|
May 25, 2018
State and Local Tax this week
Illinois General Assembly
The House and Senate were in session this week from Monday May 21 through Friday May 25. Nothing of consequence related to taxes passed the General Assembly this week.
The House and Senate were scheduled to be in session over the weekend. However, both chambers cancelled the Saturday and Sunday session days. The House and the Senate return to Springfield on the Memorial Day holiday and are scheduled to be in session next week through Thursday May 31.
Negotiations over the budget continue. There has been little to know public discussion of the budget negotiations by the legislative leaders or the Governor this week. In my experience, that is generally an indication that the discussions have been productive. We continue to be alert for anti-business "loophole closing" and decoupling from the beneficial aspects of the federal tax law changes to be used as a mechanism to attempt fill any budget gaps between revenues and proposed expenditures.
Legislation that passed both chambers this week:
HB 5253 -
Amends the Illinois Administrative Procedure Act. Modifies the provisions requiring State agencies to issue an economic impact analysis when proposing new rules or amendments to rules that affect small businesses. Provides, among other requirements, that the economic impact analysis shall include: (1) a list of the industries that will have to comply with the proposed rule or amendment according to NAICS 2-digit codes; and (2) an identification of the types of impact that the proposed rule or amendment will have based on specified categories. Provides that when any rule or amendment to an existing rule is proposed for which a small business economic impact analysis is required, the adopting State agency must provide the information specified as a part of its filing, and that the information will be published in the Illinois Register. Provides that the Department of Commerce and Economic Opportunity shall place notification of all proposed rules affecting small business on its website, together with specified information. Defines "small business."
HB 5214 - Amends the Illinois Income Tax Act. Changes the definition of "applicant" and "related member". Provides that the annual allowable amounts shall be allocated by the Department of Commerce and Economic Opportunity if any portion of the unused allocated amount at the end of the first 3 calendar quarters of a calendar year (rather than 2 calendar quarters) are rolled into the total allocated amount for the next calendar quarter. Provides that the annual allowable amounts shall be allocated by the Department if tax credits for investments in minority-owned businesses, women-owned businesses, businesses owned by a person with a disability, or a business in a county with a population of 250,000 or less are limited to the first 3 calendar quarters of a calendar year and after which investors may claim the tax credits of any qualified new business venture.
HB 4757 - Amends the Department of Commerce and Economic Opportunity Law of the Civil Administrative Code of Illinois. With regard to a grant program for local tourism and convention bureaus, provides that the Department of Commerce and Economic Opportunity may reserve up to 3% (rather than 10%) of total local tourism funds available for costs of administering the program to conduct audits of grants, to provide incentive funds to those bureaus that will conduct promotional activities designed to further the Department's statewide advertising campaign, to fund special statewide promotional activities, and to fund promotional activities that support an increased use of the State's parks or historic sites.
SB 2274 - Amends the Property Tax Code. Provides that a transfer between spouses does not disqualify wooded acreage from the provisions for the assessment of untransferred wooded acreage.
Revenue committees:
The Senate Revenue committee held a hearing on May 22.
HB 4237
, the work around to the $10,000 federal SALT tax deduction cap was considered by the committee and passed out unanimously. The bill was amended in the Senate to authorize the Treasurer to adopt rules for withholding of contributions and to provide that a taxpayer will receive credit against income and property tax liabilities of 90% of the donated amounts.
HB 4237 passed the Senate as amended and is now back in the House for concurrence with the Senate amendments.
This week the Internal Revenue Service issued Notice 2018-54 on the subject of the state work-arounds to the federal SALT deduction cap. Although not definitive - the Notice indicates that Treasury and IRS intend to propose regulations, it seems to me that it is a strong indication that the IRS will not look favorably on state attempts, such as HB 4237, to circumvent the SALT tax deduction cap.
In addition to the issue of whether IRS will sanction the work-around, there are some practical questions about the implementation of HB 4237. First, there is the inter-relationship between the withholding provision for the charitable "donation" and regular income tax withholding. It appears that taxpayers would reduce their income tax withholding by an amount equal to the amount of the "donation." If HB 4237 is enacted, my guess is that the payroll services such as ADP and the software providers to employers will modify their systems to take this into account. Because the "donation" in the amendment is only 90% individuals will have to increase their state income tax withholding if they want to make sure the donation is sufficient to wipe out their state tax liability. Then, it would be a matter of making sure that amounts withheld are properly routed to the Illinois Education Excellence fund, rather to IDOR as regular income tax receipts. It's still withholding. It's just withholding going into a different fund.
