Meredith: 00:00:35

Welcome to SALTovation.

The SALTovation show is a podcast series featuring the leading voices in SALT where we talk about the issues and strategies to help you make sense of state and local tax. Welcome to Saltovation.

Today we’re diving into all things Illinois with special guests Dave Kupiak and Natalie Martin, who bring deep insights from their experience at the Illinois Department of Revenue, major corporations, and their own firm.

Kupiak and Martin join us as we unpack recent Illinois tax cases, explore the state’s complex court system, and discuss strategies every taxpayer should know. Let’s get started. All right, everyone, thank you for joining us on another Saltivation podcast.

Today we are with David Kupiak and Natalie Martin, and we are going to talk about kind of all things Illinois. So, Dave, Natalie, thank you so much for being with us today on the Saltivation podcast.

Dave: 00:01:30

Thank you for having us.

Natalie: 00:01:31

Thank you for having us.

Meredith: 00:01:33

And so if you all can duke it out, but if you all want to just give us a background on who you are, kind of what you do, where you are and how you got there, that would be excellent for our listeners to get to know you before we dive in.

Dave: 00:01:47

Great. I can go first. After law school, I went to work for the Illinois Department of Revenue in Springfield as an attorney.

And after working there for a few years, I went to work for Arthur, and that’s where we met Stacy.

started Kupiak and Martin in: 2008

Natalie: 00:02:22

But very similar, very similar. After law school, I worked for the state of California. I was a criminal prosecutor.

So I’d like to say that I hope I never use that background with any of my tax cases, but it does exist. I then went to Arthur Anderson.

e had Kupiak and Martin since: 2008

I’ve been at the state. We’ve worked for an accounting firm, we’ve worked in house, and we’ve now worked at a law firm.

So we’ve kind of had all the perspectives so that we find that a little bit unique. And very helpful to most of our clients.

Dave: 00:03:08

Yeah. And most of our clients are people we’ve worked with over the years in some of those areas.

It’s kind of funny, especially as you guys know in public accounting and in an industry, people kind of move all over the place. So I tell people, be nice to people because you never know when your path is going to cross again. And they do multiple times, such as them.

Natalie: 00:03:25

Right. Don’t burn those bridges. Right. Maybe at a happy hour at a cross Conference in St. Louis. Who knows? Maybe. Yes.

Meredith: 00:03:36

Well, I love that. And congratulations on your all’s kind of professional relationship and enduring and being partners for so long together. That’s amazing.

And you know something for those listeners who keep coming back, you know, we talk a lot about relationships on this podcast. And as state tax professionals, you can’t know everything everywhere.

And so that kind of your relationship, either between your clients or yourselves has just kind of continued on in the various components of where you’re at. Love that and glad that we can celebrate that with you. So thank you.

As we dive in, we kind of, we did a little bit of pre homework this episode and so we wanted to kind of talk through some things. There is kind of a recent court decision related to Pepsi. What is the issue in this case and what did the court decide?

And maybe even give us a little bit of background about how Illinois and their court system set up.

Dave: 00:04:38

t example. It’s an income tax: 8020

that’s being litigated is the: 8020

But what’s interesting is the the first audit was directly appealed to the Illinois Tax Tribunal. And for those of you who aren’t familiar with the Tax Tribunal, it’s been around a little over 10 years, actually.

Natalie and I were involved when it was started through the Illinois Bar association and CPA societies.

There was the perception that Illinois wasn’t fair because Administrative Carrying Division was kind of under the umbrella of the Department of Revenue. And circuit court can sometimes be a little tedious and you have to a lot of times pay to play with the monies protest act.

So around 11 or 12 years ago, everybody got together and they formed the Tax Tribunal for matters that were over $15,000. So as long as you have at least $15,000 at issue. You could go before the Tax Tribunal. The good thing about it is it only costs $500, the filing fee.

It’s a somewhat formal procedure in that, you know, you do have, you know, a protest to file. The protest applications are online, and you can kind of see how everybody else has filed them. You do not have any privacy.

Your name has to be published.

