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August 28, 2020
State and Local Tax
This Week
Illinois General Assembly
The General Assembly is adjourned until the fall veto session.
HB 5824 - Welch- This legislation would establsh an Office of Diversity and Economic Inclusion within the Department of Commerce and Economic Opportunity. It would require supplier diversity reports to be filed as a condition of participation in a number of state programs.
Among other provisions, this bill would amend the EDGE Credit Act and provide that a taxpayer shall not receive a credit under the Act unless the taxpayer submits a required supplier diversity report and an annual report detailing the diversity of the taxpayer's own workforce, including full-time and part-time employees, contractors and board members.
Illinois Department of Revenue
I have been advised that the Department will soon issue draft rules to implement the sales tax changes that will be effective on January 1, 2021 contained in P.A. 101-604 (SB 119).
Prior to issuance of the draft rules, the Department posted a Leveling the Playing Field flowchart. The flowchart is geared toward sellers, but I think it is also helpful in demonstrating the varying taxation of purchases. All taxpayers, both sellers and purchasers should become familiar with the changes that will become effective January 1, 2021.
Based on my review, I believe the flowchart, and the upcoming draft rules, are incorrect in at least one respect. In my estimation, the Department lacks statutory authority for the third dot point under marketplace facilitator sales portion of the flowchart by which the Department asserts that sales made by the marketplace facilitator itself are subject to ROT with destination sourcing. As I read the law, remote retailers and marketplace sellers are the only entities that are subject to destination sourcing. In the circumstances covered by the third dot point, marketplace facilitators should only be subject to a 6.25% Use Tax collection obligation - not a destination sourcing-based retailers' occupation tax obligation.
In my conversations with the Department, they characterized this as a "policy determination." I have advised the Department that i believe they lack statutory authority for requiring marketplace facilitators to charge ROT on their own sales fulfilled from an out-of-state location on a destination sourcing basis. As of today, the Department is persisting in this "interpretation."
Whether you think it is good policy or bad, and whether you believe there are constitutional infirmities associated with the legislation as effective on January 1, 2021 (which I do), the Department lacks the authority to modify the law by rule as it plans to do.
If the Department adopts a rule that is contrary to law, it opens itself up to liability for attorney fees when the rule is successfully challenged. The marketplace facilitators affected by the Department's improper interpretation will find themselves caught between complying with the Department's flawed "policy decision" and collecting local taxes improperly, or charging taxpayers the proper tax - the 6.25% use tax - and defending against Department audits.
Rulemaking
The August 28 edition of the Illinois Register did not contain any proposed or adopted rulemakings by the Illinois Department of Commerce and Economic Opportunity.
Today's edition of the Illinois Register contains two adopted rulemakings by the Illinois Department of Revenue.
The Illinois Department of Revenue recently filed its "second notice" for the rulemaking amending the Income Tax rules to implement the minimum wage tax credit. The rulemakings conform the Retailers' Occupation Tax and Use Tax rulles to the change in law that was effective January 1, 2020 that imposed a $10,000 trade-in cap on automobiles.
Court cases
No new tax-related cases this week.
Tax Tribunal
No new decisions were issued by the Tribunal this week.
None of the new cases raise any issues of interest.
Illinois Chamber of Commerce Annual Meeting
Please see the attached flier for our annual meeting on September 24. We are doing a virtual meeting this year. I would like to give special recognition to Tax Institute accounting firm member FGMK who is a Bronze level sponsor.
We have a great speaker lineup - Tim Crane, President of Wintrust Financial Corporation, Tom Ricketts, Chair of the (soon to be 2020 World Champions) Chicago Cubs, and Charles Evans, the President and CEO of the Federal Reserve Bank of Chicago.
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