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Illinois Unclaimed Property Law Substantially Revised As Part of Revenue Package Supporting Illinois Budget

Yesterday the Illinois House of Representatives voted to override Governor Bruce Rauner’s veto of Senate Bill (SB) 9, the revenue bill supporting the State’s Fiscal Year (FY) 2017-2018 Budget. Just days before the vote, SB 9 was amended to include a revised version of the Illinois Unclaimed Property Bill (House Bill (HB) 2603) on which we’ve previously reported. The new law (part of Public Act 100-0022) is known as the Revised Uniform Unclaimed Property Act (RUUPA). The RUUPA becomes effective January 1, 2018. Below is a brief summary of a few of the highlights of which holders should be aware.

Gift Cards, Loyalty Cards and Game-Related Digital Content Exempt

Unlike HB 2603, the Illinois RUUPA expressly excludes “gift cards” from the definition of “property” subject to escheat. Pulling (in-part) from the Uniform Law Commission (ULC) definition, “gift card” is defined in the Illinois RUUPA as “a stored-value card: (i) issued on a prepaid basis in a specified amount; (ii) the value of which does not expire; (iii) that is not subject to a dormancy, inactivity, or service fee; (iv) that may be decreased in value only by redemption for merchandise, goods, or services upon presentation at a single merchant or an affiliated group of merchants; and (v) that, unless required by law, may not be redeemed for or converted into money or otherwise monetized by the issuer.” (more…)




Tax Changes Implemented As Part of Revenue Package Supporting Illinois Budget

Yesterday afternoon, after months of wrangling and a marathon 4th of July weekend session, the Illinois House of Representatives voted to override Governor Bruce Rauner’s veto of Senate Bill (SB) 9, the revenue bill supporting the State’s Fiscal Year (FY) 2017-2018 Budget. The vote ended Illinois’ two year budget impasse and may avoid a threatened downgrade of Illinois bonds to junk status. The key tax components of the bill as enacted Public Act 100-0022 (Act) are as follows:

Income Tax

Rate increase. Income tax rates are increased, effective July 1, 2017, to 4.95 percent for individuals, trusts and estates, and 7 percent for corporations.

Income allocation. The Act contains a number of provisions intended to resolve questions regarding how income should be allocated between the two rates in effect for 2017.

  • Illinois Income Tax Act (IITA) 5/202.5(a) provides a default rule, a proration based on the days in each period (181/184), for purposes of allocating income between pre-July 1 segments and periods after the end of June when rates increase. Alternatively, IITA 5/202.5(b) provides that a taxpayer may elect to determine net income on a specific accounting basis for the two portions of their taxable year, from the beginning of the taxable year through the last day of the apportionment period, and from the first day of the next apportionment period through the end of the taxable year.

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Update on Illinois Legislative Session

On May 31, the Illinois General Assembly closed its regular legislative session, without a budget agreement.

Senate Bill 9

As we previously reported, the Senate passed a modified version of Senate Bill 9 (Bill), a tax proposal that is part of the Illinois “Grand Bargain” that we described in a previous post. The version of Senate Bill 9 that passed out of the Senate passed the House Revenue Committee on May 29 on a partisan vote. The House has extended the Bill’s final action deadline to June 30.

The current version of the Bill is similar but not identical to the version that we have previously described. Some of the more significant amendments include the following:

Two New Taxes. The Bill now proposes to create two new taxes. The “Video Service Tax Modernization Act” purports to impose a tax on satellite television and streaming television services at a rate of 5 percent of the gross revenues that a provider earns from its Illinois customers. The Bill also creates the “Entertainment Tax Fairness Act” which seeks to tax viewing “entertainment,” defined as “paid video programming whether transmitted by cable service, direct-to-home satellite service, direct broadcast satellite service, digital audio-visual works service, or video service.” The tax rate is 1 percent of charges paid by the customer. Both taxes exempt satellite or subscription radio services and can be passed-through and collected from customers.

Income Tax. The Bill now proposes to increase income tax rates for individuals, trusts and estates to 4.95 percent (rather than the previously proposed 4.99 percent rate). Also, the tax rate increases, including the increase to 7 percent for corporations (corporate increase unchanged from the Bill’s prior version), continue to be permanent.

Sales Tax Base Expansion. The current version of the Bill removes repair and maintenance services, landscaping services, cable television services (but see “Two New Taxes” described above) and some personal care services (including nails and hair removal) from the Bill’s expansion of the Illinois sales tax base.

It is difficult to predict whether any portion of Senate Bill 9 will be enacted. Since the Illinois General Assembly’s regular sessions have now ended, legislative approval will require a three-fifths majority and, to date, the governor has refused to endorse the legislation.

Senate Bill 1577

We have previously reported on Senate Bill 1577, which proposes to increase the penalty amounts imposed for violation of the Illinois False Claims Act. The bill passed the House on May 30 with the exception for certain low dollar tax claims as previously described.