You can redact some of the specific facts, but it gives you an option because you don’t have to pay going to the Tax Tribunal other than the $500 filing fee. And then if you lose at the Tax Tribunal, you could appeal to the Illinois Appellate Court and then the Illinois Supreme Court.

You also still have the circuit court system as an option after your audit, but in that situation, you have to make the payment to the money’s protest act before you go to the court. So sometimes people don’t want to do that, especially if it’s a larger dollar case.

I think, to quote someone who I’ll know from Costa, Mr. Paul Frankel, don’t pay, don’t pay, don’t pay. It’s harder to get the money back once you give it to the state.

So what’s nice about the Tax Tribunal, and Natalie and I have had success in it, is even if you don’t want 100% of the issues, when you’re negotiating, you’re giving them money. So it’s. You’re basically giving them something that. So you do still have a little bit of the power in that process.

Whereas if they have all the money, it’s kind of shifts the power advantage a little bit.

Natalie: 00:07:04

I think also. Sorry, I was going to say, I think also just the Tax Tribunal, it only deals with tax issues.

And a lot of our problems at Circuit Court was that there wasn’t necessarily necessarily a real expert at tax. So you’re only dealing with judges that are dealing with tax matters.

So there is kind of also that ability to maybe perhaps get a better decision with a little more reasoning to go to the appellate court, if you so choose.

Dave: 00:07:36

Yeah. And what we found out is beneficial in the Tax Tribunal is both judges are very experienced both in litigation and in the tax area.

And there is an underlying undertow both by the judges and the way this system is set up to resolve the cases. What you’ll see is I think you have less than 20 decisions over the last 10 years because a lot of the cases are either withdrawn or settled.

And it basically saves our clients money, too, because you don’t have to go through a lot of the extensive formal discoveries that are involved in circuit court court, there’s an informal process where if you want to pull the case out from the judge that’s hearing your case, you could have this one formal mediation with the other judge and the state to kind of look at where your case is at. And what we find extremely advantageous about it is the judges are very open as to where they’re deciding.

We were just in a recent case in which the judge told the department, I don’t see your case here. So when you have the judge say that in early on phase of the status hearings, I think that kind of gives you a little more power to resolve the case.

And at the same time, if he says it to us, we have to present more evidence to support our position.

Natalie: 00:08:48

Yeah.

And that being said, too, I think the Pepsi case also shows that even within Illinois, if you’re going to circuit court, there’s a little bit of venue shopping. Some people prefer Cook county, which is Chicago, and some people go to Sangamon county, which is Springfield, the capital. So.

So the court system in Illinois is intricate and kind of interesting. So Pepsi kind of shows that.

into just a bit about what an: 8020

Meredith: 00:09:24

I just want to get some clarity.

Natalie: 00:09:25

Around kind of the. You know, it seems like there could be a fork in the road.

Meredith: 00:09:28

Right.

Natalie: 00:09:29

You could go circuit court or you could go tax tribunal, but not both.

Dave: 00:09:32

Correct, Correct.

Natalie: 00:09:33

Okay.

Meredith: 00:09:35

And so because of the.

Natalie: 00:09:37

The tax tribunal being in place and with some of these tax cases, it sounds like that would be the more potentially advantageous road to go. So that you are getting a. Judges that know tax rules are able to opine better and hear those cases better is kind of what I’m hearing from you guys.

Dave: 00:09:59

Correct. Especially if you know that they’ve decided a specific issue in a specific way.

And as Natalie alluded to, now, if you know that they’ve decided an issue against another taxpayer, you probably want to do what Natalie just suggested, venue, shop and go to Springfield. And that’s actually what.

Natalie: 00:10:14

Paying is the big thing, too. If you have a. If you have a notice of deficiency, that’s multiple millions of dollars, it makes it very easy to go to the tax tribunal for $500. Yeah.

Dave: 00:10:27

And that’s kind of where we were with Pepsi. They basically had a multimillion dollar assessment.

For those of you who don’t know Illinois for income tax purposes, is a unitary state and you include everybody in the unitary group. But there is an exception for companies that have more than 80% of their property or payroll outside the United States.

