The House and Senate are not scheduled to return to Springfield until the veto session.

No tax-related legislation from the spring session was signed by the Governor this week.

The August 6 edition of the Illinois Register did not contain any proposed or adopted rulemakings by the Illinois Department of Revenue or the Department of Commerce and Economic Opportunity.

As I noted in last week's newsletter, the July 30 edition of the Illinois Register contained the emergency amendments of the Department of Revenue "Leveling the Playing Field" rules. I've had a chance to review the emergency amendments. I see a number of problems with the emergency rules. I plan to file comments with the Department and the Joint Committee on Administrative Rules early next week. The emergency rules are scheduled for consideration by JCAR at their August 18 hearing.

It appears to me that the Department hasn't articulated a reason for the use of emergency rulemaking that comports with requirements for the use of emergency rulemaking in the Illinois Administrative Procedure Act (the "IAPA"). IAPA Section 5-45(a) defines the term "emergency" as "means the existence of any situation that any agency finds reasonably constitutes a threat to the public interest, safety, or welfare."

The Department's "reason for emergency" states as follows:

"Section 5-45 (ll) of the Illinois Administrative Procedure Act (5 ILCS 100/5-45 (ll) provides that emergency rules are authorized to implement the provisions of the Act, and that the adoption of emergency rules is deemed to be necessary for the public interest, safety, and welfare. Changes made in Section 131.107 regarding the MPEA and Chicago Soft Drink Tax must be implemented as soon as possible to allow restaurants and other retailers in Chicago to properly account for their taxes when made over a marketplace (e.g., sales made over food delivery service platforms). Other changes are being made to clarify the regulations in response to inquiries commonly received by the Department in response to the Act that are critical for proper compliance."

The Illinois General Assembly's Joint Committee on Administrative Rules has rules that outline the criteria or reviewing the appropriateness of an emergency rulemaking. (See 1 Ill. Adm. Code 230.400) Subsections 230.400(a)(1)(A) and (B) state,

"A)  Does a situation exist that reasonably constitutes a threat to the public interest, safety or welfare and that requires adoption of the rule upon fewer days' notice than is required by Section 5-40 of the Act?

The Department has not articulated a "threat" to the public interest, safety or welfare that justifies the use of emergency rulemaking. The Department has just explained that they want to get the amended rules in place as quickly as they can.

A portion of the emergency rulemaking consists of a reversal of the Department's current rule at Section 130.107(c)(1) that food delivery services that are marketplace facilitators are not required to collect and remit the special Metropolitan Pier and Exposition Authority ("MPEA") sales tax imposed on businesses selling food, alcoholic beverages and soft drinks within the boundaries of the Metropolitan Pier and Exposition Authority. The emergency rule provides that immediately upon adoption of the emergency rule, these companies are required to collect and remit the MPEA sales tax to the Department of Revenue. (Under the current rule, it appears the restaurants have been responsible for charging and remitting that tax.)

The emergency rule also mandates that food delivery companies are required to collect the Chicago Soft Drink Tax, again reversing the provisions of the existing rule.

The Department's emergency rule mandating that food delivery services collect and remit the MPEA sales tax also mandates that the tax must be collected when the restaurant from which the food is purchased is within the MPEA boundaries. In other words, origin sourcing is required for this locally-imposed sales tax. However, any other locally-imposed sales taxes imposed on the transaction are imposed on a destination basis, including the Chicago Soft Drink Tax.

See new subsection 131.107(c)(1)(C)(i):

"Food delivery services that are considered marketplace facilitators meeting a tax remittance threshold in Section 131.135 of this Part are required to remit the 1% MPEA ROT only if the sale to a purchaser is made by a restaurant located within the MPEA district. The State ROT and local sales taxes (such as the Home Rule Municipal ROT or the Home Rule County or Regional Transportation Authority ROT) are required to be remitted, however, at the rate in effect at the location to which the food or beverages are shipped or delivered or at which possession is taken by the purchaser (destination rate)."

