June 28, 2019

 

State and Local Tax  

This Week 

The June 21 edition of the Illinois Register did not have any proposed or adopted rulemakings by the Department of Revenue or the Department of Commerce and Economic Opportunity.  

The June 21 Illinois Register contained the regulatory agenda of the Property Tax Appeal Board.  The Board announced that it intends to amend its Practice and Procedure Rules during the fall of 2019.  The proposed changes include a number of provisions that would limit requests for extensions of time to 120 days and allowing any party to attend and participate in a hearing before the Board through an interactive video conference.

The June 28 edition of the Illinois Register did not contain any proposed or adopted rulemakings by the Department of Revenue or the Department of Commerce and Economic Opportunity.

  

Court cases

On June 20, the Illinois Supreme Court issued its opinion in  McIntosh v. Walgreens Boots Alliance, Inc.  The reversed a decision of the appellate court and affirmed the judgment of the circuit court.  

McIntosh filed a class action complaint against Walgreens, alleging that Walgreens violated the Consumer Fraud and Deceptive Business Practices Act by unlawfully collecting the City of Chicago municipal tax on purchases of bottled water that were exempt from taxation under the City ordinance.

The circuit court dismissed the case on the ground that the claim was precluded under the voluntary payment doctrine.  The voluntary payment doctrine provides that money voluntarily paid with full knowledge of the facts cannot be recovered on the ground that the claim for payment was illegal.  In this instance, the charge for the tax was made known to the purchases and was stated on the receipts provided to the customer. 

McIntosh contended that the voluntary payment doctrine did not apply to claims brought under the Consumer Fraud Act.  The Illinois Supreme Court determined that noting in the language of the Consumer Fraud Act reflects a legislative intent to alter the voluntary payment doctrine or its applicability to claims brought under the statute. and rejected the McIntosh's assertion that statutory consumer fraud claims are categorically exempt from the voluntary payment doctrine.

This case is a victory for retailers who make inadvertent mistakes about taxability.

On June 21, the U.S. Supreme Court decided  North Carolina Department of Revenue v. Kimberly Rice Kaestner 1992 Family Trust.  The case whether North Carolina had the authority to tax a trust under a law authorizing the State to tax any trust income that "is for the benefit of" a state resident.

According to the facts the beneficiary of the trust had no right to, and did not receive, any distributions from the trust.  Nor did the trust have a physical presence, make any direct investments, or hold any real property in the State.  The state courts held that the Kaestners' in state residence was not a sufficient link to the state to support taxing the trust.

The U.S. Supreme Court held that the presence of in-state beneficiaries alone does not empower a State to tax trust income that has not been distributed to beneficiaries where the beneficiaries have no right to demand the income and are uncertain to receive it.

Tax Tribunal 

No new decisions were posted this week.

One new case may be of interest:

Midwest Medical Equipment Solutions, Inc. v. Department of Revenue is a sales tax case.  At issue is whether sales made through the state Medicaid program that were tax exempt when paid directly by the state are no longer exempt when the sales are made through a Medicaid HMO.  The Department of Revenue is taking the position on audit that sales made under the Medicaid program through Medicare HMOs are no longer sales to a governmental body and are therefore subject to tax.

Publications

The Illinois Department of Revenue has issued a number of informational bulletins dealing with implementation of recently passed legislation:

FY2019-28 - discusses the expansion of the manufacturing machinery and equipment exemption to include production-related tangible personal property.

I've asked for confirmation from the Department of two issues related to implementation of this legislation - 1) confirmation that the expansion also includes production-related tangible personal property utilized in graphic production, and 2) confirmation that consistent with the prior regulations on the Manufacturers' Purchase Credit, production-related tangible personal property utilized in research and development activities qualifies for the exemption both when utilized in R & D at a facility in which manufacturing takes place, as well as at stand alone research and development facilities.  I will let you know when I obtain responses from the Department.

FY 2019-29 - deals with the new tax requirements for electronic cigarettes

FY 2019-26 - discusses the cigarette tax increase scheduled to go into effect on July 1.  Note that SB 690, the legislation that contains the cigarette tax increase contains a "floor stock tax" - a tax on inventory at the time of the effective date of the tax increase.  

FY 2019-25 - deals with changes to the Motor Fuel Tax rate on July 1, 2019.  Note that unlike the cigarette tax increase, there is no floor stock tax on motor fuel in possession of distributors, receivers and suppliers at the time of the effective date of the tax increase.

The Department of Revenue has also issued two publications over the last two weeks:

Publication 139 - Application Process to Obtain Sales Tax Exemption Certificates for Building Materials, and 

Publication 140 - Reporting Requirements for Business Incentives