So what Pepsi did here was they basically set up a specific entity. They put all their expatriates that were doing work under internal agreements overseas at different international offices.

And this one entity kind of was under Frito lay’s division. So they were basically excluding all the Frito Lay income and receipts from the Illinois unitary group, which created a nice state tax benefit.

Actually, based on the court documents, it brought Pepsi’s Illinois income tax down to zero. So you saw this huge shift and in doing so, it pretty much. I hate to say this, but you pretty much guarantee an audit.

When you go from paying millions of dollars to zero, the state’s going to kind of say, okay, what’s going on here? And that is kind of alluded to in the audit comments. They said they specifically looked during the audit as to what changed.

ake sure that entity made the: 8020

They didn’t have to pay the multiple millions of dollars.

But unfortunately for Pepsi in this case, the judge who heard this case really looked at this issue and said under the economic substance doctrine, had no substance, and basically said that these people were not reporting to anyone internationally. They were reporting to people internationally, but they weren’t reporting to anyone in this specific subsidiary. So there’s no control there.

If you looked at them as employees, they weren’t really employees of this entity because they weren’t hired by this entity.

They kind of discounted the intercompany employment agreements, saying that yes, they said they were going to do something, but they really had no control over them. And they basically said no. They out used their executors. They likened it to a sham.

And I think one of the quotes, the judge says, you can’t remove millions of dollars of tax with one strike of the pen. So in doing this, Pepsi says, okay, that initial tax tribunal decision was on summary judgment.

They then appealed the protests or not the penalties and interests.

And then I hate to say this, but the judge even basically under the next order, basically said, you know what, you have to have reasonable cause here. You guys should have known what you’re doing was wrong. You don’t have any third party support for this.

You didn’t have any CPA or law degrees providing anything. So they denied the penalty relief.

And that’s something that Natalie and I are seeing more and more, is that the auditors are really trying to get aggressive with penalties. Historically, Illinois has been pretty good about that. You can get the penalties waived during the audit by sometimes by the field auditors.

Now that I think cases like this are giving the department a little more strength in their positions and saying, you know what, we’re going to go after people for penalties and hopefully the pendulum will sweep back where they’re going to be a little more reasonable. But by having the judge say that we’re not going to abate the penalties, that didn’t help.

So then Pepsi says, okay, next audit’s up, we’re going to try something different. We’re going to go like Natalie alluded to, we’re going to go forum shop and we’re going to go to the circuit court and Sangamon County.

Well, unfortunately, the circuit court just issued an opinion a couple months ago saying, you know what we kind of agree with the tax Tribunal said nothing has really changed from the first audit. And so the circuit court decided against them. To my knowledge, they haven’t appealed that case yet to the appellate court.

And then the third audit, which is kind of upright, the last, what’s interesting, the circuit court was actually the most recent year, so there’s a circuit court opinion on that. There’s also a middle period too, which is still in the Tax Tribunal. So that’s kind of pending, and I think that’s up for status in June.

ribunal saying, you’re not an: 8020

Then you have a circuit court judge saying the same thing for the most recent years, which they can appeal. We haven’t heard anything yet. And then you still have those middle years.

What’s interesting about this is the whole underlying premise here is the judge in almost each one of these cases has basically looked for external documents or external support to say, what did this entity do that supports its economic presence? And during the initial tax tribunal arguments, one of the former VPs of the taxpayer basically testified, you know, what the substance was.

But the judge wanted more documentary support and said, you know, unless we could show documentary support to support this testimony, we’re not going to give it the Support it needs to get you to that 80, 20 test. So it kind of shows the importance of having the documents internal and external.

And both judges, the appellate court and the circuit court and tax tribunal kind of made reference to external documents.

So one thing, one common thing we’re seeing now not only in this case, but other cases, is if you’re taking a position that’s not clear, you might want to have something from either your CPA firm or an accounting firm or a lawyer law firm just to kind of support that position. Or a letter rolling, get a letter rolling from the state to kind of give you some support.

Because they’re kind of saying that they want more than a testimony.

Natalie: 00:16:07

Yeah, and I think, I think documentation is probably a big issue that we’re seeing in Illinois.

