This Week in Springfield – 100-24

March 2, 2018

IN THIS ISSUE:

MARKETPLACE FAIRNESS
TAX ABUSE
PRE-JUDGEMENT WAGE LIENS
ATTORNEY GENERAL WORKER PROTECTION UNIT
PAY HISTORY COMPROMISE REMAINS ELUSIVE
MARIJUANA REFERENDUM PASSES SENATE
EMPLOYER RELOCATION PENALTIES
BUSINESS DAY SPEAKER

This Week in Springfield both Chambers were in session and discussions took place regarding guns, taxes, and employment issues.

MARKETPLACE FAIRNESS

States have long been unable to collect sales tax owed on tangible personal property sold by remote (e.g. Internet) sellers. State, including Illinois, have tried to do so. Standing in the way are two pre-Internet decisions by the Supreme Court of the United States (SCOTUS). The first, ironically enough, was National Bellas Hess vs IDOR (1967). A second case, Quill vs North Dakota (1992) affirmed the Bella Hess case. TWIS readers will note that both were prior to the use of the Internet as a significant commerce channel.

Briefly, both cases ruled that unless an entity had a physical presence within a state, that state could not require the remote seller to collect the state’s sales tax. It is important to note, however, that it is not as if the tax was not due. The liability shifted to the consumer. However, there was, and is, no efficient method of ensuring consumers remit the sales tax. With the advent of the Internet, the effect was a major selling channel competing with brick-and-mortar stores but with a significant advantage because they didn’t have to collect and remit sales tax. While many remote sellers continue to exploit the opportunity, others, like Amazon and Google, are already collecting and remitting sales tax to the states.

A few weeks ago, the US Supreme Court agreed to hear a case from South Dakota (South Dakota vs. Wayfair) which could overturn the National Bellas Hess and Quill decisions and require remote sellers to collect and remit state sales tax. A few Justices had publicly indicated their belief that the previous decisions should be reviewed. Depending on who you believe, the State of Illinois could realize revenues between $200 million and $800 million.

In order to position Illinois to be able to immediately benefit if the SCOTUS rules in favor of South Dakota, SB 2577 (Sen. Cristina Castro, D- Chicago) was introduced and is supported by IRMA. In short, SB 2577, as amended by Senate Amendment #1,  mirrors the language of South Dakota with slight modifications to reflect the fact that Illinois is an occupation and use tax state as opposed to a straight sales tax state. This week, the Senate Revenue Committee reported SB 2577 as amended by Senate Amendment #1 to the floor on an agreed bill list. It now awaits consideration by the full Senate.

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TAX ABUSE

As reported previously in TWIS, a broad coalition of entities organized by IRMA is fighting an attempt by a private business to seek access to the proprietary tax information of businesses. This discussion started nearly two years ago when a company, Azavar, initiated legislation designed to benefit their contingency-fee business model. Within the last year, a group of local governments formed and these local governments, number unknown, have now become the proponent. Azavar has allegedly disappeared from the conversation. Nevertheless, the legislation would benefit them. Companies like Azavar have played upon the frustrations of local governments and sold them on a get-rich-quick scheme. The proponents originally tried to pass their proposal through the Senate where it was twice defeated. They have now turned their attention to trying to force legislation out of the Illinois House. This week, their proposal, HB 2717 (Rep. Chris Welch, D- Westchester), was assigned to the House Revenue & Finance Committee and could be heard next week.

HB 2717 would allow municipalities to share private and protected business tax information with third party for-profit auditors. IRMA opposes any attempt at requiring the Illinois Department of Revenue (IDOR) to disclose tax information of businesses located with independent third-parties hired by such municipalities.

Currently, local governments receive from IDOR the following information: (1) business name; (2) business address; (3) the amount of sales tax distributed to the local government from sales at that business as part of the municipality’s 1% share of the 6.25% sales tax; and, (4) the amount of sales tax distributed to the local government from sales at that business as the result of any locally imposed sales tax administered by IDOR. This information is provided to the chief executive of the municipality pursuant to strict confidentiality requirements. Additionally, local governments receive on an annual basis a list of all businesses within their jurisdiction. This listing is available more frequently at the request of the local government. Finally, local governments also receive on monthly basis a listing of new businesses that have received a Certificate of Registration.

This proposal is an invitation to abuse and corruption because third parties are incented to make unsubstantiated accusations and trigger audits for which the businesses must pay. This is true because the third-parties are paid on a contingency-fee basis meaning there is no incentive for fairness.

