Capitol Fax.com - Your Illinois News Radar

Tax haven plan may backfire badly

Posted in:

Illinois

* I’ve been telling subscribers about this bill for over a week now. It’s quite something…

Some big Chicago-area retailers have found a way to avoid paying high local sales taxes on their wholesale purchases. They’ve essentially set up their own “tax havens” in downstate counties that have no local sales taxes. The havens mostly are just one-person offices with a fax machine.

The retailers contract to purchase mass quantities of fuel or construction equipment or lumber or whatever, and then those contracts are faxed to their little downstate offices, stamped as received and then faxed back to headquarters and — voilà — no local sales taxes are owed.

In January, the Illinois Department of Revenue lost a court case filed by Hartney Fuel Oil Co., Putnam County and the town of Mark, Ill. (population 500).

Hartney is based in Cook County but had a “sales office” in no-tax Mark. The Department of Revenue claimed that Hartney owed sales taxes in Cook County, but a Putnam County judge disagreed.

Nobody really noticed. But then some folks got the bright idea of introducing a bill at the Statehouse to codify the downstate court case to make certain that all Chicago-area companies had the same option.

Bad move.

Introducing that legislation shone a light on the tax-avoidance scheme, and now all heck is breaking loose.

Proponents say this tax haven thing has been standard practice for 50 years and they’re just hoping to codify the judge’s ruling after the Department of Revenue changed its practices. They also claim that if their bill fails, companies will move their headquarters out of the Chicago area to avoid high sales tax rates.

A lobbyist who worked for the bill claimed that after five state audits ruled against his clients, four moved out of Cook, with one going to Indiana.

The bill passed the Senate earlier this month, partly because opponents reacted too late to kill it.

The legislation has received scant media coverage so far, but it is considered a major threat by the Regional Transportation Authority, Cook County, the city of Chicago and several suburban taxing bodies, which worry that the legislation would lead to a vast out-migration of tax revenues.

Some suburban counties thought they could get some of those tax havens, until they realized their inclusion in the RTA’s regional sales tax zone meant they had no chance. So they no longer are supporting the bill.

The Chicagoland Chamber of Commerce’s support was crucial to the bill’s Senate passage, but the chamber reportedly received serious heat from Mayor Richard Daley and Mayor-elect Rahm Emanuel. So, it is backing away as well.

And the main lobbying firm which pushed the legislation through the Senate has withdrawn from the fight. The firm also represents the DuPage County Board, the chairman of which is now opposing the bill after initially backing it. That position change meant the lobbying firm had a conflict, so it’s out.

Meanwhile, House Speaker Michael Madigan’s spokesman said last week that while opinion is divided in the House over the bill’s future, with some downstaters pushing hard for its passage, Madigan has put the legislation “under very serious review” because the “alarm bells have been sounded.”

That may look like a hedge to you, but Madigan’s people usually don’t tip their hand so clearly. The wheels have come off this bill.

The RTA’s chief lobbyist is Madigan’s son-in-law, which doesn’t help the bill’s chances in the House, of course, but the strong opposition from pretty much the entire Chicago region’s governmental units is hugely important.

Also, the state senator who represents Madigan’s district, Steve Landek, forcefully opposed the tax bill in committee, claiming that much of the construction of the Chicago Fire’s soccer stadium in his district avoided local sales taxes by using those downstate tax havens.

And now, the Senate bill’s opponents are gearing up to introduce legislation of their own in the House that would officially kill off these tax havens. The measure likely will be tacked onto a broader bill dealing with taxation. Doing it that way would make it far tougher to vote against the provision.

The bottom line here is that the backers of the original Senate legislation might have set the stage for exactly the opposite of what they intended.

Instead of just letting the judicial branch handle the issue completely under everybody’s radar, they decided to move the fight into the General Assembly. But then everybody discovered what was going on.

Oops.

* Meanwhile, in other business-related news, ComEd’s big push got Phil Kadner wondering whether the company’s bill sponsor, Rep. Kevin McCarthy, is getting anything out of this spring session…

So I asked the ComEd president whether McCarthy had been promised a job in exchange for his support.

She smiled and said ComEd was pleased to have McCarthy sponsoring the bill because he’s smart, understands the issue and is an experienced legislator.

I asked McCarthy if he would promise not to ever accept a job from ComEd or act as a paid consultant for the company or become a lobbyist for the industry.

McCarthy said he has been promised nothing for his work on the bill and has spent years passing tough legislation in Springfield, earning the respect of House Speaker Michael Madigan (D-Chicago), who is confident in McCarthy’s ability to get the job done.

