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February 20, 2009— Issue 7
This week, the committee portion of session began in earnest. Many bills were considered in the various committees. Also, on Tuesday, February 17, the Governor signed HB 308 to move the date of the budget address from February 18 to March 18. HB 308 may be accessed at the following link: click here.
Bill Filing Update
Today, February 20, was the bill filing deadline for the Senate. As of the time of publication, 2,339 Senate bills have been filed. The bill filing deadline for the House is February 27. As of the time of publication, 2,672 House bills have been filed.
HB 1—Motor Fuel Tax Surcharge to Fund a Capital Program
HB 1, sponsored by Rep. John Bradley, is a bill to fund a capital construction program with an 8 cent per gallon surcharge added to the motor fuel tax. The proposal would generate $500 million per year to support $5.9 billion in construction bonds. On Thursday, February 19, the Transportation for Illinois Coalition, which is comprised of a broad swath of business, labor, governmental, and not-for-profit organizations, expressed support for the bill.
SB 1975—REIT Bill
SB 1975, sponsored by Senator Don Harmon, is the real estate investment trusts (“REIT”) bill proposed by TFI. SB 1975 attempts to make definitional changes regarding what constitutes a captive REIT so as not to regard legitimate REITs, in this case partnerships and certain foreign entities, as captive REITS, which were the targets of last year’s tax legislation. SB 1975 is very similar to SB 2643 of the 95th GA, which was also sponsored by Senator Harmon. SB 1975 may be accessed at the following link: click here.
SB 45—Vendor Collection Allowance
SB 45, sponsored by Senator James Meeks, eliminates the 1.75% allowance that retailers keep for by absorbing the risk of navigating various sales tax rates and by basically doing the work of the Department of Revenue. The Illinois Retail Merchants Association, TFI, and many organizations oppose the bill. A fact sheet regarding the allowance is attached hereto as Addendum A. SB 45 may be accessed at the following link: click here.
HB 23—Extension of the MPC & Graphic Arts Exemption
HB 23, sponsored by Rep. Art Turner, is a bill to extend the manufacturers’ purchase credit and the graphic arts machinery and equipment exemption. On February 20, HB 23 passed the House Revenue Committee Sales and Other Taxes Subcommittee on a vote of 3-0-0. The Illinois Chamber of Commerce, Caterpillar, the Illinois Manufacturers Association, TFI, and others support the bill. HB 23 may be accessed at the following link: click here.
Federal Stimulus Package
On February 17, President Barack Obama signed the $787 billion federal stimulus package. Information regarding the stimulus package may be accessed at the following links: click here and click here.
Illinois Supreme Court Opinion
On February 20, in the case of Exelon Corp. v. Department of Revenue, Docket No. 105582, the Illinois Supreme Court ruled that electricity is tangible personal property and remanded the case to the Department o Revenue with direction to grant a tax credit to Exelon under Section 201(e) of the Illinois Income Tax Act. The opinion may be accessed at the following link: click here.
Department of Revenue
2008 Fourth Quarter Income Tax Sunshine Index
The Department of Revenue recently published its “Index of Department of Revenue income tax Private Letter Ruling and General Information Letters issued for the Fourth Quarter of 2008.” The index can be found at 33 Ill. Reg. 3,568-3,571 (February 20, 2009) and accessed at this link: click here.
Internet Sales Report
The Illinois Department of Revenue has released a report in which it notes that the State is losing as much as $153 million in taxes on Internet sales. The report may be accessed at the following link: click here.
And Finally . . .
The Annual TFI Spring Symposium is scheduled for March 24 and 25 in Springfield. The Symposium will be highlighted with a distinguished group of speakers: Senate President John Cullerton, Auditor General Bill Holland, House Revenue and Finance Chairman John Bradley, and COGFA Executive Director Dan Long. Further information regarding the Spring Symposium may be accessed at the following link: click here. Further, an on-line registration form may be accessed at this link: click here.
ADDENDUM A
VENDOR COLLECTION ALLOWANCE
BACKGROUND: The vendor collection allowance is the amount of sales tax Illinois retailers retain to partially reimburse themselves for their costs of administering the Illinois sales tax. Currently, Illinois retailers are allowed to keep 1.75% of the tax they collect on behalf of the State. As an example, if a retailer annually collects $100,000 in sales tax, they keep $1,750 as a partial reimbursement.
