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September 6, 2019
State and Local Tax
This Week
Illinois General Assembly
The House and Senate have adjourned until the fall veto session. The first week of the veto session is scheduled to begin on October 28. The second, and final, week of the veto session is scheduled to begin on November 12.
The following tax-related bills were signed by the Governor since the publication of the last newsletter:
SB 527 - P.A. 101-0532 - Amends the Property Tax Code. Provides that the amount paid to the Will County Treasurer from the Tax Recovery Fund to compensate taxing districts for the loss of revenue on real property in Will County that is owned by the State of Illinois for the purpose of developing an airport shall be based on the amount of taxes that would have been extended for the current tax year for the exempt parcel if the parcel had been owned by a person whose property is not exempt (currently, the amount of leasehold taxes extended for the 2002 property tax year). Amends the State Finance Act to provide that compensation from the Tax Recovery Fund shall continue through December 31, 2030 (currently, December 31, 2020).
SB 1257 - P.A. 101-0545 - Amends the Illinois Income Tax Act. Makes changes concerning the calculation of base income for an organization that is exempt from the federal income tax by reason of the Internal Revenue Code.
SB 1264 - P.A. 101-0546 - Amends the Revised Uniform Unclaimed Property Act. Provides, with exceptions, that the Act does not apply to any annuity, pension, or benefit fund held in a fiduciary capacity by a retirement system, pension fund, or investment board created under any Article of the Illinois Pension Code. Provides that property presumed abandoned in an annuity, pension, or benefit fund shall be reported by the retirement system, pension fund, or investment board to the administrator. Provides that no retirement system, pension fund, or investment board shall pay or deliver any annuity, pension, or benefit fund to the administrator. Provides, with exceptions, that the provisions are retroactive to January 1, 2018. Provides that a retirement system, pension fund, or investment board created under specified Articles of the Illinois Pension Code shall meet or exceed specified minimum standards for due diligence if an annuity, pension, or benefit fund would otherwise be presumed abandoned. Provides that a retirement system, pension fund, or investment board does not need to engage in due diligence if: the property is no longer presumptively abandoned because an apparent owner responds or otherwise indicates interest in the property in response to the due diligence efforts; or the property has a value of less than $50. Provides that the administrator and each retirement system, pension fund, and investment board shall enter into an interagency agreement concerning the implementation of the compliance provisions.
SB 1456 - P.A. 101-0551 - As the bill passed the Senate it amends the Property Tax Code. Provides that certain leasehold property that is used for an airport, for parking, or for waste disposal or processing and is used for a non-exempt purpose is subject to taxation as a leasehold for the period of time during which it is used for that non-exempt purpose. Provides that the use of a portion of that property for a non-exempt purpose shall have no effect on (i) the exemption of the remaining portion of the property that continues to be used for an exempt purpose or (ii) the future exemption of that same portion of the property if it ceases to be used for a non-exempt purpose and returned to use for an exempt purpose
SB 1456 was amended in the House to provide that the provisions of the engrossed bill apply only to property located in a municipality with a population of more than 500,000 inhabitants that is not subject to taxation due to its use for the purpose of parking. Makes conforming changes to the statutory base.
SB 1515 - P.A. 101-585 - Effective for tax years ending on or after 12/31/20, provides that, for purposes of being liable for income tax, compensation is paid in this State if some of the individual's service is performed within this State, the individual's service performed within this State is nonincidental to the individual's service performed without this State, and the individual's service is performed within this State for more than 30 working days during the tax year. Defines terms. Contains provisions concerning the calculation of compensation paid in this State if the employer maintains a time and attendance system.
SB 1899 - P.A. 101-0423 - Amends the State Tax Lien Registration Act to provide that Department of Employment Security liens created under the Unemployment Insurance Act shall be recorded under the State Tax Lien Registration Act rather than with the county recorder of deeds.
HB 250 - P.A. 101-0379 - Amends the Property Tax Code to provide that, if property contains a hazardous substance, hazardous waste, or an underground storage tank, the court may order the holder of the certificate of purchase to assign the certificate to the county collector upon request of the county collector. Provides that the county collector may further assign the certificate to the county, acting as trustee for taxing districts, or to a taxing district having an interest in the taxes sold. In a Section that allows a tax purchase be set aside as a sale in error if a county, city, village, or incorporated town has an interest in the property under the police and welfare power by advancements made from public funds, provides that such a sale in error may not be granted if the lien has been released, satisfied, discharged, or waived.
