The House returned to Springfield on Tuesday and was scheduled to be in session through Friday. The House cancelled the Friday session. The Senate was in session Tuesday through Thursday.

The House is scheduled to be in session next week Tuesday through Thursday. The Senate is not scheduled to be in session next week.

I represent the Illinois Chamber of Commerce as part of a group of business organizations opposed to SB 3477, Senator Murphy's Vacancy Fraud Act. We met with Senator Murphy last week to discuss our concerns with the legislation and followed up yesterday with a letter to Senator Murphy with a detailed explanation of our concerns. I'd like to give a shout out to Whitney Carlisle of Tax Institute member law firm O'Keefe Lyons & Hynes who was the primary drafter of the letter.

The Senate Revenue committee met on Wednesday. The committee passed two bills out of committee to the floor:

HB 4161 - Amends the Illinois Income Tax Act. Creates an income tax checkoff for donations to the 100 Club of Illinois Fund. Amends the State Finance Act to create the Fund. Provides that moneys deposited into the Fund shall be used to make grants to the 100 Club of Illinois for services in Illinois. Effective immediately.

SB 1145 - As proposed this was a shell bill. Amendment #1 - Replaces everything after the enacting clause. Amends the Illinois Income Tax Act. Creates an income tax credit for a taxpayer who may claim one or more qualifying students as a dependent, or a taxpayer who is a qualifying student and is not claimed as a dependent by any other taxpayer, in an amount equal to the lesser of: (1) the qualified tuition and fee expenses paid by the taxpayer during the taxable year on behalf of the qualifying student or students; or (2) the maximum credit amount. Sets forth the maximum credit amount. Provides that no taxpayer may claim a credit under the amendatory Act if the taxpayer's federal adjusted gross income for the taxable year is less than or equal to 6 times the federal poverty level or more than 11 times the federal poverty level. Effective immediately.

The Senate Revenue committee is not scheduled to meet next week. As of this morning, the only Senate committees scheduled to meet next week are appropriations committees.

The House Revenue committee met on Thursday this week. The committee did not take any substantive action on legislation this week.

The committee held a series of subject matter hearings. Most of the bills for which subject matters were held will likely not move as stand-alone bills. Rather, the subjects of bill may be included in the end-of-session budget implementation bill. Here are the bills for which subject matter hearings were held:

HB 4344 - Elik - Amends the Use Tax Act, the Retailers' Occupation Tax Act, the Aircraft Use Tax Law, and the Watercraft Use Tax Law. Provides that the taxes under those Acts do not apply to transfers that occur between a natural individual and (i) a revocable trust where the transferor is the grantor of the trust or (ii) a business entity if the transferor has ownership or control of the business entity. Provides that the transferor must retain a beneficial interest in the property, and the property must be transferred without valuable consideration.

HB 1761 - Zalewski - Creates the Endow Illinois Tax Credit Act and amends the Illinois Income Tax Act. Requires the Department of Revenue to authorize an income tax credit to taxpayers who provide an endowment gift to a permanent endowment fund. Sets forth procedures and criteria for authorizing the credits. Provides that the aggregate amount of all credits that the Department of Revenue may authorize may not exceed $10,000,000 in 2022, $25,000,000 in 2023, or $50,000,000 in 2024 and each calendar year thereafter. Provides conditions for eligibility. Requires the Department of Revenue to make an annual report concerning the credits. Provides that the credit may be carried forward for 5 years. Exempts the credit from the Act's sunset provisions. Further amends the Illinois Income Tax Act to provide that provisions concerning the unrelated business taxable income of an exempt organization apply for taxable years beginning on or after January 1, 2021 (currently, January 1, 2019). Effective immediately.

