Illinois Bills to Watch

Just days away from the May 31 close of its regular legislative session, the Illinois General Assembly has yet to enact the comprehensive series of tax and budget reforms that were first proposed by the Illinois Senate leadership late last year. Yesterday, the Senate passed a modified version of Senate Bill (SB) 9, the tax proposal we described in a previous post, without any Republican support. SB 9 now moves to the Democratically-controlled House for consideration. Even if approved by the House, it seems likely that Illinois’ Republican Governor will veto the legislation.

Other bills to watch over the next week include the following:

False Claims Act Penalty Increase Proposal

Senate Bill 1577 proposes to change the penalty amounts imposed for violation of the Illinois False Claims Act (740 ILCS 175/1 et. seq.). Currently, a penalty of between $5,500 and $11,000 is imposed for each violation of the Illinois False Claims Act (740 ILCS 175/3(a)(1)). The amendment would change the penalty amount to match that imposed by the Federal False Claims Act as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990. The Federal Act currently imposes a penalty of between $10,957 and $21,916, almost double the charges imposed by the Illinois Act. See a copy of Federal Register for federal amounts.

At the urging of retailers, earlier this month SB 1577 was amended to add language that would exclude certain low dollar tax claims from the penalty increase. SB 1577 now provides that the penalty increase does not apply to false claims (1) brought by a private person; (2) in which the state has declined to intervene; (3) in which the amount of tax at issue is $50,000 or less, exclusive of interest, penalty, attorneys’ fees, costs or other amounts paid pursuant to the Act; and (4) when the tax claim does not relate to property tax.

Practice Note:

The Illinois Attorney General’s Office supports SB 1577, and the bill has been passed by the Illinois Senate. While the bill remains in the House Executive Committee, its deadline for consideration by that committee has been extended to May 26, 2017.

Unclaimed Property Proposal

We have previously reported on House Bill (HB) 2603, which proposes to substantially amend the state’s unclaimed property laws. At this time, passage of HB 2603 is uncertain. The bill has been referred to the House Rules Committee and, as of the time of this publication, the bill has not been scheduled for committee hearing.

Practice Note:

Bills not passed by the close of the regular legislative session may still be considered by the General Assembly in lame duck or fall veto sessions. However, they require a two-thirds majority for passage.

Economic Presence Nexus Proposal

In a recent amendment to Illinois Senate Bill 474, Illinois has joined the growing number of states proposing to create an economic presence nexus standard for a sales/use tax collection obligation, contrary to the physical presence nexus standard established by the United States Supreme Court in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). We previously reported on economic presence nexus developments in Alabama, Ohio, Tennessee and South Dakota.

SB 474 would amend Section 2 of the Use Tax Act to impose a tax collection and remission obligation on an out-of-state retailer making sales of tangible personal property to Illinois customers if the retailer’s gross receipts from sales to Illinois customers are at least $150,000 or the retailer has at least 200 separate sales transactions with Illinois customers. Similarly, it would amend Section 2 of the Service Use Tax Act with respect to out-of-state sellers making sales of services to Illinois customers.

Practice Note:

SB 474 is currently assigned to the Senate Assignments Committee. It has not been scheduled for committee hearing prior to the end of the legislative session. Absent a hearing, the bill cannot be moved to the Senate floor for passage. We will continue to monitor its progress, along with litigation in South Dakota, Alabama and Tennessee challenging authority purporting to impose an economic presence nexus standard in violation of Quill’s physical presence requirement.

Catherine A. Battin
Catherine (Cate) A. Battin represents clients in state and local tax controversies at the audit, administrative and judicial levels in numerous jurisdictions. She provides national state tax strategies for clients on a full range of state tax issues, including income tax apportionment, nexus, combination and sales tax characterization of products and services. She has defended numerous internet sellers in cases brought under the Illinois False Claims Act alleging fraudulent failures to collect and remit use tax. Read Catherine A. Battin's full bio.

Mary Kay McCalla Martire
Mary Kay McCalla Martire focuses her practice on state and local tax disputes. She helps clients with audits, tax-related litigation, letter rulings and settlement conferences. Mary Kay has experience resolving disputes involving income, sales and use, utility and telecommunications taxes, as well as premium and retaliatory tax. Read Mary Kay McCalla Martire's full bio.




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