At approximately 12:45 a.m. Saturday, June 1st the Illinois Senate adjourned until October 28th or the call of the Senate President. Prior to adjournment, the Senate passed everything they wanted or needed to pass including a Fiscal Year 2020 budget. At approximately 8:00 p.m., the House adjourned for the evening. The House returned on Saturday to pass a massive $45 billion-plus capital program that included gaming. Gaming is always difficult to bring together and more time was needed to see if significant disagreements could be overcome. After stops-and-starts overnight an agreement was ultimately reached later in the day on Saturday and the House concluded its action later that night. The Senate returned Sunday afternoon to finish. This brought an end to an extraordinarily active legislative session and a long final week with incredible peaks and valleys. All legislators and staff, Governor Pritzker and staff and many others are to be thanked for their persistence and patience.
Both chambers are now scheduled to return on Monday, October 28th for the fall Veto Session.
What follows is an overview of the major items that comprised the final budget and capital deals as well as legislation of note.
STATE BUDGET AND CAPITAL
Agreement was reached on $40 billion-plus state budget for Fiscal Year 2020 as contained in SB 689 with an accompanying Budget Implementation bill (BIMP) contained in HB 3096. The FY 20 budget, which takes effect July 1st, received bi-partisan support and his balanced for the first time in years. Additionally, agreement was reached on a $45 billion infrastructure program dwarfing the previous program passed in 2009 at $30 billion. What follows is a summary of the major revenue sources:
- Motor fuel tax increases from $0.19 to $0.38. The counties of DuPage, Kane, Lake, McHenry, and Will can currently impose a motor fuel tax of up to $0.04 per gallon. They can now impose up to $0.08 per gallon. Additionally, these taxes will increase by the rate of inflation as determined by the Illinois Department of Revenue utilizing CPI-U.
- Driver’s license and vehicle registration fees were increased. Electric vehicles increased $250, all others increased $50 from $95 to $150 for first-class vehicles.
- Cigarette taxes increase from $1.98 to $2.98 per pack or $29.80 per carton.
- Electronic cigarettes will be taxed at 15%.
- Gambling expansion including six new casinos (Chicago, Danville, Waukegan, Rockford, Southern Cook County, and Williamson County); expansion of max bets, top prizes and a 6th machine for video gaming operators, 15% tax on sports betting which is now legalized.
- Tax on parking for fees or other consideration. Applies to private lots as well. Tax is 6% on hourly, daily, and weekly parking and 9% on monthly or annual fees.
- An assessment on Managed Care Organizations (MCO’s) participating in the managed Medicaid program.
- Legalized recreational cannabis.
Additionally, as part of the final agreement reached in the House, Illinois’ despised Franchise Tax will be phased-out over three years, the Manufacturers Purchase Credit will be enacted as will tax incentives for data centers.
IRMA would like to congratulation Governor Pritzker, Senate President John Cullerton, House Speaker Michael J. Madigan, Senate Republican Leader Bill Brady, House Republican Leader Jim Durkin, the many legislators who served on the various working groups who negotiated most of the components, and the legislative and gubernatorial staff. Agree or disagree with the ‘how’ but Illinois is has a balanced budget for the first time in many, many years and a robust plan to repair Illinois’s crumbling infrastructure.
IRMA played a central role this year in finding new revenues for the state in a way that did not come at the expense of any other entity or sector and took a giant step toward creating sales tax parity for Illinois retailers vs. their remote competitors. It played a large role in the ability of the Assembly to put together their FY 20 budget and vertical capital plan. This was made possible by the Supreme Court of the United States’ (SCOTUS) Wayfair v South Dakota decision last summer. In short, SCOTUS ruled that for purposes of collecting and remitting sales tax, it doesn’t matter where a retailer has a physical presence. What matters is whether they are selling. IRMA’s proposal came in two parts.
The first part was contained in House Amendment #3 to SB 690 (Sen. Terry Link, D- Gurnee /Rep. Bob Rita, D- Blue Island) and takes effect next year on July 1, 2020. It requires remote sellers to collect and remit the Retailer’s Occupation Tax (ROT) instead of just the Use Tax (UT). As of July 1, 2020, this means remote sellers will no longer be collecting and remitting just the 6.25% but will be collecting and remitting the 6.25% plus any locally-imposed ROT. Under the provisions crafted by IRMA, remote sellers have the option of collecting and remitting on their own or utilizing a Certified Service Provider (CSP). CSP’s currently operate in every state in some capacity but collect and remit sales taxes in 24 states. CSPs are paid for their services because they keep the retail discount that would normally go to the remote retailer because the CSP is doing all the work for the retailer. This is a critical component of complying with the Wayfair decision. In their ruling, SCOTUS stated they would view any regulatory effort through the lens of complexity – the easier it is for the remote retailer to comply, the more likely the regulatory effort would be upheld. Not only is Illinois making it easy for remote retailers by giving them the option to utilize CSPs, they are ensuring no one can argue it is cost prohibitive because the CSP’s services are provided free-of-charge.