HB 833 - P.A. 101-0453 - Amends the Property Tax Code. Provides that, in a county with 3,000,000 or more inhabitants, for taxable years 2020 through 2024, a taxpayer who has been granted a senior citizens homestead exemption need not reapply (currently, the taxpayer must reapply annually).
Mayor Lightfoot's suggested tax increases to balance the City of Chicago budget.
The Mayor gave her
budget speech on August 29. She provided only a limited amount of detail about any proposals to seek legislation by the Illinois General Assembly to authorize additional revenues. She mentioned specifically seeking legislation to authorize a graduated real estate transfer tax by the City of Chicago as well as "exploring revenue options to address rampant congestion," although it is unclear as to what she means by congestion fees..
According to a report in Politico
yesterday at a town hall meeting on Wednesday night, "
The mayor has said a property tax increase is the last resort
and is looking at getting legislative approval for a graduated real estate transfer tax, a sales tax on services, congestion pricing and changing the tax structure on a Chicago casino." It appears the author of the article was recapping previous statements by the mayor rather than quoting the Mayor last night.
You may recall that prior to her election, the Mayor proposed taxing "large law firms and accounting firms." Her most recent comments on that topic referenced "high end professional services." The Chamber strongly opposes any legislation that would authorize the City of Chicago to tax professional services. We are working with other organizations with a goal that the Mayor, the Governor's office and members of the Illinois General Assembly understand the constitutional, legal and practical problems associated with such a proposal.
I will continue to update you on this topic as we receive additional information.
Rulemaking
The August 23 edition of the Illinois Register contained a proposed rulemaking by the Illinois Department of Revenue amending the Department's rules on the Uniform Penalty and Interest Act. The Department explained that the rulemaking updates the UPIA regulations to reflect amendments to the UPIA by a number of public acts - 91-903, 93-32, 93-1068, 98-425, and 99-335. I am still working through the UPIA rules amendments to decipher the substantive nature of the amendments. I will have questions for the Department about the changes and plan to submit comments on the rulemaking. I'll circulate a copy of my draft comments to any interested members upon completion. I am interested in any comments you may have after reviewing the rulemaking. Here are some of the issues I have identified so far:
I note that the amendments add a new Section 700.105 which contains a series of definitions.
I note that new Section 700.105 contains a definition of "federal change," but does not reference the more vexing portion of that definition - what constitutes a final federal change for purposes of the Illinois reporting requirements. Section 700.105 also contains definition of "notice of tax liability" which defines a notice of tax liability as including both protestable notices issued pursuant to Section 4 of the ROT "or any similar provisions," as well as notices of deficiency issued under the Illinois Income Tax Act.
Throughout new Section 700.105 the Department defines terms by reference to particular provisions of tax act plus "or any similar provision." The "or any similar provision" language seems to be rather vague.
The August 23 Illinois Register did not contain any proposed or adopted rulemakings by the Illinois Department of Commerce and Economic Opportunity.
The August 30 edition of the Illinois Register did not contain any rulemakings by the Illinois Department of Revenue or the Illinois Department of Commerce and Economic Opportunity.
The September 6 edition of the Illinois Register contains two new rulemakings by the Illinois Department of Revenue. Today's edition of the Illinois Register did not contain any adopted rulemakings by the Illinois Department of Revenue or any proposed or adopted rulemakings by the Illinois Department of Commerce and Economic Opportunity.
The first rulemaking contains amendments to the Liquor Control Act, to Implement the passage of P.A. 100-1050. PA 100-1050 makes the Liquor Control Commission an independent commission with 3 commissioners and an Executive Director, all to be appointed by the Governor. The Liquor Control Commission is responsible for administering and enforcing the Liquor Control Act, except for Article VIII. The Department of Revenue remains responsible for administering and enforcing the taxes imposed in Article VIII. Because authority for administering the Act is vested in two agencies, Section 420.80 is being amended to allow representatives of the Liquor Control Commission to witness the destruction of alcoholic liquors. The Part is also being amended to allow Department of Revenue and Commission representatives to provide prior approval of destruction of alcoholic liquors, thus eliminating the need for a representative to be present to witness the actual destruction of the alcoholic liquor.
