IN THIS ISSUE
This Week in Springfield both chambers continued to consider legislation from the opposite chamber while the Senate “Grand Bargain” negotiations continued and intensified. A much-needed budget appears to be far from reality. After midnight on May 31st, passage of any legislation requires a super-majority which will make reaching agreement substantially more difficult.
SENATE ‘GRAND BARGAIN’
Months of attempts to reach a bi-partisan agreement in the Senate on a ‘grand bargain’ designed to establish a framework for an ultimate agreement on a state budget, including tax increases and reforms, continued this week but tensions increased as patience wore thin.
The Senate concluded action on a number of bills containing the various pieces of the ‘grand bargain’ despite the fact agreement between the Senate Democrat and Republican negotiators was never reached on all the pieces. Most importantly, while the proposed stop-gap budget passed as contained in SB 6, the language needed to implement the stop-gap budget contained in SB 42 failed.
As a result, the Senate did not call the bill containing revenues (SB 9) for a vote despite threats from the Senate Democrats that they are willing to go it alone if they have to. The Senate Democrats had filed Senate Amendment #4 which included provisions they believe the Senate Republicans had agreed to or presented during negotiations.
The most significant revenues are an increase in the state income tax for individuals to 4.95% from the current 3.75% that would roll-back to 3.75% in seven years. For corporations, the income tax rate would increase to 7% from the current 5.25%. The sales tax base would be expanded to include a variety of services. The services to be included in the sales tax base would be: repair and maintenance of personal property, landscaping services, laundry and dry-cleaning, storage (cars, boats, and property), cable/satellite/streaming services, pest control, private detective, alarm and security services, and personal care. Individuals who earn more than $250,000 and joint filers earning more than $500,000, would not be eligible for the personal exemption under the income tax. The same means test would be applied to the education expense credit.
As for cuts, Senate Amendment #4 proposed over $3.7 billion in cuts. The cuts included but were not limited to pension reform, the state employee health insurance program, $405 million in Medicaid reductions in addition to granting the Governor the authority to reduce Medicaid expenditures up to another 5 percent, additional borrowing, and refinancing of existing debt.
In addition to the passage of the stop-gap budget in SB 6, the Senate passed several of the ‘grand bargain’ related bills. Those bills passed were: education reform (SB 1), $7 billion bond authorization to pay-off back bills (SB 4), a stop-gap budget (SB 6), casino expansion (SB 7), procurement reform (SB 8), and pension reform for Chicago (SB 16). With the exception of casino expansion, procurement reform, and pension reform for Chicago, the legislation was approved on party-line votes. Passage of the various pieces was made possible, in part, by the stripping out of linking language that stated if any one bill did not become law, none of them could become law. The education reform bill was passed over Republican objections that discussions are on-going.
Property tax reform and workers’ compensation reform, two of the key reforms being sought by Governor Bruce Rauner, have yet to be considered. While agreement appears to be near-at-hand in the workers’ compensation arena, the parties remain relatively far apart on property tax reform. In particular, what elements, if any should be exempt from any property tax freeze that may be agreed to.
IRMA spent most of the week beating back a proposal to reduce the retail discount/vendor collection allowance. It appeared to be driven by the fact they were several hundred million short despite the aforementioned revenue increases noted above. See related story below.
The pieces of the Senate ‘grand bargain’ that passed have already been assigned to substantive committees in the House and could be heard next week. On those that have yet to be considered by the Senate – largely workers’ compensation and a property tax freeze – discussions continue. TWIS readers must remember that these have been discussions in the Senate and have not included the House in any meaningful way so even if the Senate can managed to come to some agreement on all the various pieces, it remains to be seen how they will be received in the House.
HOUSE TAX PROPOSAL
The House Revenue and Finance Committee acted on a tax proposal as prepared by the House Democrats and contained in House Amendment #1 to HB 160 (Rep. Mike Zalewski, D- Chicago). The proposal included decreasing the corporate income tax from 5.25% to 2.625%. Further, it proposed eliminating the franchise tax and reducing LLC filing fees from $750 to $59 and the filing fees of articles of incorporation from $500 to $39. Under this plan, the estate tax would be altered to allow assets to be inherited if a direct descendant or spouse continued to directly manage the assets for a period of not less than 10 years.
In terms of economic development reforms, the proposal seeks to further reform the EDGE credit program. It would limit the credit to 50% of the incremental income tax attributable to the project plus 10% of the training costs of new employees or 100% of the incremental income tax attributable to the project, whichever is less. There was also an enhanced credit (75%) if the project is in an underserved area. An area is considered underserved if it has poverty rate of 20%, 50% of the children are in the federal free lunch program, 20% of the households are SNAP recipients, or the unemployment rate is more than 120% of the national average for at least two consecutive quarters. The credit would also be expanded so that the only economic sectors not eligible for EDGE would be retail and retail food.
The proposal also contains a proposal to require corporations to pay a minimum tax of $5,000 regardless of their actual tax liability. For 2018 and beyond, the $5,000 would be increased by the consumer price index and rounded to the nearest $50. If a corporation’s liability was less than $5,000 but greater than $0, they would be the difference.
Importantly for retail, the House proposal did not proposed changes to the Retail Discount recognizing that it is a partial reimbursement for services rendered to the state and not a tax credit/deduction. Additionally, the House proposed closing a tax loophole that allows local governments to tax individual items by weight, and it exempted from tax shipping and delivery costs. IRMA would like to thank the House for recognizing the fact that the Retail Discount is a service to the state as well as the challenges raised by taxing shipping and delivery and allowing local governments to tax consumer goods by weight in addition to imposing a sales tax.