The second part of IRMA’s proposal was contained in House Amendment #3 to SB 689 (Sen. Toi Hutchinson, D- Chicago Heights/Rep. Gregory Harris, D- Chicago). This part requires marketplace facilitators (e.g. Amazon, Walmart, Facebook, etc.) to collect and remit the Illinois Use Tax on behalf of the sellers who sell their products through the on-line marketplaces. While IRMA had proposed the marketplaces collect and remit the ROT and not just the UT, IDOR prevailed over unspecified ‘constitutional concerns’. This means the same entities who will benefit under the collection of the ROT by remote sellers, will not meaningfully benefit from the marketplace requirement. It also means Illinois retailers will still be at an unnecessary competitive disadvantage vis-à-vis marketplace sellers.
Nevertheless, if Senate Bills 689 and 690 are signed into law by the Governor, Illinois will have taken a significant step toward creating long-sought parity. IRMA will work with the IDOR over the summer to elevate their understanding of the full implications of the Wayfair decision and bring full parity to Illinois.
IRMA would like to thank Senate President John Cullerton, Speaker Michael J. Madigan, Senate Republican Leader Bill Brady, House Republican Leader Jim Durkin and the many legislators and staff who took the time to truly understand the issue and ultimately embrace it.
After an intense three-year debate, IRMA led a coalition of business interests into an agreement allowing third-parties to obtain limited sales tax information from local units of government on businesses within their jurisdiction. While the agreement as contained House Amendment #2 and House Amendment #5 in SB 1881 (Sen. Michael Hastings, D- Frankfort/Rep. Michael Zalewski, D- Riverside) passed the House, a last minute concern from the Office of the Illinois Attorney General caused the Senate to hold the legislation until the fall Veto Session.
As originally proposed over three-years ago, the proposal would have allowed third-parties to obtain nearly anything and use the information for any purpose including contingency-fee audits. The multi-year debate included IRMA conducting a FOIA and finding clear evidence of the primary proponent encouraging municipalities to break the law which currently prohibits any sharing. After that revelation, the discussions took on a more reasonable tenor. Ultimately, the IRMA-led coalition significantly narrowed the scope and obtained critical protections.
The provisions of SB 1881 creates a strict regulatory regime for third-parties receiving such information allow the following:
- Third parties must be registered with the state and pay a registration fee. The registration can be revoked for violating the Act;
- Third parties are subject to confidentiality agreements utilized by the Illinois Department of Revenue (IDOR);
- Third parties can only use the information to ensure local units of government are receiving their correct allocation from IDOR and must destroy such information after 30 days;
- A third party could refer a business to IDOR for possible audit but IDOR retains the last word as to whether or not a taxpayer needs to be audited.
- Creates a Certified Audit Program. Ensures taxpayers have all the rights and protections they enjoy today.
- Imposes strict penalties on third-parties for violations of the Act.
IRMA would like to thank Rep. Zalewski for his patient leadership as well as that of Sen. Mike Hastings.
GRADUATED INCOME TAX CONSTITUTIONAL AMENDMENT & PROPOSED RATES
The Illinois General Assembly has passed a Senate Joint Resolution Constitutional Amendment 1 (Sen. Don Harmon, D- Oak Park/Rep. Rob Martwick, D- Chicago) to put before the voters whether or not to amend the Illinois Constitution to move Illinois from a “flat tax” state to a “graduated income tax” state. SJRCA 1 will appear on the November 2020 ballot.
SJRCA 1 was approved by the Senate on a party-line vote on May 1st with all 40 Democrat members supporting and all 19 Republican’s opposing. On May 27th, SJRCA 1 passed the House with another party-line vote of 73-44.
While SJRCA 1 places an initiative on the ballot for the voters to decide, it does not set the rates for the graduate income tax if the ballot initiative is approved by voters. Senate Amendment #1 to SB 687 (Sen. Toi Hutchinson, D- Chicago Heights/Rep. Michael Zalewski, D- Riverside) proposes income tax rates should voters approve the constitutional amendment in November 2020 allowing Illinois to impose a graduated income tax. SB 687 passed the Senate with a 36-22 vote a few weeks ago and passed the House this week with a 67-48 vote. The Senate subsequently concurred with House changes and the bill has been sent to the Governor. It must be emphasized that should voters approve the amendment to the constitution, these rates could be changed at any time by the Assembly.