Another implementation issue is how this is going to be handled by the banks and other mortgage servicers. Most people have a portion of their property taxes paid to the banks or other mortgage companies each month and then the banks make the property tax payments when each payment becomes due. I assume the banks and mortgage companies are going to have to change their escrow arrangements and then direct the payments to the new county "charitable" funds, rather than to the county collectors?
The House Revenue committee met this week twice on Thursday May 24. Here is a link to the bills that were considered by the Committee at its morning hearing. Nothing controversial was considered by the committee at the morning hearing. Only one bill was considered by the committee at its afternoon hearing. SB 211 allows lottery winners to remain confidential and also would establish a new lottery scratch off game to fund homeless shelters.
As of this morning, the House and Senate Revenue committees have not scheduled hearings for next week although I am certain that both committees will meet next week.
.
The May 18 edition of the
Illinois Register contained one rulemaking by the Illinois Department of Revenue. This rulemaking amends Section 100.2330 to address issues arising from the suspension of net loss carryforward deductions between 2010 and 2014 under IITA Section 207(d) and the special rules for computing Illinois net losses of the residual interest holders of real estate mortgage investment companies under IITA Section 207(e), amends Section 100.2405 and adds new Section 100.2360 to address issues in computing and carrying forward net losses of cooperatives under IITA Section 203(e)(2)(F), adds new Section 100.2665 to address issues in computing the base income of reciprocal insurers under IITA Section 203(b)(2)(R) and adds new Section 100.2668 to address issues in computing the net losses of corporations receiving dividends from controlled foreign corporations under IITA Section 203(b)(2)(Z).
The May 25 edition of the
Illinois Register contains a number of rulemakings by the Illinois Department of Revenue.
The Department proposed an amendment to the income tax rules that adds new Sections 100.2565, 100.2665 and 100.2668 to Part 100 to provide guidance on the subtractions allowed to individuals, trusts and estates for refunds of state taxes and recoveries of itemized deductions that are subject to federal income tax because they are recoveries of items that were deducted in computing federal taxable income, when those recoveries should not be taxed by Illinois because no Illinois income tax deduction was allowed for the original payments.
The Retailers' Occupation Tax rules are amended to reflect a number of statutory changes over the past year, including an amendment to the Department's regulation at 86 Ill. Adm. Code 130.330 entitled Manufacturing Machinery and Equipment to reflect the changes made to the Retailers' Occupation Tax Act pursuant to PA 100-22, which provides that beginning July 1, 2017, the manufacturing machinery and equipment exemption includes machinery and equipment used primarily in graphic arts production.
The Department also is amending the Service Occupation Tax rules to reflect a number of statutory changes over the past year.
The Department has also proposed new Part 475 which implements PA 98-22, the Illinois Hydraulic Fracturing Tax Act, codified at 35 ILCS 450 ("Act"). The Act was effective June 17, 2013, and applies to oil and gas removed on or after July 1, 2013. The tax is imposed on the severance and production of oil and gas from a well on a production unit in this State permitted, or required to be permitted, under the Illinois Hydraulic Fracturing Regulatory Act, for sale, transport, storage, profit or commercial use.
In addition, the Department has proposed amendments to Part 760 of its rules entitled Electronic Filing of Returns or Other Documents to reflect statutory changes enacted over the past year.
Court cases
Two tax cases were argued before the Illinois Supreme Court on Tuesday. Here is a link to the
oral arguments.
Oswald v. Beard
involves a challenge to Section 15-86 of the property tax code which provides a property tax exemption to certain not-for-profit hospitals and their hospital affiliates. The legislation was enacted after the decision in Provena Covenant Med. Ctr. v. Department of Revenue, 236 Ill.2d 368 (2010)
At issue in Oswald is whether Section 15-86 is unconstitutional on its face as a violation of the Illinois Constitution. Article IX, Section 6 of the Constitution provides in pertinent part that the General Assembly may by law exempt from property taxation property used exclusively for charitable purposes. Section 15-86(c) provides in pertinent part that a hospital applicant shall be issued a charitable exemption for its property if the value of services or activities listed in subsection (e) of the statute for the hospital year equals or exceeds the relevant hospital entity's estimated property tax liability.
