November 22, 2019

 

State and Local Tax  

This Week 

The November 15 edition of the Illinois Register contained a number of new rulemakings by the Illinois Department of Revenue and one adopted rulemaking. The November 15 Illinois Register did not contain any rulemakings by the Illinois Department of Commerce and Economic Opportunity.

Expanded Manufacturing Machinery and Equipment definition

The Department has amended the Retailers' Occupation Tax rules to propose permanent rules to implement the expansion of the manufacturing machinery and equipment exemption to include production related tangible personal property.  The rules will replace an emergency rule on this subject currently in effect.

IDOR Data Centers exemption rules

As a portion of the same rulemaking, the Department has proposed a new Section 130.1957 to implement the data centers exemption. The proposed rules quote extensively from the statute, but also add a number of other provisions.  Please review these proposed rules carefully and let me know if you have any questions or concerns. I will file comments with the Illinois Department of Revenue outlining any questions or concerns.

The data center proposed rules set forth additional information required to be obtained from purchasers in to the exemption certificate issued by the Department of Commerce and Economic Opportunity ("DCEO").  Retailers' are required to obtain a certification from purchasers and the rules described information required on such certifications.

The rules also detail the types of tangible personal property that will qualify for the data center exemption.  The rules also contain a listing of certain items of tangible personal property not used in construction or operation of a data that will not qualify for the exemption..  

The DCEO has advised that they also plan to engage in rulemaking with respect to their areas of authority with respect to the data center exemption. DCEO is waiting to propose rules until SB 119 is signed by the Governor.  SB 119 gives DCEO explicit rulemaking authority for the data centers exemption.

IDOR Parking Tax rules

IDOR has proposed new rules to implement the Parking Excise Tax.  Among other things, there are a series of rules, including examples that appear designed explain the scope of the exemption from the tax for "amounts retained by or paid to a booking intermediary for services provided by the booking intermediary." 

If you are a booking intermediary, or represent a booking intermediary, please review these provisions carefully and let me know of any questions or concerns.

Other notable provisions include a rule explaining that the term "parking area or garage" subject to the tax "includes a self-storage unit capable of storing a motor vehicle, recreational vehicle or self-propelled vehicle when the lessor of the storage unit has knowledge of the contents of the storage unit at the time the storage unit is leased."  I can foresee this provision being an issue for lessors of storage units when audited by the IDOR.  

The rules also provide an example dealing with municipalities that own "and operate" a parking lot.  The example deals with a municipality that contracts with a company to install machines at the lot which accept payments and all payments are paid to the municipality.  Under the facts of the example, the municipality is deemed to still be the operator of the lot and is not required to collect and remit the tax.  However, if the facts of the agreement between the municipality are modified somewhat, there can and will likely be questions as to whether the company under contract with the municipality is the "operator" and as a result tax is due.  I can foresee this also being an issue on audit.

Cigarette Use Tax 

The Department is amending the Cigarette Use Tax rules to implement the increased tax rate.  

County Motor Fuel Tax 

The rules are amended to implement the change in law that expands the tax to include Lake and Will counties.

The November 22 edition of the  Illinois Register contains new rulemaking by the Illinois Department of Revenue.  Today's Illinois does not contain any rulemaking by the Department of Commerce and Economic Opportunity.

Cigarette Tax Increase

The Department proposed amendments to the Cigarette Tax rules to address the increase in the cigarette tax effective July 1, 2019 and the floor stock tax that was also imposed on cigarettes in inventory on July 1, 2019.

Freedom of Information Act rules

The Department has repealed its existing rules governing requests for information under the Freedom of Information Act and has adopted new rules. These rules are exempt from the normal rulemaking requirements of the Illinois Administrative Procedure Act.  Therefore, the repeal the existing rules and the adoption of new rules was effective immediately upon the filing with the Secretary of State.  I did a quick review of the new rules this morning and will do a more detailed review.  If I see anything I consider a problem I will share it with the group.  Also, if anyone has any questions or comments about the new rules let me know and I will reach out to the Department.

Court cases

Yesterday, the Illinois Supreme Court issued its opinion in Horesehead Corporation v. Department of Revenue.  There were three issues in the case, 1) the level of deference to be given to a decision of the Independent Tax Tribunal j- the standard of review to be used by a reviewing court, 2) whether the taxpayer properly claimed the "chemicals and catalysts" exemption from sales tax under the manufacturing machinery and equipment exemption and, 3) whether the taxpayer was entitled to an abatement of penalties for reasonable cause.

With respect to the standard of review, the taxpayer contended that the appellate court erred when it reviewed the tax tribunal's determination that the taxpayer was not entitled to an exemption.  The appellate court determined that the decision of the tribunal was a mixed question of facts and law and applied a "clearly erroneous" standard of review of the Tribunal's determination. 

The taxpayer contended that the proper review standard should have been de novo because the tax tribunal was not entitled to deference in its decision.The supreme court reviewed the Tax Tribunal Act and an amicus brief filed by the Taxpayers Federation in support of the taxpayer's contention.  The court examined the Tax Tribunal Act and concluded that the tribunal has tax expertise by way of its statutory mandate, and rejected the taxpayer's deference argument.

The supreme court declined to reverse the determination of the tax tribunal that the taxpayer was not entitled to the "chemicals and catalysts" exemption.

The court reversed the determination that the taxpayer was not entitled to an abatement of penalties.

Tax Tribunal 

No new decisions were posted this week.  

None of the new cases filed with the Tribunal raise any novel issues.