The General Assembly cancelled the fall veto session. Among the reasons for the cancellation was the resurgence of the Covid pandemic throughout the state. In addition, there was no vetoed legislation for General Assembly consideration. Although, there are serious issues with the budget enacted for the current fiscal year, there apparently was no appetite by the Speaker of the House and the Senate President to return to Springfield to deal with the budget in veto session.

At this time, it does not appear that the General Assembly will return to Springfield before January possibly for a lame duck session prior to the swearing in of the new General Assembly on January 13, 2021.

One issue that remains unresolved as a result of the cancellation of the veto session, is the taxation of Illinois bricks and mortar retailers who also sell on marketplace platforms. According to the law in effect for calendar year 2020, when such retailers make sales to be delivered to Illinois locations, they are to charge Retailers' Occupation Tax on sales made through marketplace platforms at the rate in effect (combined state and local ROT) at the bricks and mortar seller's selling location. The bricks and mortar retailer remains responsible for reporting and paying the tax to the Illinois Department of Revenue. (This is for calendar year 2020 only. The rules for such sales change again on January 1, 2021.) However, some marketplace platforms instead charged Use Tax to customers of these Illinois bricks and motor retailers and the platforms paid the tax to Illinois Department of Revenue.

The Department of Revenue advised that they had planned to address this problem by seeking legislation during the veto session that would ratify the actions of the marketplace platforms retroactively - in other words, change the taxation of these transactions to a Use Tax to be collected and remitted by the marketplace platform. Unless this issue is addressed in a lame duck session in January, this issue will remain unresolved.

As you are likely aware from press reports, on Monday the Governor sent a letter to the legislative leaders in which he advised that the current fiscal year budget is out of balance by about $3,9 billion.

Attached to the letter was a summary of state revenues and expenditures for the current fiscal year as revised this month. According to the summary document, state revenues for the fiscal year that began on July 1 are about $2.2 billion higher than anticipated at the time the budget was enacted. Sales tax receipts and income tax receipts are actually running ahead of last year. In the case of income tax receipts, this is even after factoring out the impact of pushing the return due dates for individuals and corporations into the current fiscal year.

A logical question would be, "so why does the Governor claim there is a $3.9 billion deficit in the current year budget?" The answer is simple. The budget for the current fiscal year was not "balanced" in any real sense. The budget did not match up actual revenues with expenditures.

The current fiscal year budget was "balanced" by taking into account about $1.2 billion in new revenues from the adoption of the graduated income tax constitutional amendment, which as we know did not pass, and the hope of $5 billion in federal assistance to the state, which Congress hasn't provided. (The fallback position with regard to the $5 billion was an authorization to borrow up to $5 billion from the Federal Reserve.)

Also remember, as the discussions of the budget continue that the current fiscal year budget also contained additional spending over and above the prior year budget. That additional spending was not just for additional costs resulting from the pandemic.

We have a deficit because the Governor and the Democratic majorities in the House and Senate passed a budget that increased spending over last year and was "balanced" by anticipating additional revenues that the state has not received. The current budget deficit was not a result of additional spending since the beginning of the current fiscal year due to the COVID pandemic. Actual expenditures over and above the budget adopted for the current fiscal year are only up about $80 million and results from an additional legally-mandated payment to the State Employees Retirement System.

What's the plan? Who knows at this point? Thus far, the only plan is the Governor has proposed a meeting of the Governor and the four legislative leaders.

The result of those discussions could be a combination of cuts and borrowing from the Federal Reserve and possibly legislation in the January lame duck session to increase taxes either through a tax rate increase, or through elimination of so-called tax loopholes. If Congress passes legislation providing aid to the states, that could help reduce, or eliminate, the current year deficit. ($3.9 billion in federal assistance would equal what Illinois received from Congress during the Great Recession in 2009, although so far the U.S. Senate Republican majority remains opposed to providing funds to the states for what they characterize as a "bailout.")

If the majority party (the Democrats) had passed a budget in May that was truly balanced and not "balanced" through anticipating the adoption of the graduated income tax constitutional amendment and the hope of receiving federal assistance, rather than a $3.9 billion deficit, the state would have a $2.2 billion surplus so far. But, this was an election year and instead of making difficult cuts the Governor and the Democratic majorities, without any input or support from the Republican side of the aisle, cobbled together a budget that actually increased spending over the previous fiscal year and put off the painful day of reckoning as to how to pay for the increased spending until after the election.

