monetary penalties for failure to produce books and records for examination. 

As originally proposed, SB 3141 provided that a  taxpayer is prohibited from introducing into evidence in a proceeding before the Department of Revenue, Tax Tribunal, or court any books or records that the taxpayer failed to produce to the Department for examination, unless the books and records are received by the Department no less than 5 business days prior to seeking introduction of the books and records in the proceeding. However, because of protests by the business and practitioner community the Department deleted the language that would have prevented introduction of books and records that are not received by the Department more than 5 days in advance of the hearing or court proceeding.

SB 2667 - The bill a mends the Illinois Enterprise Zone Act. In a Section concerning qualifications for enterprise zones, provides that the applicant's plan for participation by minorities, women, and persons with disabilities is included in the list of qualifying factors. 

As originally amended SB 2667 was an initiative of the Department of Commerce and Economic Opportunity that would have made more extensive changes to Enterprise Zone program. DCEO plans to engage in discussions over the summer with various interested parties to discuss amendments to the Enterprise Zone program.  I will be a part of those discussions and welcome your ideas for improvement of the Enterprise Zone program.

SB 1437 - As amended, the bill a mends the Illinois Income Tax Act to extend the inflation-adjusted standard exemption to taxable years ending on or before December 31, 2023.

SB 2644 - This bill amends the Administrative Procedure Act to allow for notices to be served by email. The bill adds new Section 10-75 to set forth requirements for consenting to accept service by email.

HB 4415 - This bill a mends the Use Tax Act, the Service Use Tax Act, the Service Occupation Tax Act, and the Retailers' Occupation Tax Act and provides that the exemption for coal and aggregate exploration, mining, off-highway hauling, processing, maintenance, and reclamation equipment sunsets on June 30, 2023 (currently, the exemption is subject to the Acts' automatic sunset provisions).

SB 3212 - This bill a mends the Illinois Income Tax Act and provides that nothing in the Act prohibits the disclosure of information by officials of a county or municipality involving reports of damaged property or the owners of damaged property if that disclosure is made to a township or county assessment official in connection with the natural disaster credit. Amends the Freedom of Information Act. Repeals a Section providing that nothing in the Act prohibits the disclosure of information by officials of a county or municipality involving reports of damaged property or the owners of damaged property if that disclosure is made to a township or county assessment official in connection with the natural disaster income tax credit.

SB 3445 - This bill was an initiative of the Department of Revenue.  It contains a number of "technical" "clean up" changes sought by the Department.  There doesn't appear to be anything controversial in this 500 plus page bill.

HB 4724 - This bill a mends the Illinois Hydraulic Fracturing Tax Act and provides that first purchasers shall not be required to obtain exemption certificates from the producer until the first high volume horizontal hydraulic fracturing permit has been approved by the Department of Natural Resources after the effective date of the amendatory Act.

Revenue committees this week:

Nothing controversial happened in the House or Senate Revenue committees this week.

The Senate Revenue committee held its first hearing this week on May 29. Here is a link to the bills considered by the committee at that hearing.  The Senate Revenue committee next met on May 30. Here is a link to the bill that was considered at this hearing .  

The House Revenue committee first met this week on May 29. Here is a  link to the bills that were considered by the Committee at this hearing.  The committee met twice on May 30. Here are links to the bills considered at each hearing - 1 and 2.  The committee met once on May 31.  Here is a XXX to the bill considered at that hearing.

Other legislation of note that did not pass:

This is a quick listing of legislation I was tracking that didn't end up passing both houses of the General Assembly by the May 31 deadline.  Some of these bills could be considered during the fall veto session.

HB 3806 - As amended, the bill would a mend the Revised Uniform Unclaimed Property Act. Makes changes concerning the time and circumstances under which financial organization deposits are presumed abandoned. Makes changes in provisions governing extending the reporting date of certain reported renewable time deposits. Deletes language requiring a holder to inform the administrator to provide a telephone number to contact the administrator to inquire about or claim property. Provides that the administrator does not need to notify the Department of Revenue of the names or social security numbers of apparent owners of abandoned property if he or she reasonably believes that the Department of Revenue will be unable to provide information that would provide sufficient evidence to establish that the person in the Department of Revenue's records is the apparent owner of unclaimed property in the custody of the administrator. Provides that the State Treasurer may, at reasonable times and upon reasonable notice: (1) examine the records of specified types of financial organizations under certain conditions; (2) issue an administrative subpoena requiring the financial organization to make records available for examination; and (3) bring an action seeking judicial enforcement of the subpoena. Provides that records obtained in examinations of State-regulated financial organizations are subject to the same provisions concerning use and confidentiality as records obtained in examinations of other persons. 

SB 3229 - was another bill amending the Revised Uniform Unclaimed Property Act.  This bill had language that attempted to eliminate the retroactive application of the RUUPA.  It also changed the statute of limitations and would have rolled back certain abandonment periods to 5 years from 3 years. In our discussions with the sponsor, we pointed out that the proposed language was ineffective in eliminating the retroactive application of RUUPA and that the statute of limitations under RUUPA is generally ineffective because it applies only items that are reported to the Treasurer.

SB 2901 - is the Illinois Chamber Tax Institute initiative to correct the abuses  of RUUPA. The bill stalled because of opposition of the Treasurer.

The Treasurer has been, and remains totally resistant to any changes and was supported by Senate President Cullerton and Democrat majority in the General Assembly.  We will continue to fight for legislative changes, but at this juncture it appears that it may be necessary to attack RUUPA through litigation.

SB 3152 - is a Department of Revenue initiative that would create and addition modification for amounts allowed as a deduction for foreign-derived intangible income under IRC Section 250(a)(1)(A) and a deduction for the amount of excess business loss of a taxpayer disallowed as a deduction by IRC Section 461(a)(1)(B).  The bill passed the Senate but stalled in the House.

Rulemaking