The Department also gives the following example:

"EXAMPLE 2: Greet N Eat is a food delivery service that is considered a marketplace facilitator required to remit tax under this Part. A customer in Oak Park orders a pizza and a liter bottle of a soft drink over Greet N Eat's application from a pizzeria in Chicago that is subject to the MPEA ROT. Greet N Eat incurs the State ROT tax (6.25%), the Home Rule Municipal ROT in Oak Park, the County Home Rule ROT for Cook County, and the RTA ROT for Cook County on this transaction. It also incurs the 1% MPEA ROT, since the pizzeria is subject to the MPEA ROT. It does not, however, incur the Chicago Soft Drink Tax, because the soft drink is not delivered to a purchaser within the City of Chicago." 

 

So, according to the emergency rule, food delivery services that are marketplace facilitators are now required to collect the MPEA Tax and the Chicago Soft Drink Tax, when applicable. But, as noted above, in the case of the MPEA tax "when applicable" is determined using origin sourcing, while in the case of the Chicago Soft Drink Tax "when applicable" is determined using destination sourcing - as is the case with any of the other locally-imposed sales taxes administered and collected by the Illinois Department of Revenue.

To add to the potential confusion for food delivery services, this emergency rulemaking overrules a Compliance Alert issued by the Department in February that specifically instructed that the MPEA tax was to be collected and remitted by restaurants within the MPEA tax boundaries, even when food delivery services that are marketplace facilitators were utilized.

It should be noted that the emergency rules became effective when filed with the Secretary of State - July 13, 2021. The rules were not published in the Illinois Register until July 30. The Department did "publish" the rules on their website on or about July 13. However, restaurants and food delivery services within the MPEA boundaries had little time to adjust their practices to conform to the Department's changes. In addition, as I note above I am unclear as to the authority for the Department mandating "origin sourcing" for the MPEA tax.

In the words of the late Ron Popeil, "but wait there's more" - with regard to problems with this emergency rulemaking.

The emergency amendment makes changes that would be required by SB 2066. The problem is that SB 2066, as of August 5, has not been signed by the Governor. I suspect it will be signed by the Governor at some point, but there is certainly no "emergency" in the case of changes to the rules mandated by SB 2066 at this point.

The emergency rulemaking also makes a series of other changes that are not required by any threat to the public interest safety or welfare. Among other things, the Department explains that "Section 131.120 is being amended to specify that, for remote retailers, occasional sales are excluded from consideration when calculating tax remittance thresholds. However, Section 131.145, governing marketplace facilitators, is amended to provide that occasional sales must be included when calculating tax remittance thresholds." The reference to Section 131.145 appears to be a typo. It is actually, new Section 131.140(b)(3) that states that "occasional sales are included when calculating whether a marketplace facilitator is a "retailer engaged in the occupation of selling at retail in Illinois" for purposes of the Retailers' Occupation Tax Act. I'm a bit perplexed as to the inconsistent treatment of occasional sales in determining tax remittance thresholds. In any event, this change, or clarification, of Department policy isn't an emergency under the IAPA.

An amendment to Section 131.130(c) also appears to be a reversal of a current rule via emergency rulemaking. Currently, this rule provides that sales of tangible personal property that are required to be titled or registered with an agency of the State of Illinois - think motor vehicles, boats, aircraft and trailers - are not subject to the Leveling the Playing Field rules contained in Part 131. The emergency rulemaking eliminates the word "not" so such sales would now be subject to Part 131. Again, that may or may not be the better answer, but this shouldn't be done via an emergency rule without an explanation of the rationale for the change and the opportunity for public notice and comment.

No new tax-related court cases were released this week..

None of the new cases raise unique issues.

The Illinois General Assembly's bipartisan Commission on Government Forecasting and Accountability ("COGFA") has issued a report on the Condition of the State Retirement Systems.

COGFA has also issued its Monthly Briefing for the Month ending July 2021.

The Illinois Chamber is returning to its traditional Annual Luncheon & Reception format with its September 30^th get together at the Palmer House in Chicago. This year’s Keynote Speaker is Holly Sullivan, VP of Worldwide Economic Development, Amazon.