The proposal contained a number of other items including, but not limited to, allowing the carry-forward of credits, increasing the Earned Income Tax Credit to 15% over three years, awarding a child tax credit equal to 20% of the federal child tax credit, and incenting the hiring of interns and apprentices.
The House Revenue & Finance Committee approved HB 160 as amended and it now awaits additional consideration by the full House.
In the Senate ‘grand bargain’ discussions, some parties attempted to force retailers to underwrite more of the state’s sales tax collection functions than they already do. IRMA responded by reminding all the parties involved that state statute specifically calls the allowance a ‘reimbursement’ as well as the fact that unlike other business sectors, retailers do not benefit from retail-specific credits in the income tax code. Additionally, retailers are subsidizing the collection of sales tax and administering what is universally recognized as the most complicated sales tax scheme in the nation.
At one time or another, ideas on the Retail Discount were exchanged by both sides. As TWIS goes to press, IRMA was informed that any reduction or cap of the Retail Discount has been removed from consideration. While IRMA is disappointed that reduction or elimination of a reimbursement was even considered, IRMA sincerely appreciates the deliberative approach both sides took to re-considering and removing the Retail Discount from further consideration. Nevertheless, IRMA will continue to closely monitor the situation.
PAID SICK LEAVE
Senate Amendment #1 to HB 2771 (Rep. Christian Mitchell, D-Chicago/Sen. Toi Hutchinson, D-Chicago Heights) is very similar to the ordinances scheduled to take effect in Chicago and Cook County on July 1st except it does not tie in FMLA benefits.
The bill will require each employer to implement a system that would allow employees to accrue one hour of paid leave for every 40 hours the employee works. The employee would be eligible to take up to 5 paid sick days in one 12-month period. Employees would have to work for at least 180 days in order to be eligible and can take leave due to their own sickness or the illness of anyone that they know who is like family. Leave can also be taken for school closures and for needs related to incidences of domestic violence. Instead of offering accrual, the employer can choose to give the paid leave to the employee up-front at the beginning of each 12-month period. Paid sick days can carry over although an employer is not required to provide more than 5 paid days in a 12-month period. An employer with a paid time off policy can use that policy in compliance with this mandate as long as the employer offers the minimum requirements of the bill. Paid sick days do not need to be paid out upon separation.
This week, the amendment was voted out of the Senate Labor Committee with a promise by the sponsor that an additional amendment will be brought back to committee next week that will address some outstanding issues. In particular, the sponsor has indicated a willingness to allow employers to choose the date that benefits roll over instead of having to tie the date to the date that the employee starts or January 1st.
It is widely understood that the power to control geolocation services is already literally in the user’s hand. Such services can be turned off on a person’s device either through the app or through the phone or tablet. This bill is an unnecessary burden to businesses that have already given the user the choice to use geolocation services. It will require that the user give his/her consent upon first time use of the app, and also give consent whenever there is a material change to the specific purposes for which the information is collected, used or disclosed.
The bill does not apply to entities subject to HIPAA, financial institutions and affiliates subject to Gramm-Leach-Bliley, internet, wireless and telecommunications service providers, cable and video service providers, certain governmental entities, persons licensed under the Private Detective, Private Alarm, Private Security, Fingerprint Vendor, and Locksmith Act of 2004, and persons licensed under the Land Surveyor Act or the Professional Engineering Services Act. No reason has been given as to why there would be a legitimate business reason for any of these exemptions.
After testimony in the Senate Judiciary Committee, the sponsor agreed that he would review any alternative language given to him by the opposition before moving the bill to the floor. IRMA testified in opposition and is a part of a coalition of businesses that have given the sponsor alternative language to consider before moving the bill. The bill passed out of the Senate Judiciary Committee with a vote of 7-3-0.
FIREARM DEALER LICENSING
SB 1657 (Sen. Don Harmon, D-Oak Park/Rep. Kathleen Willis, D-Northlake) would require sellers of firearms and ammunition to apply for a state license to sell. Firearm dealers are currently licensed and inspected by the federal government. An Illinois-specific license would allow the state to separately inspect locations and possibly take licenses away for violations of the Act. IRMA was a part of the negotiations last legislative session to discuss the licensing effort and this amendment reflects the previous and current agreement which exempts from the licensing requirements any retailer that has less than 20% of its sales in firearms and ammunition. Since retailers that sell a small percentage of firearms are not the focus of the legislation, nor have they been shown to have critically engaged in the sale of firearms to straw purchasers, it makes sense to narrow the focus of the bill to address the real concern. The exemption would certainly be revisited if it is later found that such retailers have not been acting as good stewards of the privilege of selling firearms in Illinois. IRMA would like to thanks Senator Harmon for his consideration when SB 1657 was formulated in the Senate.
The House Judiciary Criminal Committee engaged in a lengthy debate on the bill and it passed with a vote of 7-6-0. It will now be considered on the House floor.
Per an agreement between IRMA and the Illinois Restaurant Association who is seeking the legislation, Illinois joins Virginia, Massachusetts, Michigan and Maine as the only states that require additional food allergen training for restaurant workers. The current food safety sanitation manager certificate (FSSMC) training already contains a 90-minute segment that includes training on allergens. HB 2510 (Rep. Sarah Feigenholtz, D-Chicago) would require an individual receiving a FSSMC to receive and pay for a separate allergen training course. The requirement only applies to local Illinois restaurants. Multi-state restaurants and franchisees are exempt if they have an internal food handling program on file with the Department of Public Health by August 1, 2017; if they have an internal food allergen training program that meets the requirements of the statute; or if they have a food allergen training program approved in another state. The legislation passed the House with a 77-32 vote. IRMA would like to thank Rep. Feigenholtz for her leadership in bringing the two parties to agreement.