HB 4118 - Halpin - Amends the State Budget Law of the Civil Administrative Code of Illinois. Provides that "general funds" or "State general funds" as used under the Act includes the Pension Stabilization Fund. Amends the State Finance Act. Provides that for fiscal year 2024 and subsequent fiscal years, any transfers into the Budget Stabilization Fund may be transferred to the General Revenue Fund in order for the Comptroller to address outstanding vouchers, and shall not be subject to repayment into the Budget Stabilization Fund if the bill backlog as determined by the Comptroller on June 30 of that fiscal year exceeds $4,000,000,000. Amends the Budget Stabilization Act. Modifies provisions concerning requirements for and transfers into the Budget Stabilization Fund and the Pension Stabilization Fund regarding the State's backlog of bills. Effective immediately.

HB 4394 - Walsh - Amends the Use Tax Act, the Service Use Tax Act, the Service Occupation Tax Act, and the Retailers' Occupation Tax Act. Provides that the credit for coal and aggregate exploration, mining, off-highway hauling, processing, maintenance, and reclamation equipment sunsets on July 1, 2028 (currently July 1, 2023). Effective immediately.

HB 4782 - Delgado - Creates the Illinois Renewable Fuel Standards Act. Provides that diesel fuel must contain at least a stated percentage of biodiesel fuel oil by volume on and after a specified date. Amends the Use Tax Act, the Service Use Tax Act, the Service Occupation Tax Act, and the Retailers' Occupation Tax Act. Makes changes concerning incentives for biodiesel to provide that the incentive for 100% biodiesel and biodiesel blends with more than 10% but no more than 99% biodiesel applies through June 30, 2024 (currently, December 31, 2023). Provides that, with respect to 100% biodiesel and biodiesel blends with more than 19% but no more than 99% biodiesel, the tax does not apply to proceeds of sales made on or after July 1, 2024. Effective immediately, except that provisions creating the Illinois Renewable Fuel Standards Act take effect on July 1, 2022.

HB 5510 - Walker - Amends the Economic Development for a Growing Economy Tax Credit Act. Extends the date after which the Department shall not enter into new Agreements under certain provisions of the Act until June 30, 2027 (currently, June 30, 2022). Effective immediately.

The House Revenue committee is scheduled to meet next Thursday. Here is a link to the bills posted for the hearing next week. Remember that the Revenue committee generally posts everything assigned to the committee. We won't know what bills will actually be considered until shortly before the Thursday hearing.

New tax-related legislation was introduced in the House or Senate since my last newsletter.

SB 4186 - Tracy - Amends the Illinois Income Tax Act. Creates a child care credit in an amount equal to 25% of the federal tax credit for each qualifying child. Effective immediately.

SB 4187 - Bryant - Amends the Illinois Income Tax Act. Provides that, for taxable years ending on or after December 31, 2022, the credit for employee child care shall be in an amount equal to: (1) 50% of the start-up costs expended by the corporate taxpayer to provide a child care facility for the children of its employees; and (2) 20% of the annual amount paid by the corporate taxpayer to (i) provide an on-site child care facility for the children of its employees, (ii) provide child care offsite for the children of its employees, or (iii) a combination of (i) and (ii) (currently, 30% of the start-up costs and 5% of the annual amount paid by the taxpayer in providing the child care facility). Provides that the taxpayer may coordinate with an independent child care facility to provide care for the children of employees. Effective immediately.

SB 4195 - Syverson - DeWitte - Amends the Use Tax Act, the Service Use Tax Act, the Service Occupation Tax Act, and the Retailers' Occupation Tax Act. Provides that, beginning 30 days after the effective date of the amendatory Act, the cents per gallon rate established by the Department of Revenue for the prepayment of tax by motor fuel retailers may not exceed $0.18 per gallon for motor fuel and 80% of that amount for gasohol and biodiesel blends. Provides that the rate of tax imposed under the Acts for motor fuel, gasohol, majority blended ethanol fuel, and biodiesel and biodiesel blends may not exceed that prepayment amount set by the Department of Revenue. Effective immediately.

SB 1145 - see description under Senate Revenue committee actions above

SB 2430 - As introduced - Amends the Illinois Income Tax Act. Makes changes to the definition of investment partnership to provide that a dealer in qualifying investment securities may be considered an investment partnership. Allows a partnership interest to be considered a qualified security if the interest qualifies as a security within the meaning of Section 2(a)(1) of the federal Securities Act of 1933. In provisions requiring that no less than 90% of the investment partnership's gross income shall consist of interest, dividends, and gains from the sale or exchange of qualifying investment securities, provides that that includes the distributive share of partnership income from lower-tier partnership interests and does not include income from partnerships that are operating at a federal taxable loss. Effective immediately.