There’s another case, the lowest case, which recently came out as well, and that really talks about documentation that you could have that you have some kind of a burden to update. And you also have a burden to review documentation that the Department of Revenue is providing you as well.

In the lowest case, that dealt with construction contractors, which we don’t need to get into in too much detail, but the overall promise was that there was a bulletin issued by the Department of Revenue explaining what is and is not a construction contractor in pretty specific terms.

There was perhaps a little wiggle room, but they had noticed that the issue was a gray area and they were trying to provide explanation and some examples and what have you. In the lowest case, really what happened was lows didn’t necessarily follow that and they didn’t also have. They had.

They had relied on a third party review before this document, this bulletin came out. So the judge didn’t particularly like that.

They didn’t then have a outside third party review that document to opine if they would have changed their opinion. So I think the lowest case has a lot of levels to it. One of them is like, be careful with all of us living in same as last year. Right.

And relying on what happened last year because circumstances change, rulings change, you really have to keep up on documentation.

And then secondly, even like Dave alluded to in the Pepsi case, keeping contemporaneous third party documentation about your positions is really important because it’s not necessarily what your opinion was. Maybe there’s a little bit of a burden now to go out and get someone to opine on what your position is.

So, you know, Dave and I are finding that a lot. The Department of Revenue now has some more penalties too, about recordkeeping requirements.

We haven’t necessarily seen them come into practice yet, but they have been talking, and I don’t want to say threatening, but it’s a club that they have because like Dave alluded to also penalties are just getting really onerous and they’re getting almost automatic now. So people are much more cognizant to them. So documentation is really important. Kind of a best practice, too, is when we talk about documentation.

Let’s face it, we all live in: 2025

So systems change, people leave, paper files are gosh knows where. So, you know, documentation is becoming more important.

And it’s somewhat harder now that we don’t have the big old files that we used to have where you had your tax returns and your work papers and your, you know, comments and all of that. So we’re really seeing documentation become more and more important.

And as part of that, just your record keeping requirements with regards to your documentation. I also found the Lowe’s case interesting.

Meredith: 00:19:44

From, like, it was how the case.

Natalie: 00:19:47

Even came about, right? How it was a competitive disadvantage, right, to another company.

And so it’s also kind of a little bit of a, hey, be careful out there for, you know, even big companies, right? Because if, if, if you’ve got smaller guys out there saying, hey, you guys aren’t doing this right, and we know it, right?

Let’s face it, that’s how that, that’s how that came about. I probably didn’t go to Lowe’s to save sales tax, right?

We always, we tell our clients, like, sales taxes, you want to get it right, because most of the time it’s not going to impact a transaction, but boys are going to impact you if you didn’t charge it. And five years later, you get audited and you have to pay it out of your pocket.

So let’s face it, I mean, Lowe’s probably was taking a position, but would I go to buy a dishwasher from Lowe’s? Because I knew that they weren’t going to charge me sales tax because they were concerned, considering themselves a construction contractor.

I probably not. So it was, you know, once again, sales tax. Just try to get it right because it’s unlike income tax.

You’re not going to probably go back and try to recoup sales tax from all of the people that you should have charged it. And in Illinois, we probably shouldn’t call it sales tax.

We should call it Retailers occupation tax, because it’s really born on you anyway, but you pass it through to your customer. So. Yeah. And I also think the interesting thing about Lois, too is Illinois is unique in the Ki Tam kind of Fair False Claims Act.

They allow it to be for tax. A lot of states don’t. So you’re going to see these cases where it becomes, did you charge me the correct sales tax? Did you overcharge me?

Did you undercharge me? And the competitive disadvantage and boy, the penalties with regards to that are a whole new level. Right.

So we also tell our clients it becomes important to get sales tax as right as you can and not overcharge because it opens up a whole other world of litigation that most tax folks are not used to or don’t want to delve into yet.

Meredith: 00:22:01

Natalie, can you or Dave feel free to jump in, kind of talk through, through that keytam concept, because we’ve. I don’t one thing, I don’t think we’ve actually really talked about it much in on the podcast.