The new proposed tax rates on personal income, which includes pass-through entities such as trusts and partnerships. In Illinois, pass-through entities also must apply a 1.5% tax on all income known as the Personal Property Replacement Tax. Therefore, the proposed effective rates are as follows:
|INCOME||TAX RATE||EFFECTIVE TAX RATE WITH PPRT (1.5%)|
|$10,000 or less||4.75%||6.25%|
|$10,000.01 – $100,000||4.90%||6.40%|
|$100,000.01 – $250,000||4.95%||6.45%|
|$350,000.01 – $750,000||7.85%||9.35%|
For individuals with incomes over $750,000, the 7.99% rate applies to the entire income – not just the income over $750,000
What follows are the new proposed rates on corporate income. In Illinois, corporations must also apply a 2.5% tax on all income known as the Corporate Personal Property Replacement Tax. Therefore, the proposed and effective rates are as follows:
|INCOME||TAX RATE||EFFECTIVE TAX RATE WITH CPPRT (2.5%)|
|$10,000 or less||4.75%||7.25%|
|$10,000.01 – $100,000||4.90%||7.40%|
|$100,000.01 – $250,000||4.95%||7.45%|
|$250,000.01 – $500,000||7.75%||10.25%|
|$500,000.01 – $1,000,000||7.85%||10.35%|
For corporations with incomes over $1,000,000 the 7.99% rate applies to the entire income – not just the income over $1,000,000.
This proposal represents an expansion of the rates as originally discussed. Initially, the discussion was to make the highest rate for individuals top out at 7.95% and $1 million. The top rate is higher and now applies to those making less than $1 million. This appears to be an effort to blunt criticism that the initially discussed rates did not solve the current budget problems. Even if these proposed rates do that, they still do not generate the revenue necessary to return Illinois to fiscal stability by addressing out-year commitments to schools and pensions as well as the proposed new spending.
There is also a $100 per child tax credit for those with children under 17 years of age. For those filing jointly making $100,000 or less. This credit phases out incrementally by $5 for every $2,000 in income beginning at $60,000 for those filing jointly. Those filing as individuals are eligible if they make $80,000 or less. The child credit begins reducing by $5 for every $2000 as income increases over $40,000.
WORKPLACE SEXUAL HARASSMENT OMNIBUS BILL
Lawmakers passed a Workplace Sexual Harassment Omnibus bill in SB 75 (Sen. Melinda Bush, D-Grayslake/Rep. Ann Williams, D-Chicago). Lawmakers, staff from the four caucuses, and industry came together to reach a reasonable compromise on the issues. The bill address many different issues that include but are not limited to the following:
- Prohibiting an employment agreement preventing or restricting an employee from reporting any allegations of unlawful conduct to officials for investigations;
- Makes it clear that any contract or agreement restricting or prohibiting truthful statements of disclosures about unlawful employment practices or requires the individual to waive or arbitrate any existing or future claim is against public policy;
- Allows an agreement to include conditions that would otherwise be against public policy if the agreement is in writing and demonstrates knowing and bargained-for consideration from both parties;
- Outlines requirements that allow a confidentiality provision to be contained in a settlement or termination agreement;
- Requires an employer report an adverse judgement or administrative ruling against it in the previous calendar year to Illinois Department of Human Rights (IDHR). IDHR is to use this information to publish an annual report aggregating the information provided. The data is confidential and exempt from FOIA.
The legislation also creates a sexual harassment training requirement for Illinois employees. IDHR is required to produce a model sexual harassment prevention training program. The model program shall be made available to employers and the public at no cost. In the alternative, every employer in the state shall use the model sexual harassment prevention training program created by IDHR or establish its own sexual harassment prevention training that equals or exceeds the starting standards.
Finally, the legislation requires additional training for restaurant and bar employees and requires every restaurant and bar operating in this State to have a sexual harassment policy provided to all employees. IRMA has committed to work with IDHR to create a free online model specific to the restaurant industry.
IRMA would like to thank Senator Melinda Bush, Representative Ann Williams, and the staffs from all four caucuses for their hard work on this issue and for addressing industry concerns to the best of their ability.
MANDATORY BOARD REPORTING
As introduced, HB 3394 (Rep. Chris Welch, D-Chicago/Sen. Christopher Belt, D-Chicago) required publicly traded companies with principle executive offices in Illinois to maintain a starting number females and African American directors on its board of directors. As introduced, at least two legal arguments are presented by the legislation: (1) it violates equal protection by facially discriminating based on sex and race, and (2) because it applies to companies organized outside Illinois, it violates the dormant commerce clause and the “internal affairs doctrine,” which requires that internal company affairs be under the regulatory purview of only one jurisdiction. California passed a similar bill and the California Governor admitted that “There have been numerous objections to this bill and serious legal concerns have been raised. I don’t minimize the potential flaws that indeed may prove fatal to its ultimate implementation.”
Both sponsors worked on the bill and amended the initiative in the Senate. As amended, HB 3394 requires public corporations to report to the Secretary of State: (1) whether the corporation is a publicly held domestic or foreign corporation with its principal executive office located in Illinois; (2) data on specific qualifications, skills, and experience that the corporation considers for its board of directors, nominees for the board of directors, and executive officers; (3) whether each member of the corporation’s board of directors self-identifies as a minority person and, if so, which race or ethnicity to which the member belongs; and (4) other information. It also requires the Secretary of State to make the information public and requires the University of Illinois System to review the reported information and publish on its website a report that provides aggregate data on the demographic characteristics of the boards of directors and executive officers of corporations filing an annual report for the preceding year along with an individualized rating for each corporation.
IRMA appreciates the work Rep. Welch and Sen. Belt put into the legislation.