Understanding Your Influence on Illinois Tax Law

For CPAs wanting to provide input into Illinois tax rules, start by understanding how they are adopted.

When we try to decode an Illinois income, sales, or excise tax issue, we review the law. But a critical step in gaining a complete understanding of a tax issue and why it exists is reviewing the administrative rules promulgated by the Illinois Department of Revenue (IDOR).

The Illinois General Assembly routinely enacts statutes that set forth the broad parameters of a tax, exemption, or credit, and grants IDOR authority to provide guidance on the tax issues through rulemaking. You won’t necessarily be able to stop there, though, because depending on the issue, the Illinois Department of Commerce and Economic Opportunity (IDCEO) also has rules on the various tax credits and incentives programs that it administers.

Further, local taxing authorities—such as the City of Chicago and Cook County—have their own versions of “rules” for taxes that they administer and collect. However, units of local government are not subject to the Illinois Administrative Procedure Act (IAPA), and decoding the rule-like policies and procedures of local governmental units is a topic for another column.

Practitioners need to understand the procedures for rulemaking mandated by the IAPA. Important parts of this knowledge are the ways in which practitioners and members of the public, and their representatives, have input into the rulemaking process and can influence the substance of rules adopted by state agencies.

Just as the public can lobby the Illinois General Assembly to shape law, the public can lobby the agencies that promulgate tax rules and comment on rulemaking proposals. IDOR also provides additional informal access to practitioners and other taxpayer representatives outside of the formal requirements of the IAPA in the form of advance access to draft versions of rules to members of the Director’s Advisory Group.

The IAPA defines the term “rule” as “each agency statement of general applicability that implements, applies, interprets, or prescribes law or policy.” IDOR rulemaking is subject to oversight, both by members of the public and a bipartisan, bicameral committee of the Illinois General Assembly, the Joint Committee on Administrative Rules (JCAR). The IAPA requires all proposed and adopted rules to be published in the Illinois Register, which is published in print and online each Friday morning by the Illinois secretary of state. The secretary of state is also charged with maintaining the official database of administrative rules. A version of this database is maintained online by the Illinois General Assembly, and the IDOR also maintains copies of the tax rules that it administers and enforces on its website (although I caution in my experience the IDOR site is not updated as quickly).

Here are the three ways in which an agency, such as the IDOR, can adopt a rule:

• Emergency Rulemaking: Emergency rules are adopted and effective immediately to address a situation that reasonably constitutes a threat to the public interest, safety, or welfare. Emergency rules are effective for not longer than 150 days.
  
  
• Peremptory Rulemaking: Peremptory rules are required as a result of federal law, rules, and regulations, a court order, or a collective bargaining agreement that precludes compliance with the general rulemaking requirements and precludes the exercise of discretion by the agency as to the content of the rule. Peremptory rules are effective immediately upon filing with the secretary of state.
  
  
• General Rulemaking: The general, or normal, rulemaking process commences with the initial publication of a proposed rulemaking in the Illinois Register, which begins the first notice and comment period that lasts for no less than 45 days from the date of publication. The IDOR website maintains an up-to-date list of all proposed rulemakings and their status.
  
  

HAVING YOUR VOICE HEARD

During the first notice period, members of the public may submit comments on proposed rules to the agency that proposed the rulemaking. Members of the public may also require a public hearing on the proposed rules. If the hearing request is made within 14 days of the initial publication of the rulemaking by 25 members of the public, an association with a minimum of 100 members, or by an affected unit of local government, a hearing must be held.

At the end of the first notice period, an agency may commence the JCAR review process by filing its “second notice” document with the JCAR. The second notice filing must include all public comments received during the first notice period and the agency’s evaluation of those comments. The second notice filing must detail any changes made to the proposed rulemaking during the first notice period and the agency’s rationale for those changes.

Generally, the second notice filing is seen only by the JCAR and its staff unless requested by a member of the public. I generally request copies of second notice filings for rulemakings I commented on. In the interest of transparency, the IDOR has begun publishing copies of second filings on its website.

The second notice period may last for a maximum of 45 days, unless extended by agreement of the agency and the JCAR. During the second notice period, the JCAR staff review the rulemaking to determine whether the agency complied with the IAPA’s procedural requirements, whether there is statutory authority for the rulemaking, and whether the agency has satisfactorily addressed issues raised by the public during the first notice period.

Members of the public also can file comments and concerns with the JCAR’s committee members and staff. Because time is short for the second notice review, I often file copies of my comments with the JCAR staff when I file comments with the IDOR.

After the review of the agency’s second notice filing, the JCAR staff submits its recommendations to the committee for consideration at its monthly meeting. The committee can vote to object to the rulemaking on various grounds. A typical objection is that the agency exceeded its statutory authority with respect to all or a portion of the rulemaking, or that the agency did not properly follow the IAPA’s procedural requirements. The committee also can object that the agency has not properly considered the impact of the rulemaking on small businesses. The agency is required to respond to these objections before adopting the rule and can agree to modify the rule or adopt the rule despite the objection.

In certain situations—if the rulemaking constitutes a serious threat to the public interest, safety, or welfare—the JCAR has authority to block the adoption of a rule by a three-fifths majority vote. In recent years, the JCAR has acted with some regularity to block the adoption of rules. If the JCAR has not voted to block the rulemaking, the JCAR review is concluded, and the agency is free to adopt the rule. The agency then submits the adopted rule to the secretary of state for publication in the Illinois Register along with a copy of the JCAR certification of no objection or the agency’s response to any advisory objections. The IAPA requires the rulemaking process from initial publication to adoption to be completed within one year.

Bottom line: Now that the process is decoded, if you see a proposed rule that you don’t like, know that you have the opportunity to provide input and influence its modification before it becomes effective.