FACT #1: A 2006 Study conducted by PriceWaterhouseCoopers for tax administrators and retailers, empirically demonstrated that the average cost of collecting and remitting sales tax is over 3% (3.09%) of all sales taxes collected - well above the 1.75% Illinois allows. Three percent is the national average but Illinois has the most complicated sales tax scheme in the nation. We have multiple layers of sales taxes, different sales taxes for different products and ever-changing interpretations from the Illinois Department of Revenue (IDOR) as to which products fall under which tax rates, and the fastest remittance requirements in the nation (weekly). Despite this, we are not asking that the allowance be increased, only that an already minimal reimbursement not be decreased further and retailers not be punished for fulfilling their mandated role as the State’s sales tax collectors.
FACT #2: Credit card fees cost retailers large or small the same percentage. On every credit card transaction, retailers are paying between 1.5% and 2.65 % of the sales tax directly to the banks in credit card fees. If 50% of their sales are on credit cards, that means an amount equal to between ¾% and 1.32% is paid in credit card fees on their entire universe of sales tax collections. Therefore, credit card fees alone erase all or most of any retailer’s partial reimbursement. Despite this, we are not asking that the allowance be increased, only that an already minimal reimbursement not be decreased further and retailers not be punished for fulfilling their mandated role as the State’s sales tax collectors.
FACT #3: Illinois retailers have seen their reimbursement rate decreased from 2% to 1.75% while the State keeps 2% for collecting and remitting to the local governmental units sales taxes for the Chicago Home Rule Use Tax, the County Motor Fuel Tax, the Metropolitan Pier & Exposition Authority Tax, the Chicago Soft Drink Tax, the Auto Renting Tax, and the Replacement Vehicle Tax. In addition, the State keeps 4% from the Municipal Hotel Tax and the Illinois Sports Authority Hotel Tax. If it is a cost of doing business for the State, why isn’t it a cost of doing business for a retailer? Despite this, we are not asking that the allowance be increased, only that an already minimal reimbursement not be decreased further and retailers not be punished for fulfilling their mandated role as the State’s sales tax collectors.
FACT #4: Computers have not made things easier. In fact, computers have made things more complicated. The ‘computer excuse’ was used to require retailers to pay sales taxes every week instead of once a month. This is the fastest and most frequent payment schedule of any State in the nation. Computers also bring with them licensing fees, on-going training issues, and more complicated audits. Computers do nothing to make compliance issues easier such as documenting tax-exempt sales, discerning between high and low tax, unrecovered sales tax due to bad debts, etc. If computers allegedly make things so easy, then why does the State get an even bigger allowance for serving the same computerized collection and remittance function for local governments that retailers serve for the State? Despite this, we are not asking that the allowance be increased, only that an already minimal reimbursement not be decreased further and retailers not be punished for fulfilling their mandated roles as the State’s sales tax collectors.
Fact #5: Computers have given the State the false impression that compliance is easier. Computers have enabled the State to (a) provide for more tax rates (currently more than 35 different rates) than any other state in the nation; and (2) provide for more taxing jurisdictions than any state in the nation. These are significant complications which make compliance infinitely more difficult and costly. Again, if computers allegedly make things easier, then why does the State get an even bigger allowance for serving the same computerized collection and remittance function for local governments that retailers serve for the State? Despite this, we are not asking that the allowance be increased, only that an already minimal reimbursement not be decreased further and retailers not be punished for fulfilling their mandated roles as the State’s sales tax collectors.
Fact #6: Discriminating by size of retailer is not an option. Retailers big and small are united in their opposition to any attempt to cap, reduce or eliminate the current vendor collection allowance. Illinois retailers saw their counterparts in Alabama get fooled when Alabama capped their collection allowance ostensibly to only go after “the big guys”. Since then, Alabama retailers have witnessed repeated lowering of the cap and now all retailers have been negatively impacted. The result is that the Illinois retail community is galvanized in opposition regardless of size of the merchant.
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