The second rulemaking amends the Motor Fuel Tax rules. These rules implement the provisions of PA 100-9, which became effective July 1, 2017. PA 100-9 requires that compressed natural gas (CNG) be sold and taxed at 19 cents per gasoline gallon equivalent. This change was initiated because CNG is not sold by the gallon like gasoline. It is instead sold per GGE, which is the amount of CNG that has the equivalent energy content of a gallon of gasoline. A GGE of CNG is 5.660 pounds of CNG. Similarly, PA 100-9 requires that liquefied natural gas (LNG) and propane be sold and taxed at 19 cents per diesel gallon equivalent (DGE), rather than by the gallon. A DGE of LNG is 6.06 pounds of LNG and a DGE of propane is 6.41 pounds of propane. These changes bring Illinois on track with national trends and with the rules governing the IFTA program (i.e., IFTA Full Track Ballot, #05-2015, requires LNG to be reported on a DGE basis beginning July 1, 2017). The rules also implement the recent motor fuel tax increase imposed by PA 101-32. As part of those changes, PA 101-32 changed taxation of LNG and propane from 19 cents per DGE to 45.5 cents per DGE (the total tax rate established for diesel fuel under subsection 2 (b) of the Motor Fuel Tax Law). Additionally, the rules are amended to fully reflect the statutory definition of "commercial motor vehicle" used in administration of the IFTA program and related penalties.
Court cases
No new decisions.
Tax Tribunal
No new decisions were posted this week.
One pair of new cases may be of interest:
Car Outlet , Inc. v. Illinois Department of Revenue, 19 TI 126 and Car Outlet AC LLC v. Illinois Department of Revenue, 19 TI 127 are challenges to denials of claims for refund filed with the Tribunal. The taxpayers are currently subject to Bankruptcy Court proceedings and the bankruptcy court exercised jurisdiction over the claim at issue and determined the taxpayers are entitled to the refunds, subject to a pending motion by the Illinois Department of Revenue to the Bankruptcy court to amend its determination and judgment. The cases were filed to protect the ability of the taxpayers to pursue the claims for refund.
At issue is whether the taxpayers, which paid in full to the State the entire amount of sales tax due on the vehicles it sold under financing arrangements with its customers, is entitled to refunds of sale tax that the customers have not paid because they defaulted on their installment obligation.
As explained in the petitions, the taxpayers sold most of the receivables generated from such sales to its affiliate, Total Finance LLC ("Total"), at a 31% discount, pursuant to a Master Dealer Agreement which governs the terms of the receivable sales. The agreement provides in pertinent part that "In regards to the payment of the Sales and Use Tax by Dealer, Total will not reimburse Dealer for those amounts until the Contract is fully paid off by Customer. . . . In the event of a default on the Contract by Customer, Total will not pay any amounts to Dealer for the Sales and Use Tax."
The Bankruptcy Court reviewed the pertinent law and regulations and determined that as a factual matter, "there is no dispute that [Car Outlet's] tax receivables became bad debts that were properly written off under GAAP and were deducted from their federal tax returns, and that [Car Outlet had] no right from remibursement [from Total Finance] for these [sales tax] receivables." The Department disagrees with the determination that the taxpayers are eligible for refunds.
In explaining the basis of the Department's denial of the claims, it is alleged in the petitions "[t]he basis for the Department's position that Car Outlet did not bear the sales tax burden is that in computing the amount of proceeds that Car Outlet received from Total Finance, it did not apply the discount percentage under the Master Dealer Agreement to the total purchase price without sales tax, but to the entire purchase price."
The cases illustrate an interesting structuring of financing arrangements to attempt obtain refunds of sales taxes when receivables from credit sales have been sold to a separate, and in this case apparently related, legal entity. The cases also show the depth of analysis of the transactions by the Illinois Department of Revenue when evaluating refund claims.
Publications
The Illinois General Assembly's bi-partisan Commission on Government Forecasting and Accountability issued its Monthly Briefing for the Month Ended: August 2019
The Illinois Department of Revenue has established a web page with information about the Property Tax Task Force established under
SB 1932 (P.A. 101-0181. The page includes links to a list of the task force members, minutes of meetings and a copy of a presentation made at the last meeting by IDOR staff outlining the basics of the property tax system for members of the task force. I am advised the task force has established 7 subcommittees, the dates of future meetings are in the process of being set and the dates will be posted on the Task Force web page.
On August 26, the Illinois Department of Revenue issued an
Informational Bulletin on the 2019 Tax Amnesty program.
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