The attorney for Oswald contended that Section 15-86(c) does not incorporate the constitutional "exclusive charitable use" requirement of the constitution. Oswald argued that the law is facially unconstitutional because there is no set of circumstances under which it would be valid. He argued that it is not valid under any circumstances because it provides in all cases for exemptions not based on any consideration of whether the "exclusively charitable" standard has been met.
The Attorney General, representing the State, and the attorney for the Illinois Health and Hospital Association disputed the contention of Oswald that the law is facially unconstitutional and urged the court to uphold the decision of the appellate affirming the decision of circuit court that upheld the law. In particular, the attorney for the Hospital Association contended that Oswald has not met the requirement for a determination of facial unconstitutionality - compliance with the "no set of circumstances" test. The Attorney also argued that the form required to be filed by hospital applicants elicits information necessary for the determination of whether a hospital meets the "exclusively charitable" constitutional standard.
The Supreme Court also heard arguments in People ex rel. Schad, Diamond & Sheddon, P.C. Appellant v. My Pillow Inc, At issue is whether a relator representing himself in a False Claims Act case may obtain attorneys fees. This case was an appeal of an appellate court decision that denied attorneys fees to a lawyer representing himself in a False Claims Act case.
My Pillow Inc. is represented by Cate Battin of Illinois Chamber of Commerce Tax Institute member law firm McDermott Will & Emery.
The Illinois Chamber of Commerce filed an amicus brief in My Pillow urging the court to uphold the decision of the appellate court. The Chamber was represented by Illinois Chamber Tax Institute law firm Horwood Marcus & Berk.
The Attorney General also filed an amicus brief. In its brief, the Attorney General stated, " In arguing that a relator law firm is entitled to an attorneys' fees award for work performed by its attorneys, relator relies on this Court's decision in
Scachitti v. UBS Financial Services, 215 Ill. 2d 484 (2005), and argues that the Attorney General retained "complete control" over the litigation after
declining to intervene and therefore acted as "independent counsel" to the relator and could ensure that the relator's attorneys effectively prosecuted the action and did not generate excessive or abusive attorneys' fees. Pl. Br. 18, 23. This is a mischaracterization of the Attorney General's role in cases where the Attorney General declines to intervene under the Act and permits the relator to conduct the proceeding."
At oral argument, there were questions from a number of members of the court for both parties. Mr. Diamond, the Relator, attempted to contend that relators act under the control of the Attorney General and, therefore, are really not representing themselves. In my estimation, Ms.Battin in her brief and in oral argument, and the brief of the Attorney General made clear to the court that Mr. Diamond's assertion is incorrect.
The Illinois Supreme Court issued an opinion in Paminder S. Pamar v. Madigan on May 24. Parmar deals with a challenge to the application and constitutionality of an amendment to the Illinois Estate and Generation-Skipping Transfer Tax. On January 13, 2011, the Governor signed legislation, P.A. 96-1496, that retroactively revived the tax for persons who died after December 31, 2010. Dr. Parmar died on January 9, 2011.
The Plaintiff challenged the application and constitutionality of the legislation. The circuit court dismissed the complaint for lack of jurisdiction pursuant to the State Lawsuit Immunity Act. The appellate court reversed the circuit court. The Supreme Court reversed the appellate court and affirmed the judgment of the circuit court.
Tax Tribunal
No new decisions were issued by the Tribunal this week. No new cases filed with the Tribunal this week raise any issues of interest.
Tax Institute Second Quarter Meeting
June 12 from 2:00-4:00 - Featured speaker Representative Mike Zalewski Chairman of the House Revenue committee. One hour of ethics training to be presented by Horwood Marcus & Berk. The meeting is hosted by BDO at the offices of McDermott Will & Emery, 444 W. Lake Street, Suite 4000, Chicago. Please RSVP to me at [email protected]
|