Retailers are encouraged to contact their State Representatives and urge them to vote “NO” on HB 2717 or any bill that allows access to their tax information.

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PRE-JUDGEMENT WAGE LIENS

 HB 4324 (Rep. Chris Welch, D-Chicago) allows any employee to file a lien against an employer’s current and future acquired real and personal property based on a wage dispute—not an administrative or judicial finding of guilt.  The bill originates from a group known as Raise the Floor Alliance. It is meant to address the situation where unscrupulous companies, usually temporary businesses, dissolve and reorganize before a wage claim is brought or adjudicated.

While the business community is aware of these unscrupulous companies and committed, and provided language to address the issue, the pre-judgement lien would erroneously ensnare and impair legitimate operations without due process. The pre-judgement lien does not receive or require a hearing and is not adjudicated on the merits.  It takes effect five days after an employee files and posts notice of the lien.  As such, as drafted, once a lien is placed on business’ assets such as merchandise, rolling stock, grain, fertilizer, equipment, building materials etc., the assets become encumbered and may not be sold to consumers, used on a project, transported, processed, or otherwise converted until the lien is removed.  The lien also takes precedent over any other liens, debts or mortgages. For instance, retailers receive a line of credit to supplement payroll and to acquire goods for the current season and the upcoming season. The pre-judgement lien would take precedence over the line of credit for both the payroll and future goods and would impair the retailer’s ability to meet payroll and prepare for the upcoming season.

Additionally, the pre-judgement lien would simultaneously be put on the business “owners” personal real property in the county of the alleged wage theft. In a meeting with the advocates, it was explained the lien would be placed on the individual’s personal property that is responsible for managing the employee.  It is unclear if this would mean the shift manager, store manager, district manager, or regional manager of a national company—or all of the aforementioned.

The Department of Labor is currently taking more than a year to adjudicate wage claims and if this bill were to pass the lien would remain until the claim is adjudicated. Filing a lien of such significance without first proving the merit of wage dispute allegations will basically subject employers to constant extortion in order to avoid dealing with a lien on their business and personal property.

A business coalition met with the advocates and committed to providing language that would address the issue. The coalition’s draft required the Illinois Department of Labor (DOL) to adjudicate wage claims within 30 days of receiving the complaint.  If an employee filed a wage claim in a reasonable time, this would make it impossible for a company to dissolve, reorganize or transfer assets to avoid a violations. Furthermore, the coalition’s draft provided that if the company is found guilty, a lien would be placed on the company’s current and future assets pursuant to the current procedures under the Illinois Civil Procedure Code. The draft also allowed the DOL or the Illinois Attorney General to freeze the assets and enter into supplementary proceedings to discover the companies previously acquired, current, and future assets.  Within hours of providing the draft to the advocates an amendment was filed that was not shared with the coalition and did not include any language from the coalition’s suggestions.

The legislation passed committee on a partisan roll call and will be held on second reading while the amendment is brought to committee for consideration. The amendment does not address the aforementioned issues and all opponents remain opposed. Return to Top

ATTORNEY GENERAL WORKER PROTECTION UNIT

SB 193 (Sen. Kwame Raoul, D-Chicago)/Rep. Jay Hoffman, D-Belleville) allows the Attorney General (AG) to simultaneously litigate or re-litigate an issue that is being investigated or has already been adjudicated by the Illinois Department of Labor (DOL).  This would include claims under the Prevailing Wage Act, the Employee Classification Act, the Minimum Wage Law, the Day and Temporary and the Labor Services Act, and the Wage Payment and Collection Act.  Under current law the (DOL) investigates and adjudicates claims under these Acts.  Once the claim is adjudicated the DOL may forward the judgement to the AG for enforcement.  SB 193 would allow the AG the power to simultaneously investigate and bring suit against an employer. As such, an employer could be responsible for both a DOL and AG investigation and lawsuit. Additionally, the AG may re-litigate a case the DOL has already ruled upon.  For instance, if the DOL rules in favor of a business and closes the case and the AG is not satisfied with the outcome, the AG may independently open the case and re-litigate the complaint.

SB 193 passed the House with a 65-048-0 and the Senate with a 35-016-0 vote.

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PAY HISTORY COMPROMISE REMAINS ELUSIVE

Similar legislation that was vetoed by the Governor and failed to be overridden by the Senate has passed the House again.  Despite an avenue for compromise offered by the business community the advocates chose to pursue the same path traveled before. In the meantime additional jurisdictions have passed the compromise offered by the business community.