You know, it’s come up as just kind of identifiers of things to think about kind of for like, from a sales tax perspective.

But it does come up when, you know, we might talk to a new client or it’s like, well, can’t I just charge like 7% across the board board or something like that? And it’s, you know, some are going to be over, some are going to be under, but from my perspective, it’s a wash. But you can’t do that.

You can, you know, not all states are going to have kind of a key TAM concept, but it sounds like maybe Illinois does, and maybe it’s on as like an outlier, maybe a little aggressive or lives in a different part of statute or whatever. So can we maybe segue a little bit and just talk about the KTAM concept for a little bit?

Dave: 00:23:03

Yeah.

Basically it’s Illinois laws on the sales tax side allow a third party to step in on behalf of the Department of Revenue and basically file a suit in court claiming that the right amount of tax wasn’t collected. And usually it’s a lot of these are when people charge tax or don’t charge tax on delivery.

And, you know, so you’ll have one of our clients was subject to one of these suits.

And I remember their first comment was, we don’t mind that we’re subject to the suit, but the fact that they bought the cheapest item on our website kind of really offends them because in order to get standing, you have to have purchased something. And one of the other cases, I think someone bought like a trampoline, Natalie. And one of the Walmart cases, and there’s a bunch of different things.

So some people will send out their administrative assistants or secretaries to the local mall or something, try to buy something online.

And if the tax isn’t calculated correctly, that gives them the basis to open the door to file a class action suit not only on behalf of their purchase, but to bring in all these purchases. And what makes this really bad is it’s a fine based on a per transaction basis. So you could really run up the numbers.

It’s not just the tax they’re going after. They’re going after these fines, which could be very excessive.

Natalie: 00:24:13

And most cases end up large damages. There’s attorneys fees. So the play is not really the 10 cents, the they’re overcharging tax.

It’s really all the other associated fees that are able to come in. And by way of background, I mean, our Department of Revenue, Illinois does not like these. Right. They really want to be the arbiter of sales tax.

They don’t really want a third party plaintiff’s firm to come in and be talking about the sales tax and how it should or should not be, you know, done. So the department doesn’t even like this. Taxpayers don’t like this. So it’s kind of a unique thing. And as I said, they, they do allow it.

A lot of states will carve out tax because they will say there is a department that has specialized knowledge on this. I think a lot of states have these because perhaps the state attorney general doesn’t have the expertise in a particular area.

And there would be a plaintiff’s firm that would have more expertise. In Illinois, the Department of Revenue has the expertise, but it’s still allowed under our False Claims act for these third parties to come in.

Dave: 00:25:25

Once again, just on the sales tax side, the income tax side, the statutory support isn’t there to allow it. And that was kind of going back to Natalie’s point is with sales tax, if you do it correctly, it shouldn’t cost you anything.

You could pass on the tax to your customer and everything.

But this is where it gets really tricky is if there’s a gray area kind of with a lot of two in the Lowe’s case is if you do or don’t tax it, and if you’re over taxing or under taxing, could be subject to one of these lawsuits. So it’s actually in some of these cases we’re seeing Settled. That’s what we’re going to talk about on the marketplace side.

It’s almost like you don’t want a decision against you that you don’t owe the tax that you might have charged because now you might be subject to this other lawsuit outside of the department. And it kind of creates a very uncertain position on some of these tax cases.

Natalie: 00:26:11

Yeah. And then, let’s face it. Oh, go ahead.

Dave: 00:26:14

I was just going to say, go ahead. I’ll come back.

Natalie: 00:26:17

I was just going to say, let’s face it, we all like, do the best we can, but sales tax is so intricate and so hard and there’s, there’s going to be errors. That’s why there are error rates applied. Right. Because no one is perfectly perfect on every transaction and the laws are gray.

So it’s just a really tough place to be. You just, we just tell our clients to try to be as, as good as you can and get as close as you can, but no one’s 100 perfect.

Dave: 00:26:46

Yeah.

When we were at Masada last year or the year before, the, the director was kind of complimenting her how nice it is for the, the gaming and industry because the taxes they received on those are real time taxes. So when someone places a bet or uses a machine, the state automatically gets the time of the tax instantly.