CUB’s Kolata said he has no reason to suspect McCarthy has been promised anything.

Reading between the lines isn’t too difficult there. We’ll have to see what happens, but if McCarthy is looking to get out, this would be a good time to do so, and with a major bill to push himself on to bigger and better things.

* Related…

* State’s decision to drop two HMOs causes worries

* Nuclear plant in Clinton running out of space for spent fuel

* Analysis by ZIP code shows mostly slipping values

* Chicago has highest gas price in nation

* Illinois is the Tenth Least Green State

* Editorial: At long last, we can see hope ahead

* Virgin America to enter Chicago market with a flourish

* Mayors: I-294, I-57 interchange needed

* Why Does WalMart Want In On Lakeview?

* Landmarks Illinois suggests other uses for Prentice hospital

* United Continental execs get raises after airline merger

posted by Rich Miller
Monday, Apr 25, 11 @ 7:11 am

Comments

Regarding the Clinton nuclear plant running out the necessary space in order to be able to hold their spent nuclear fuel rods:
I have never understood why France has been able to “recycle” their spent nuclear fuel rods but we in the United States are not allowed to do so? Instead, we pay Exelon and other nuclear utilities an ongoing annual “storage fee” to “kick the can” down the road regarding these spent nuclear fuel rods. It doesn’t make any sense? I must be missing something. General Electric has had the required technology and ability to recycle our used or spent nuclear fuel rods for many years(very much like France does). General Electric was ready several years ago to build a nuclear fuel rod recycling plant near Morris, Illinois in order to reduce this huge storage problem for the United States government. Instead, politics suddenly entered into the picture and GE was denied the necessary permits. What a travesty for our country!
GE didn’t need the grief of being being dragged through the mud for trying to solve a national problem and at the same time saving the nation millions of dollars being spent for nuclear storage. GE finally gave up on the project because the money that would be made by GE and the negative media publicity for GE “just wasn’t worth it”. The politicians didn’t want to “upset” the voters so they weren’t about to help GE out. In the meantime, the US is still stuck in the same rut where we were 40 years ago while the French quickly moved on. So much for the jokes about the French!

Comment by Beowulf Monday, Apr 25, 11 @ 9:27 am
Best small-town bar in downstate is in Mark, Illinois. Don’t know if they tax - never paid attention.

Comment by lincolnlover Monday, Apr 25, 11 @ 10:47 am
lincolnlover, from what I hear, Mark has been able to afford a big town makeover because they get a small cut of the taxes saved.

Comment by Rich Miller Monday, Apr 25, 11 @ 10:50 am
How’d the Cook taxing bodies let this slide for so long?

Comment by wordslinger Monday, Apr 25, 11 @ 12:09 pm
Good question. I’m not sure people were fully aware of it.

Comment by Rich Miller Monday, Apr 25, 11 @ 12:10 pm
Haven’t been there for a while, Rich. I’ll make a trip and check out the updates.

Comment by lincolnlover Monday, Apr 25, 11 @ 1:13 pm
I’m kinda surprised there is not some research group looking at every possible tax option and how it could be changed/used to increase/collect taxes. Seems like a good project for an advanced state/local tax class.

Comment by zatoichi Monday, Apr 25, 11 @ 4:10 pm
So companies are getting big town perks at small town prices? I’m all for lower taxes, but tax avoidance is another matter entirely…never heard anything about this little ploy before now.

Comment by Liandro Monday, Apr 25, 11 @ 5:03 pm
Beowulf -

Your analysis is spot on. Politicians on both sides have put us in a situation where we will not be able to meet energy demand a decade down the road. Like it or lump it, there is not a viable option beyond coal or nuclear at this point for our nation. Wind and Solar must be researched but make zero financial sense without the incredible subsidies that are being poured in to them. The longer we wait, the worse our situation will be down the road. Rolling blackouts anyone? Unfortunately, the Japan situation earthquake/tsunami has everyone in a nuke “panic” again(zero nuclear related deaths so far by the way). Energy independence is a national security issue and an economic issue. We need politicians that have the courage to address this issue.

Comment by Just the Facts Monday, Apr 25, 11 @ 5:13 pm
Not to mention Beowulf, that one of the main powderkegs of the Japanese radiation event was the grouping of fuel rods in close proximity in the cooling pools. Basically if we started recycling like the French do, the fuel rods in the cooling pool would never have been there, or there would have have been much fewer, making the meltdown more manageable.

Comment by JBilla Monday, Apr 25, 11 @ 5:36 pm
Rich: Progress Illinois on Walmart? Puh-leaze!

Comment by John Ruberry Monday, Apr 25, 11 @ 9:44 pm