As amended in the House - Replaces everything after the enacting clause. Amends the Illinois Income Tax Act. Makes changes concerning the definition of investment partnership to provide that the gross income limitation for investment partnerships includes the distributive share of partnership income from certain lower-tier partnership interests that, in the hands of the partnership, qualify as a security. Provides that the amendatory Act is intended as a clarification of existing law and not as a new enactment. Effective immediately. Staats comment: My understanding is that the bill was amended to make it declaratory of existing of existing law in order to address a case currently before the Tax Tribunal.

SB 1975 - As introduced - Amends the Property Tax Code. Provides that the chief county assessment officer in a county of more than 3,000,000 residents, and in any other county where the county board has authorized such action by ordinance or resolution, may automatically renew the homestead exemption for persons with disabilities without application for any person who applied for the exemption and presented a Disability Identification Card stating that the claimant is under a Class 2 disability.

As amended in the Senate - Adds provisions to the introduced bill providing that an applicant for the homestead exemption for persons with disabilities may be examined by an optometrist if the person qualifies because of a visual disability. Provides that provisions of the introduced bill concerning automatic renewal (i) apply for taxable years 2021 through 2026 and (ii) apply if the person presents proof of eligibility (in the introduced bill, a Disability Identification Card stating that the claimant is under a Class 2 disability). Provides that the chief county assessment officer shall not automatically renew the homestead exemption for persons with disabilities if the physician, advanced practice registered nurse, optometrist, or physician assistant who examined the claimant determined that the disability is not expected to continue for 12 months or more.

SB 1145 - see description under Senate Revenue committee actions above.

HB 448 - As introduced - Amends the Property Tax Extension Limitation Law in the Property Tax Code. Provides that, for levy years 2021 and later, the taxing district's aggregate extension base is the greater of (A) the district's last preceding aggregate extension limit or (B) the district's last preceding aggregate extension, subject to certain adjustments. Provides that the term "aggregate extension limit" means the district's last preceding aggregate extension if the taxing district had utilized the maximum limiting rate permitted without referendum for each of the 5 immediately preceding levy years. Effective immediately.

HB 4278 - As amended - Replaces everything after the enacting clause. Amends the Revised Uniform Unclaimed Property Act. Allows the administrator to deliver property or pay the amount owing to a person without the person filing a claim if the value of the property that is owed the person is $5,000 (rather than $2,000) or less. Allows the administrator to waive a specific requirement and pay or deliver property directly to a person if the property has a value of less than $2,000 (rather than $500). Allows an heir or agent who files an unclaimed property claim in which the decedent's property does not exceed $250 (rather than $100) to submit an affidavit attesting to the heir's or agent's capacity to claim in lieu of submitting a certified copy of the will to verify a claim. Provides that an affidavit is not required to include a copy of the decedent's death certificate if other evidence of the death of the owner is available. Makes conforming changes. Effective immediately.

HB 4362 - Amends the Illinois Department of Revenue Sunshine Act. Provides that the Department of Revenue shall submit for publication (currently, publish) quarterly in the Illinois Register an index of any informal rulings, opinions or letters issued by the Department of Revenue during the quarter and required to be made available. Effective January 1, 2023.

HB 5532 - As introduced - Amends the Property Tax Code. Provides that with the exception of a county or taxing district acquiring tax certificates to property, all purchasers or assignees of a property at a tax sale shall pay the clerk postage plus the sum of $10 dollars (currently, the purchaser or assignee). Provides that not less than 1 month (currently, 3 months) nor more than 6 months prior to the expiration of the period of redemption, the purchaser or his or her assignee shall prepare and deliver to the clerk of the Circuit Court of the county in which the property is located, the notice provided for, together with the statutory costs for mailing the notice by certified mail, return receipt requested. Provides that notwithstanding any provision to the contrary, all properties owned and held for future development by specified entities are exempt from property taxes. Provides requirements to claim the exemption. Specifies the County of Cook d/b/a Cook County Land Bank as an entity exempt from property taxes. Provides that when property is owned and held by a specified entity, then excludes them from needing to file an application with the county board of review or board of appeals. Provides that the decision of the board of review is final with regards to exemptions to the specified entities. Effective immediately.