And he’s like, wouldn’t it be great if we could do sales tax like that instant? And everybody in the audience who was not a state employee just had this look of horror on his face. Can you imagine doing text real time.

Natalie: 00:27:11

For sales tax 20 days after the close of the month? Right. Impossible. A lot of times real time would be, I mean, a lot of the times too.

I think the departments of revenue, they understand the law and they understand, understand what clients do, but they don’t understand the intricacies of what lives between the sale and the remittance and all of the difficulty and all of the systems and everything that happens in between and the millions and millions of transactions. Right.

No, I can’t pull this particular transaction up and call someone or I can’t, you know, the nuance is not that, oh, I can have some system look that up real time to determine the taxation. Right.

I mean, it’s that there are millions going through every day and then they’re all getting ferreted into a system and then they’re trying to get into your system, Department of Revenue, to give the tax to you correctly. So it’s, it’s a real disconnect in reality of how things happen. And once again, we’re looking at like 19 and 20.

So what was happening then is different than even our system now. So it’s hard to transition between the two.

Meredith: 00:28:27

Well, not to mention even just. And, you know, maybe this will be a way to kind of transition to sales tax and talk about marketplace.

But even just from that, like, logistics concept, we’re also government prepaying you for. On funds that we may or may not have received. Right.

We’re going to send you an invoice for, for maybe $3 million for a large software license that may or may not be, you know, where the five prong test is gonna be applicable.

Natalie: 00:28:53

Right.

Meredith: 00:28:55

So maybe it is, maybe it isn’t. But now, you know, going from 6.25 to, you know, we’re going full rate everywhere, right? To up to 10, 11%.

We’re, you know, writing you a giant check for potentially one transaction that we may or may not recoup or may or may not, you know, somewhere down the line.

Dave: 00:29:16

So that’s an incredible point.

Meredith: 00:29:17

Don’t forget that.

Dave: 00:29:18

Trying to get that money back. Right. Once you pay it, it’s really hard because now you have to almost argue a negative to say we owe this or we, you know, didn’t know this.

Natalie: 00:29:27

Right. Yeah. But also kind of going back to that full rate.

Meredith: 00:29:31

I don’t know if you guys realize, but, you know, we, we used to here in Colorado think that our sales tax return was like the worst.

Natalie: 00:29:39

I think you guys win.

I think we have won now because not only, you know, the interesting thing too is Illinois, the Department of Revenue collects it all and then remits it to the various counties.

So you have how many hundreds of counties and taxing jurisdictions, and the vendor is supposed to know all of those, know exactly what rate to charge and where and to whom, and then give it to the Department of Revenue. And then the Department of Revenue is supposed, their systems are supposed to be perfect with giving it out to the jurisdictions.

Jurisdictions get their money, they spend it, and then, oops, we shouldn’t have given that to you. Or, oops, it should have gone somewhere else, too.

So it’s not only like our logistics, it’s from the sale all the way to where it eventually should have been owed and who spent it at that end. So it’s just, it encompasses so much and it’s so intricate that it’s very hard to get it all correct all the time.

Meredith: 00:30:39

Well, and doesn’t Illinois report kind of when you take in, when you report your gross sales, isn’t that like inclusive of tax. And then you have to kind of deduct tax to get to your kind of modified, almost like modified gross receipts.

And then it’s like, do you have any other exemptions?

Dave: 00:30:58

Or there’s like two pages of deductions. Yeah.

Natalie: 00:31:01

And so it’s like, you know, I.

Meredith: 00:31:03

Mean, no matter what in all of those jurisdictions. So if I sell something to Naperville, I’ve got DuPage county and I’ve got Naperville and I’ve got the state.

I have to report all of those as gross and I have a deduction at each of those components that like, I can’t file this return. I can’t file this return. I can’t.

Natalie: 00:31:19

Right. And that manually is impossible.

Meredith: 00:31:23

It is.

Natalie: 00:31:24

They don’t even allow it. But now they have this drop down with like, you’re supposed to know all the jurisdictions and all the rates and. Great.