Finishing SALT: InsideSALT’s Monthly Recap

Wrapping Up May – and Looking Forward to June

Our May 2017 blog posts are available on our Inside SALT blog, or read each article by clicking on the titles below. To receive the latest on state and local tax news and commentary directly in your inbox as they are posted, fill out the form on the right to subscribe to our email list.

May 16, 2017: Illinois Department of Revenue Affirms Cloud-Based Services Not Taxable

In two recent General Information Letters (GILs), the Illinois Department of Revenue (Department) reaffirmed that computer software provided through a cloud-based delivery system is not subject to tax in Illinois. The Department announced that while it continues to review cloud-based arrangements and may determine they are taxable at some point, any decision to tax cloud-based services will be applied prospectively only.

May 24, 2017: 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. On May 23, the Senate passed a modified version of Senate Bill (SB) 9, the tax proposal we described in a previous post, without any Republican support, but it seems likely that Illinois’ Republican Governor will veto the legislation.

Looking forward to June:

June 8, 2017: Chicago – Tax in the City®: A Women’s Tax Roundtable

McDermott Will & Emery’s Tax in the City® network will host a CLE/CPE discussion focusing on current developments in professional responsibility and ethics, including a discussion focused on ethical issues arising out of our increasing access to connectivity.

June 8, 2017: New York – Inside SALT: Significant State Developments and Opportunities

McDermott Will & Emery’s New York State and Local Tax group presents a half-day program that will discuss a wide range of topics, including New York developments such as false claims and budget provisions, Nexus updates and developments in digital taxation, and new developments in apportionment, transfer pricing and unclaimed property.




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. (more…)




Tax Highlights of Proposed Illinois “Grand Bargain”

In an effort to resolve Illinois’ 20-month budget impasse, the Illinois Senate leadership (Senate Majority Leader John Cullerton and Senate Minority Leader Christine Rodogno) have jointly proposed a series of bills to increase revenue, reduce spending, and respond to the Illinois Governor’s concerns regarding pension reforms, workers compensation reform and property tax relief.  A series of twelve bills have been introduced, all of which are interlinked for passage.  The bills are termed the Illinois “Grand Bargain.”  Most of the tax-related changes are found in Senate Bill 9.  The current version of the Senate Bill 9 (Amendment 3) (“Bill”) was submitted on March 3 and includes the following proposed changes: (more…)




Another Effort at False Claims Act Reform: Bills Introduced to Amend Illinois Act to Restrict Tax-Related Claims

Illinois Legislators have recently introduced three bills that would amend the Illinois False Claims Act (“Act”) to restrict the ability to bring tax-related claims. Senate Bill 9, the proposed “grand bargain” to resolve Illinois’ budget stalemate, includes language that would eliminate the ability to use the Act to bring tax claims.  In addition, Representative Frank Wheeler and Senator Pam Althoff have introduced House Bill 1814 and Senate Bill 1250, respectively, which are identical pieces of legislation that would significantly restrict a private citizen’s right to bring tax-related claims. Senate Bill 9, if adopted in its current form, would eliminate the ability to bring a tax-related claim under the Act.  Currently, the Act only excludes the right to bring income tax-related claims. 740 ILCS 175/3(c).  This would effectively conform the Act to the federal False Claims Act, which does not extend to tax claims.  Rather, tax-related claims are brought before the Internal Revenue Service’s Whistleblower Office as whistleblower claims. House Bill 1814 and Senate Bill 1250 (“Bills 1814/1250”) preserve the right to bring tax claims under the Act, and they maintain the prohibition against income tax claims.  However, in a significant improvement over current practice, the Bills would amend the Act to restrict the ability of a whistleblower or its counsel to control or profit from the filing of tax claims.  In addition, they enhance the role played by the Department of Revenue (“Department”) in determining whether a whistleblower’s tax claim should be pursued.  Effectively, the Bills make the filing of state tax-related whistleblower claims more like the procedure for bringing a federal tax violation before the IRS. Currently, the Act authorizes private citizens, termed “relators,” to initiate litigation to force payment of tax allegedly owed to the State.  740 ILCS 175/4(b).  Hundreds of such claims have been filed in Illinois by whistleblowers claiming a failure to collect and remit sales tax on internet sales.  Relators file a complaint under seal with the circuit court and serve the complaint on the State.  Id. 175/4(b)(2).  The Illinois Attorney General’s office then has the opportunity to review the allegations and decide whether to intervene in the litigation.  Id. 175/4(b)(2), (3).  The Department is not named as a Defendant and there is no requirement to involve the Department in the litigation.  If the Attorney General declines to proceed with the litigation, the relator may proceed with the lawsuit on its own and, if successful, is entitled to an award of 25 percent to 30 percent of the proceeds or settlement of the action, plus its attorneys’ fees and costs.  Id. 175/4(d)(2).  Even if the State intervenes and proceeds with the litigation, eliminating the relator’s day-to-day involvement, the relator is entitled to an award of 15 percent to 25 percent of the proceeds of settlement, plus attorneys’ fees and costs.  Id. 175/4(d)(1). In contrast, Bills 1814/1250 provide that only the Attorney General (“AG”) and the Department have the right to initiate claims under [...]

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