The March 11 edition of the Illinois Register contained no new proposed or adopted rulemakings by the Illinois Department of Revenue ("IDOR") and adopted rulemakings by the Department of Commerce and Economic Opportunity.

Today's Illinois Register contained one proposed rulemaking by the Department of Commerce and Economic Opportunity proposing rules for the Illinois Works Jobs Program Act. The Department describes the new rules as follows:

"The Illinois Works Preapprenticeship Program is a grant program designed to create a network of community-based organizations throughout the State that will recruit, prescreen, and provide preapprenticeship skills training, for which participants may attend free of charge and receive a stipend, to create a qualified, diverse pipeline of workers who are prepared for careers in the construction and building trades. Upon completion of the Illinois Works Preapprenticeship Program, the candidates will be skilled and work-ready."

No new cases this week.

No new decisions have been posted by the Tribunal this week. One of the new cases may be of interest.

Chicago Gadgets Inc. v. Illinois Department of Revenue is a case dealing with the Service Occupation Tax. At issue, is whether the taxpayer properly determined that it is de minimis serviceman.

The Service Occupation Tax is a tax imposed on tangible personal property transferred incident to a sale of service. In this particular case, the service at issue appears to be repair of cell phones.

Under the Service Occupation Tax, a serviceman may incur either Service Occupation Tax or Use Tax liability when transferring tangible personal property incident to a retail sale of service. As noted in Department regulations, 140.105, the most important factor in determining whether the serviceman incurs Service Occupation Tax or Use Tax liability is the cost ratio between the annual aggregate cost of tangible personal property transferred incident to sales of service and the annual gross receipts from all sales of service.

If the cost ratio is 35% (75% in the case of prescription drugs or graphic arts production) or greater, the serviceman is required to remit Service Occupation Tax on his selling price. (There are different ways to calculate the amount of Service Occupation Tax due under this requirement.)

If the serviceman's cost ratio is below 35%, the serviceman may pay tax on his cost price of tangible personal property. Such servicemen are known as de minimis servicemen.

The calculation of whether a serviceman is de minimis is made on an annual basis.

Section 140.105(f) of the Department's rules explains how to make the annual calculation as to whether a serviceman is a de minimis serviceman. Section 140.105(f) provides that whether a serviceman is above or below that 35% threshold is determined by dividing the "annual aggregate cost of parts by annual gross receipts." The dispute is this case is with respect to the components of this calculation - specifically the components of "annual aggregate cost of parts" and "annual gross receipts."

The Department's audit made the calculation by dividing the taxpayer's costs of goods sold from its gross sales reported on the taxpayer's federal income tax returns. This resulted in a cost ratio over 35% for each of the audit years.

The taxpayer is challenging this calculation because the taxpayer's cost of goods sold for federal income tax purposes includes purchases of inventory to be sold at retail (the taxpayer sells used cell phones in addition to repairing cell phones) and purchases of repair parts kept in stock and not used until a subsequent year.

The taxpayer proposed to make the calculation of the cost of repair parts on an invoice by invoice basis. It provided a calculation for one month of the audit period and determined its cost ratio for that month was 22.3% - below the 35% threshold.

I would note that Section 140.015(c) of the Department's rules provides, "The cost of materials that are not transferred to customers incident to service, such as those sold at retail, removed from inventory for use, or incorporated into repairs of real estate, must be excluded when determining the cost ratio." 

From the information provided in the taxpayer's petition, it seems evident to me that the Department used a faulty calculation in determining whether the taxpayer is a de minimis serviceman for the years under audit.

The Federation of Tax Administrations has updated its page with links to state income tax, sales tax, and excise tax rates and other information.