I, I applaud you for providing guidance, but that’s not that easy. Right. It just isn’t like what they think it is. And that’s. It’s not intuitive. Yeah, exactly. It’s not intuitive.

So Dave, you want to talk a little bit about since we’re talking about sales tax fully segue. Yeah.

Dave: 00:31:55

e and the, we really tried in: 2019

hat’s where we started in the: 1930

We started off with this order acceptance thing where you basically sourced to where a person accepted the order. And as you guys know, there’s a lot of manipulation around because you could pretty much accept the order anywhere.

the Illinois Supreme Court in: 2013

So they basically said, the Illinois Supreme Court says we’re going to occupation of selling. And we have these five primary tests and these six secondary tests, which made it even more complicated because now it’s just like one test.

nd then Wayfair came along in: 2018

But in Illinois, there was still a huge political undertow that really wanted this order acceptance. And that’s kind of alluded to.

t’s right. We really tried in: 2020

tplace use tax provisions for: 2020

So for: 2020

But then the next year, the level of playing field, as we kind of allude to in this conversation, some of the neighborhoods were like, well, wait a minute, Amazon’s selling over there, they’re getting all the tax dollars. We’re not getting anything, even though our people are the ones buying it.

So they came up this level in the playing field legislation which basically put everybody in a quasi rot type destination with certain exclusions. And now those exclusions is what kind of led to some of the litigation in some of the recent legislation.

went from paying Youth tax in: 2020

Now, if you’re a remote seller and decided, hey, I’m going to create a little small office in, you know, Hinsdale, Illinois, therefore I can still do youth tax. Well, you could tell the people who are outside Illinois with no presence are basically saying, why are we going on destination?

And why does someone who just runs an office in Illinois, you get to do use tax? So that led to some litigation. That was the Pet Med case.

That’s kind of the gist of it is basically saying you’re unconstitutionally treating out of state taxpayers differently by themselves. And even if you own a little piece of property or lease something that constitutionally doesn’t get you to where you want to be. So that case settled.

st of: 2020

And that was Public Act: 103983

However, if you are a remote retailer with just some presence in Illinois, but your sourcing of sales is still for a location outside of Illinois to an Illinois customer, you’re also not going to go to rot. So you no longer have that use tax option.

So instead of getting a benefit for the retailers who didn’t have anything here and let them go back to use tax, Illinois said, now we’re going to make everybody rog, which kind of gives everybody to what we were just talking about, how now you have these complicated forms to fill out. And so it didn’t make it any better for anyone, but it’s now at least consistently worse for everybody, if that makes sense.

egister to collect use tax in: 2020

So now we have all these people incorrectly flexing use and remitting use tax when they should be doing rot. So that’s where this new amnesty program is being proposed.

And what’s interesting about it is, well, there’s two interesting things about it is they’re basically applying a universal rate of 9% instead of the 6.25% state use tax rate or the higher rate based on the localities adding on there, you use a six point or, sorry, 9% rate for everybody under amnesty. And they said that’s similar to the rate they use when a taxpayer doesn’t provide records during a sales tax audit.

They kind of use a blended rate between the use tax and the rot. So they’re going to apply this 9% rate to all those sales.

st of: 2026

And it covers the period of 1:1, 21 through 6, 30, 26. So it’s not taking place for another year, which kind of had a lot of people wondering, why are you doing this now?

Especially when talk about the general stuff. At the end of this conversation, you’re going to see that there might be another amnesty this summer for all sales and income tax.

So there’s kind of a lot of confusion as to why they are proposing this. But at the same time I think they feel that they need to somehow catch up these remote retailers to where they should be.

And they don’t want to hit them with a club during audit and assess high taxes and high penalties and interest. And a lot of them don’t have the record keeping to support where these sales actually should be sourced.

So they think this 9% will kind of get them where they might want to be. It’s a long way to say.

Natalie: 00:38:17

Yeah. I think the interesting thing too is like Illinois, the use tax versus the rot.

So a use tax is a 6.25%, 1.25% of that is split by over the jurisdictions, right. In kind of a blended way.

