Tax Institute Policy Review
May Edition
Motor Fuel Tax Refund Procedure Not Subject to Sunset Law
Thanks to quick action by the Illinois Chamber Tax Institute, refund procedures for off-road use of un-dyed diesel fuel remain available to taxpayers. In early April, the Illinois Department of Revenue (IDOR) began notifying taxpayers who were using the claim for refund provisions in the Motor Fuel Tax (MFT) Act (for off-road use of un-dyed diesel fuel), that future claims would be denied and that the taxpayers would be receiving notices of tax liability (NTL’s) for claims erroneously paid. The Department’s position was that the claim for refund provision in the MFT Act was an “exemption, credit or deduction” subject to the sunset requirement in the Act and that effective July 1, 2006, the un-dyed diesel fuel provisions had sunset and were fully taxable.
Responding to inquiries from several Illinois Chamber members; Tax Institute Executive Director Connie Beard quickly intervened, requesting that the Department hold the issuance of NTL’s until the Tax Institute could review and discuss with the Department its current position. Upon review, it was the Tax Institute’s position that the “claim for refund” provisions in the MFT Act were merely a procedural mechanism for receiving a refund for un-dyed fuel uses that were outside the scope of the Motor Fuel Tax Act. Since these uses were never subject to the MFT in the first place, no “exemption, credit or deduction” was necessary. However, a refund procedure had been put in place with the enactment of Public Act 92-30-- a procedure not subject to the sunset provision.
After meeting with Director of Revenue Brian Hamer and explaining the Tax Institute’s position on the sunset provision, Ms. Beard was notified that the Department would reverse its position and would once again accept claims for refund for non-taxable uses of un-dyed diesel fuel. Ms. Beard’s quick response helped members and other taxpayers avoid the issuance of NTL’s and an unnecessary battle with the Department since the Department does not generally reverse its position subsequent to the issuance of NTL’s. Our sincerest thanks go out to Director Hamer for his timely and fair response in handling this issue.
SJRCA 92 & HJRCA 42- The Graduated Income Tax Initiatives
During the past month of session, both the House and Senate Executive Committees have attempted to move forward with a constitutional amendment authorizing a graduated income tax in Illinois. Both amendments passed out of the committees with the House initiative failing on the floor while the Senate amendment remains stalled on its side. In order for a proposed constitutional amendment to appear on the November 2008 ballot; both the House and the Senate will need to approve the proposed amendment by a three-fifths majority before May 4th, 2008. While it is unlikely that either resolution will receive the support needed this session to make it to the ballot, this is an important issue to monitor.
The House’s version of the graduated income tax was simply to double the current rate of personal income tax on individuals, married couples and some small businesses with income greater than $250,000. Even $1.00 over the $250,000 threshold subjected the entire income amount to a 6% personal income tax rate. The Senate resolution was not specific in the details of the graduated income tax, thereby leaving it up to the General Assembly to craft a working tax structure once the constitution was amended to provide for a graduated income tax.
The Chamber opposes both SJRCA 92 and HJRCA 42, arguing that the current tax structure in Illinois is not a regressive structure, as many proponents believe. The Chamber has also consistently argued for spending reforms to be part and parcel of any new revenue enhancement proposal.
Proposed Lottery Concession
John Filan, Chief Operating Officer for the State of Illinois, continues to make the Governor’s case for the proposed partial concession of the Illinois Lottery. In an April 22nd meeting held at the Chicagoland Chamber, Mr. Filan explained that the proposed partial concession would be a 50 year lease of 80% of the lottery to a private company in return for an estimated $7 billion upfront one- time payment to the state. The State of Illinois would retain the rights to 20% of the gross revenues (less prize payouts), which would be directed to the common school fund. However, the 20% will not match the current $600 million annually contributed to the school fund and it is unclear where the replacement revenue will be found.
While it appears that a $3-4 billion Education Trust Fund may be part of the plan, with the payouts used to offset the deficiency in the expected annual $600 million dollar payment to the school fund, the $7 billion upfront payment appears to be already committed to various other projects. The Governor’s office has proposed that this $7 billion cash payment be used to fund a newly proposed infrastructure program, Illinois Works.
The Governor’s office would very much like to be the first state to lease its lottery and thereby command a higher up front payment for doing so. The stated goal is to get approval for the lottery concession this legislative session and complete the bidding and lease process within 120 days of approval.
COST Annual Business Tax Burden Study for Fiscal Year 2007
The Council on State Taxation has released its annual “Business Tax Burden Study” which categorizes by industry, the state and local taxes paid by businesses in all fifty states. To view the study click here.
Tax Policy Articles of Interest
The Economic Consequences of Being Left Behind: A U.S. Business Tax System that is Out of Line Internationally Fiscal Fact No. 123
Commission on Government Forecasting and Accountability
Monthly Briefing March 2008
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