Executive Director
Tax Institute

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Upcoming Events
 July 29 - Income Tax Issues with Respect to Service Revenues  Joe Bigane and I will present a one hour webinar on income tax sourcing with an emphasis on Illinois sourcing of services.  Registration details to follow.  Remember webinars sponsored by Tax Institute qualify for Illinois CPE and CLE and are free for at least two members of each Tax Institute member organization.  Information on the webinar is at this  link.  To take advantage of your free legislation send an email to Kirsten at

November 17:  Illinois General Assembly veto session begins.
July 17, 2020

State and Local Tax  
This Week 

Illinois General Assembly

T he General Assembly  is adjourned until the fall veto session. 

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

The July 6 Illinois Register contained an proposed permanent rulemaking by the Illinois Department of Revenue and an identical emergency rulemaking.  The rulemakings amend the Illinois Income Tax rules. The Department described the subjects of the rulemaking as follows:

"This rulemaking implements the amendments PA 101-31 made to Sections 303, 304 and 710 of the Illinois Income Tax Act, 35 ILCS 5/303, 5/304 and 5/710.  Section 303, 35 ILCS 5/303, is amended as follows.  For tax years ending on or after December 31, 2019, all horse racing and casino winnings under the Illinois Horse Racing Act of 1975 and the Illinois Gambling Act (formerly the Illinois Riverboat Gambling Act) are allocable to Illinois.  Section 304, 35 ILCS 5/304, is amended as follows.  For tax years ending on or after December 31, 2019, all gross receipts from winnings from pari-mutuel wagering conducted at a wagering facility licensed under the Illinois Horse Racing Act of 1975 [230 ILCS 5] or from winnings from gambling games conducted on a riverboat or in a casino or organization gaming facility licensed under the Illinois Gambling Act [230 ILCS 10] are in this State.  Section 710, 35 ILCS 5/710, is amended to require withholding for residents and nonresidents for payments for winnings at a pari-mutuel wagering facility or from gambling games conducted on a riverboat or in a casino or organization gaming facility provided that the person making the payment is required to withhold under Section 3402(q) of the Internal Revenue Code."

The July 6 edition of the Illinois Register also contains the regulatory agenda of the Property Tax Appeal Board.  The Board anticipates amending various provisions of Part 1910 "Practice and Procedure for Appeals Before the Property Tax Appeal Board during the "winter 2020."  Among other things, PTAB proposes amending Section 1910.67 to "allow a hearing before PTAB to be conducted remotely through an interactive video-conference."

The July 10 edition of the Illinois Register did not contain any proposed or adopted rulemakings by the Illinois Department of Commerce and Economic Opportunity or the Illinois Department of Revenue.

The July 17 edition of the Illinois Register contains two new proposed and identical emergency rulemakings by the Illinois Department of Commerce and Economic Opportunity - Cannabis Business Incubator and Sponsorship Program, and Local Coronavirus Urgent Remediation Emergency (or Local CURE) Support program.  

The July 17 Illinois Register does not contain any proposed or adopted rulemakings by the Illinois Department of Revenue.  The Department of Revenue published its regulatory agenda.  Among other things, the Department announced it intention to adopt new rules to implement the "Leveling the Playing Field for Illinois Retail Act" as new Part 131.

Court cases
Best Buy Stores, L.P. v. Illinois Department of Revenue.  This case was posted on 6/30 after I mailed out my last newsletter.  This case is a Supreme Court Rule 23 case and may not be cited as precedent.

This is an absolutely terrible decision. The most charitable thing that I can say about the court's reasoning is that it is muddled and evinces a total misunderstanding of the Illinois Retailers' Occupation Tax and the Use Tax. Under what passes for the court's reasoning, it appears that the court concluded that a business that engages in sales at retail of a product cannot also act as a construction contractor under any circumstances. This is contrary to well settled law, and the Department's rules. 

Section 130.2075(b) of the Department's rules recognizes that a business can can act both as a business and a retailer.  This rule authorizes such businesses to make purchases tax-free for resale of items that may be both sold over the counter and installed as a portion of a construction contract and then account for either Retailers' Occupation Tax or Use depending on whether the items are sold over the counter or are installed as a portion of a construction contract.

In support of its position, the court cites to Ingersoll Milling Co. v. Department of Revenue 405 Ill. 367 (1950) an Illinois Supreme Court case which dealt with whether a particular special order machine designed and sold to Caterpillar was a sale at retail.  The court concluded that Ingersoll Milling was not subject to the Retailers' Occupation Tax Act in this instance because ". . . the appellee, in specially constructing this machine, produced by its technical engineering skill, is not engage in the business of selling tangible personal property as contemplated by the Retailers' Occupation Tax Act."

After quoting from Ingersoll, the Best Buy appellate court stated that "[i]n essence, to establish an exemption from the Act, a taxpayer must show that the tangible property sold to its customers had 'no value to the customers except as a result of the services' the taxpayer rendered."  This is just wrong. 

Section 130.1940 of the Department's rules dealing with construction contractors states in pertinent part as follows:

"A construction contractor does not incur Retailers' Occupation Tax liability as to receipts from labor furnished and tangible personal property (materials and fixtures) incorporated into a structure as an integral part thereof for an owner when furnished and installed as an incident of a construction contract. The construction contractor incurs Use Tax on the cost price of the tangible personal property that is incorporated into real estate. (See also Section 130.2075 of this Part.)"

The appellate court also completely dismissed any guidance that could be gleaned from Department private letter rulings, general information letters and a  compliance alert issued by the Department a few years ago on precisely this issue.  The court ompletely ignored the impact of the Taxpayer Bill of Rights with respect to the written guidance given by the Department in the Compliance Alert. The court dismissed any guidance from prior Department written pronouncements and stated, "[t]hose statements, however, do not bind the Department and have no persuasive weight."

I haven't seen the briefs in this case, but I hope the Department of Revenue did not put forth the nonsensical arguments adopted by this court.

It is apparent that the court had absolutely no understanding of the Retailers' Occupation Tax or the rules enacted under the Retailers' Occupation Tax when writing this opinion. Again, the good news is that this is a Rule 23 case that has no precedential value. 

As noted below, Best Buy has filed a protest with the Tax Tribunal on the same issues for a subsequent audit period.  In the petition filed in the Tribunal, Best Buy advises that they haven't determined whether they will seek to appeal this case to the Illinois Supreme Court.

Tax Tribunal 
No new decisions were issued by the Tribunal this week. 

The following new cases are of interest:

Best Buy Stores, L.P. v. Illinois Department of Revenue is a follow up audit period to the audit period at issue in the appellate court case discussed above. According to the petition, the issues in this case at the Tribunal are identical to the issues in the appellate court case. Best Buy is represented at the Tribunal by Drew Hemmings of Tax Institute member law firm Baker & McKenzie.

Steel Dynamics Inc. v. Illinois Department of Revenue is a protest of partial denial of an income tax refund claim. At issue is whether certain members of a unitary business group were protected from Illinois income taxation by P.L. 86-272.  Steel Dyamics is represeted David Hughes and Samantha Breslow of Tax Institute member law firm Horwood Marcus & Berk.

The Illinois General Assembly's Commission on Government Forecasting and Accountability ("COGFA") recently issued a report on the financial conditions of the  Illinois State Retirement Systems

COGFA also issued its  Monthly Briefing for the month ended June 2020.

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