I suspect that we will hear the usual chorus of folks suggesting that everything can be solved by "cutting corporate loopholes." We will likely see every ill-advised idea to increase the tax burden on the business community recycled if a lame duck session is held in early January and in January after the new General Assembly takes office.

Stay tuned and I'll keep you posted as things develop.

The November 13 edition of the Illinois Register contains a new rulemaking by the Illinois Department of Revenue and no adopted rulemakings by the Department of Revenue. Today's Illinois Register does not contain any new or adopted rulemakings by the Illinois Department of Commerce and Economic Opportunity.

The Department of Revenue is proposing amendments to the Cannabis Purchaser Excise Tax. The Department's description of the rulemaking is as follows:

"This proposed rulemaking amends 86 Ill. Adm. Code 423, Cannabis Purchaser Excise Tax, by amending Section 423.105, Definitions, in response to recent inquiries from taxpayers regarding the proper taxation of concentrates and cannabis-infused products. The proposed rulemaking adds a statement to the definition of "cannabis-infused products" that clarifies that the definition does not include cannabis concentrates; and, accordingly, cannabis concentrates shall not be taxed as cannabis-infused products at the rate of 20% of the purchase for cannabis-infused products but shall be taxed based on the amount of THC contained in the cannabis concentrate. (Cannabis with an adjusted delta-9-tetrahydrocannabinol level above 35% shall be taxed at a rate of 25% of the purchase price; cannabis with an adjusted delta-9-tetrahydrocannabinol level at or below 35% shall be taxed at a rate of 10% of the purchase price.). Section 423.105 is also amended by adding a new definition for "smoked" or "smoking." "Smoked" or "smoking" means changing cannabis from a hard, soft, or liquid form by combustion, heat, electricity, or batteries into a form that can be inhaled by the user. By adding a definition of "smoked" or "smoking," dispensaries are provided guidance in applying the definitions of "cannabis concentrates" and "cannabis-infused products." For example the definition clarifies that products such as vape devices that contain cannabis will not be taxed at the rate of 20% for cannabis-infused products but will be tax based on the percentage of THC in the solution in the device."

No new tax-related cases this week.

No new decisions were issued by the Tribunal this week.

The issue in one new sales tax case may be of interest. (The case was not accepted because the taxpayer is an out-of-state taxpayer that attempted to file the protest on its own without legal representation.)

At issue in Clair Brothers Audio Systems, Inc. is what happens when a deposit is made on a construction contract that is exempt under the Enterprise Zone Building materials exemption, but the deposit is made prior to the issuance of the sales tax exemption certificate for the project. Apparently, the Department took the position that because the taxpayer/contractor invoiced the United Center and requested a deposit prior to the issuance of the Enterprise Zone building materials exemption certificate, the entire transaction was subject to Use Tax payable by the contractor.

The taxpayer entered into an agreement to replace the sound system at the United Center, which is located in an Enterprise Zone. The taxpayer invoiced the United Center and requested a deposit in February. The customer provided that taxpayer with an Enterprise Zone Building materials exemption dated March 11. The first delivery of the materials was in April. The taxpayer was audited and the Department assessed Use Tax on all of the tangible personal property.

I suspect that if the Department is sustains this assessment, the City of Chicago will also assess it's Use Tax on the transaction.

The Governor's Office of Management and Budget issues a Partial Statement of Revenues, Expenditures and Transfers for the first quarter of the current fiscal year.

The next meeting of the Tax Institute will be held via webcast on Tuesday December 8 from 10:00 until noon. We will discuss the results of the fall veto session, the impact of the election on Illinois and federal taxes, City of Chicago and Cook County taxes, and discuss the Tax Institute's legislative initiatives for the 2021 spring Illinois legislative session.

As usual, the meeting will qualify for CLE and CPE.

Here is a link to the Tax Institute legislative

package for 2020. Please let me know your

thoughts on re-introducing these proposals, as well as your suggestions for additional legislative proposals to be considered at our December 8 meeting.

Email me at kstaats@ilchamber.org to register.