Whereas if you have ROT, you’re getting the 6.25 plus the localities rates or the RTA or what have you and they get that percentage, the big use tax, the big portion of that 1.25 goes to Chicago. So little localities really lose out in a use tax scenario too.

So you have, you’re kind of creating winners and losers by the difference between use tax and rot as well. So I think the department is trying to get that evened out, meaning the 9%.

Perhaps then that 2.75% differential will have a little bit more to spread around as opposed to that 1% that they spread around off of the use tax.

Meredith: 00:39:21

If Illinois is willing to kind of do like a, call it like a consolidated rate like you can make for like a remote seller for Texas, like or Alabama or some of those. Do you think that might be a long term solution for some of those filers that may just say hey, this return is not worth it. I’m allowed to do this.

Here’s 9%. I’m now just like slapping one rate on it and I don’t have to do all this jurisdictional nonsense.

Do you think they’re exploring that or is it just like this is just an easy way to get taxpayers and it’s not going to be a long term.

Dave: 00:39:57

That’s an excellent question and I think it is a little bit of both. I think they’re basically saying we have so much confusion.

We’re not just talking about a couple hundred, we’re talking about tens of thousands of taxpayers that they know are doing this wrong and little ones, right people.

Natalie: 00:40:09

That I can’t go out and buy a system. I’m not going to get Avalara because I am selling out of my basement. Right. I’m trying to do the Best I can. Right. So it gives them the option.

So I could see it maybe if there’s thresholds or something like that, because oftentimes that’s the big rub with sales tax is that it’s just so incredibly difficult post Wayfair for these little sellers to get it right, too. So I’d like to say yes, but I’m not sure.

Dave: 00:40:42

And I think a 9% rate, I think it gets around some of the constitutional challenges because you’re not giving them a benefit because obviously they’re going to be paying and charging more tax than some.

The only thing that would kind of worry us would be the False Claims act case if someone could say, you know, look, you’re charging me this blended rate. You’re only supposed to be charging me this 6 to 5%.

So if we could get the legislation to also include a reference that, that carves it out of that category. Yeah, I think that would be very helpful.

Natalie: 00:41:07

And. Or how the 9% is allocated in it. If it makes everyone happy.

If it, you know, the RTA doesn’t get their point, they’re going to say, well, I’m Chicago and the collar counties, and we’re supposed to get 0.25, right? Where is it? Or Chicago says, I’m losing because I think the 10. There’s a lot more 10.2 fivers in here than there are nine.

So it does that 9% make most of the taxing jurisdictions happy, TBD. So if they pass an amnesty, is it. Is that more procedural or administrative in.

Meredith: 00:41:44

Nature as opposed to statutory?

Natalie: 00:41:46

How does Illinois do that for those kind of programs?

Dave: 00:41:50

Yeah, it would be a, it would be a statutory provision. And then you have these specific dates. It’s usually 60 days that you could file them in.

ual, this one’s for August of: 2026

It seems odd for a lot of different reasons. You would think that at a minimum they would lump the two of them together. You know, it just makes more sense.

Natalie: 00:42:18

Yeah. And let’s remember like, like we talked about earlier. You know, Illinois resides as a state, and then you have Cook county and then you have Chicago.

So what may alleviate state. Some things on the state side might not alleviate all of the taxes that you have, too.

So I always like to say Illinois, perhaps you’re sitting in Chicago, you’re really subject to three different jurisdictions that you think all might think alike.

They don’t, they don’t necessarily have reciprocity with each other and they don’t really most of the time care what the other one’s doing because they just want their piece of the piece of.

So you know, I don’t want to just focus on the Department of Revenue because and there’s also the franchise tax which is not part of the Department of Revenue which is also a tax in Illinois.

So when we talk about taxing in Illinois we have to talk about various jurisdictions that because one has amnesty that doesn’t mean that that impacts the other ones. So we have to be really careful about that as well. That’s an excellent point.

Meredith: 00:43:30

This podcast is for educational purposes only and is not intended nor should it be relied upon as legal tax, accounting or investment advice. You should consult with a competent professional to discuss specifics of your situation and the applicability of the information presented.