HB 4163 (Rep. Anna Moeller, D-Elgin/Sen. Christine Castro, D-Elgin) prohibits an employer from asking an employee about previous wage, salary and other compensation.  It also limits the current statutory defenses for Illinois employers while expanding the statutory penalties.  While IRMA has, from the beginning, agreed to prohibit the question as long as there are common sense exemptions, IRMA remains opposed to arbitrarily restricting Illinois’ employer’s current limited defenses and increasing current statutory penalties.

Illinois currently only has three defenses to an unequal wage claim (1) seniority system; (2) merit system; and (3) a system that measures earnings by quantity or quality of production. The advocates argue that limiting the current defenses and increasing the penalties will deter employers from violating the Equal Pay Act. In the past 11 years (excluding 2010 and 2011 where there is no available data), under the current limited defenses, there have been only 51 recorded violations of the Equal Pay Act. In that same time period approximately 707 investigations were conducted by the Illinois Department of Labor. Less than 7.5% of all claims in the last 11 years have resulted in a violation.  According to the U.S. Small Business Administration there are over 1.2 million businesses in Illinois. Assuming that a different company was responsible for each violation only .0000425% of Illinois businesses have been responsible for an Equal Pay Act violation in 11 years.  This is a 99.9999575% compliance rate.

Despite this compliance rate some business associations are willing to take a proactive step to support expanding the current Equal Pay Act to prohibit an employer from asking about a prospective employee’s wage and salary. A year ago, these associations suggested using a compromise that was accepted by all parties in Massachusetts. Since that time, Oregon, Delaware, California, and Puerto Rico have passed legislation prohibiting asking about an employee’s previous wage and salary. Oregon and Puerto Rico have adopted the Massachusetts model. So three of the five major jurisdictions support a compromise model.  Additionally, this model has been introduced in Rhode Island, Connecticut, Montana, Georgia, and Texas. Despite over 700 investigations over the past 11 years of available data 99.99% of all Illinois employers have already proven to be compliant with the current law.

It stands to reason that a reasonable compromise would be to take a proactive step forward by prohibiting the salary inquiry while recognizing the overwhelming majority of Illinois businesses have proven to promote and support both men and women in the workforce.

HB 4163 passed the House by a vote of 87-24-0 and moves to the Senate for consideration.

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MARIJUANA REFERENDUM PASSES SENATE

SB 2275 (Sen. Bill Cunningham, D-Chicago) creates the Marijuana Legalization Referendum Act. It requires the State Board of Elections to cause a statewide advisory public question to be submitted to the voters at the November 6, 2018 general election asking whether individuals support the legalization of possession and use of marijuana by persons who are at least 21 years of age, subject to regulation and taxation that is similar to the regulation and taxation of tobacco and alcohol.

The legislation passed the Senate with a vote of 37-13-1 and has been sent to the House for consideration.


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EMPLOYER RELOCATION PENALTIES

Introduced by unions that represent call center workers, HB 4081 (Rep. Michael Halpin, D-Rock Island) creates the Call Center Worker and Consumer Protection Act and requires an employer that intends to relocate a call center or portions of a call center from Illinois to another state or a foreign country to provide notice to the State Treasurer at least 120 days before the relocation or face a $10,000 per day penalty.  The company would also be required to repay current state tax incentives and forego any future state grants, loans, or tax incentives.  The legislation fails to take into consideration real world business decisions in determining how, when, and where a business should be located or operated. It also discourages businesses from moving to Illinois.

The legislation passed the House Economic Opportunity Committee by an 8-5 vote.

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BUSINESS DAY SPEAKER

Register now to attend Business Day 2018! Jim Vandehei, co-founder and CEO of Axios and co-founder and former CEO of POLITICO, will be keynote the opening luncheon of Business Day 2018 on Wednesday, May 9th in Springfield. In 2017, Vanity Fair listed Vandehei among the 100 most powerful ‘Information Age’ thinkers while Entrepreneur magazine named him one of 2017’s “50 Most Daring Entrepreneurs”. Exercising his entrepreneurial background and long history covering politics in Washington, D.C., Mr. Vandehei will pull back the curtain and address what audiences really need to know about the White House, Congress, politics, and the media. Mark your calendars now to attend Business Day 2018 on Wednesday, May 9th in Springfield!

Business Day Registration, Click Here

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