A new law in Illinois is now in place regarding the recapture of revenue from the state. Localities can make contracts with third parties on a contingency fee basis so they can recapture municipality taxes. Called the Local Government Revenue Recapture Act, the new law became effective in the state on January 24, 2020. The purpose of the law is to make it easier for local counties and municipalities to receive disbursements of tax proceeds.
New Provisions Regarding Disbursements
The new law includes provisions that will benefit counties and municipalities in Illinois that receive disbursements of tax proceeds. They can now contract with registered third parties to ensure they receive the local sales tax revenue to which they are entitled. Illinois counties or municipalities that receive tax proceeds disbursements from the Department of Revenue were not previously allowed to do this. Thanks to the new law, it will be easier to obtain the revenue amounts that they have an entitlement to receive.
What Constitutes A Third Party?
The new Local Government Revenue Recapture Act refers to third parties that can contract with localities. However, there are strict rules regarding what constitutes a third party. A “third party” can be a person, partnership, corporation, or other entity or individual registered to do business in Illinois, who contracts with a municipality or county to review financial information related to the disbursement of local taxes by the department to the municipality or county. The Illinois Department of Revenue must have a record of the third party. The state does not allow anyone to engage in the capacity of a third party pursuant without having obtained that registration.
Other Provisions in The Act
Another provision in the act provides authorization for the Illinois Department of Revenue to initiate a five-year audit pilot project. These certified audit pilot projects are for use in specific cases. The taxpayer must receive notification from the Department of Revenue that it has received a tax compliance referral.
No Profiting from Financial Information of Taxpayers
Under the new legislation, third parties will not be able to profit from having the financial information of taxpayers. It outlaws the selling, leasing, trading, or marketing of such financial data. The only exception to this will be if the county or municipality negotiates a fee, such as a contingency fee relating to a percentage of the additional distributions the county or municipality receives. There will be a time limit imposed on those additional distributions, however. The fee will only relate to the distributions received for a maximum of three years.
This period begins from the initial disbursement paid as a result of the third party’s services under this new law. The law also contains other safety measures and underlying restrictions on the sharing and collection of taxpayers’ information.
Making Receipt of Revenue Simpler for Localities
This new legislation should make it easier for localities in Illinois to collect the revenue they have entitlement to receive. Now that they can contract with registered third parties, they can recapture municipality taxes more quickly and more efficiently. This should simplify matters while also guaranteeing the safety and privacy of the financial information of taxpayers.
For more information about this article, please contact our tax professionals at taxalerts@windes.com or toll free at 844.4WINDES (844.494.6337).