Level The Playing Field

[00:00:06] Speaker A: Hello, everyone, and welcome to taxing poetic. My name is Tim Howe. I'm the CEO of Synexis tax Solutions. Along with my co host, I'm Jenny Carter. [00:00:13] Speaker B: I'm manager with Synexis Tax Solutions. [00:00:16] Speaker A: And as always, our esteemed producer, JB. [00:00:18] Speaker C: How's it going? [00:00:19] Speaker A: Good, Ben, good. How are you doing today? [00:00:20] Speaker C: Good. [00:00:21] Speaker A: Yeah. [00:00:21] Speaker C: Not sweating yet. [00:00:22] Speaker A: Not sweating yet. AC is off, though. We're counting down the seconds. [00:00:25] Speaker C: Gotta keep it off. [00:00:26] Speaker B: It's getting hot in here. [00:00:28] Speaker A: Exactly. And today, speaking of hot, we're gonna turn up the heat on our friends in the state of Illinois. We're gonna be talking about level the playing field. Hey, Illinois. What the blankety? What is going on? What are you guys doing? [00:00:39] Speaker B: I like the segway there. That was good. [00:00:41] Speaker A: Is it. [00:00:41] Speaker C: What I'm saying, is it a level of playing field? Like no child left behind? It's a great name, but it doesn't work. [00:00:47] Speaker A: Oh, dude. Like so does not work. If we're talking. If this is truly leveling the playing field, it's kind of like when you're driving on uneven lanes on the freeway, except this is like 6ft. In the other lanes, like 4ft, 5ft. [00:01:01] Speaker C: I watch a lot of Pixar. It's like when lightning McQueen tried to fix the road too fast. [00:01:04] Speaker A: That's exactly. [00:01:07] Speaker B: Is it like when I hit the curb every day? [00:01:09] Speaker A: Yeah, exactly. When you're curbing your vehicle, it's a nice shock to the system. [00:01:12] Speaker C: Perfect. [00:01:13] Speaker A: So we got some updates from the state of Illinois. Jenny, you want to go ahead and read out what they've recently adjusted? Well, actually, let's give. I'm going to give a two second quick background as to what level the plane feels. [00:01:24] Speaker B: Well, first, don't we have to kick it off with my haiku? [00:01:26] Speaker A: Oh, my gosh. Jumping ahead. [00:01:28] Speaker C: That's unusual. [00:01:29] Speaker A: Totally hitting the throttle. [00:01:30] Speaker C: We're going too fast. [00:01:30] Speaker A: Way too fast. [00:01:32] Speaker B: I feel like that was deliberate. [00:01:34] Speaker A: Gotta hit the poetic and taxing poetics. Let's do it. [00:01:36] Speaker B: We ready? [00:01:36] Speaker A: Yup. [00:01:38] Speaker B: Illinois. What's up? You are making my boss mad. Tim Howe no likey. [00:01:46] Speaker C: That was a lot about you. You were in there twice. [00:01:47] Speaker A: I mean, seriously. [00:01:48] Speaker C: Yeah. That's a good one. [00:01:49] Speaker B: Tommy boy reference. [00:01:50] Speaker A: Tommy boy reference. [00:01:52] Speaker B: And that kind of went right along with your intro. I was not even aware you were going to already be angry. [00:01:57] Speaker A: Mikey want Wingy. [00:01:58] Speaker B: Yeah, Mikey. Tommy likey. Mikey won. Wingy. Tim Howe want Wingy. [00:02:03] Speaker A: Tommy want. All right, here we go. I love it. All right, so we're going to be talking about level the playing field today for a good portion of the episode along with some other Illinois updates. But to just refresh you all, what level the playing field was supposed to be, was it supposed to basically kind of even out Illinois sourcing rules for folks that had physical presence within the state versus those that did not have a physical presence in the state but had reached economic nexus. And they were trying to identify how to equalize their sourcing rules, how they're supposed to source things from a sales tax perspective. But what they did is they effectively created a discriminatory tax. Okay. So basically what they said was, if you have a place of business in the state of Illinois, but your goods are being shipped from outside of the state of Illinois, all you have to do is collect at the state rate. If you are outside the state and you're shipping into the state and you have no physical presence within the state, you have to use destination based sourcing, which means you have to charge at the state and local rates, which would be the highest nominal rate city of Chicago, you know, whatever other, you know, local municipalities, things of that nature. But it basically created what, Jenny? A discriminatory tax, right? [00:03:08] Speaker B: Correct. [00:03:09] Speaker A: Against people who are located outside of the state, folks that did not have a physical presence in the state. [00:03:12] Speaker C: How quickly did that? Was that obvious that happened? [00:03:15] Speaker A: It was pretty obvious to those of us who are tax practitioners. Right out of the gate, when we started reading the law, we're like, how is this leveling the playing field? [00:03:22] Speaker B: And it's what, a prong three violation? [00:03:24] Speaker A: Oh, there you go. [00:03:25] Speaker B: Complete auto body. [00:03:26] Speaker A: Holy smoke. [00:03:26] Speaker B: Is it three? Completely three. [00:03:28] Speaker A: Complete auto transit. There you go. [00:03:29] Speaker C: We had somebody on the podcast talk about, you know, lobbying for legislation and even Andre talking about how if you're passing some law, you can bring in tax people to talk about it before you get in. Do you think they just didn't do that here? [00:03:44] Speaker A: I think somebody fell asleep on the job. [00:03:46] Speaker B: I feel like we've seen this now. We've been doing this podcast for, what, almost two years, and we have talked about leveling the playing field. And maybe a year ago, just like, this is not gonna pass or this is not gonna last. You know, they're gonna repeal it, someone's gonna sue, the supreme Court's gonna overturn it, but then the state just doubles down. Like that's happened with the RDF, right? Retail delivery fees. We were like, oh, these aren't gonna last. No other state's gonna pass this. And now Minnesota has one and Colorado is still. [00:04:11] Speaker A: And Colorado increased theirs, right? [00:04:13] Speaker B: I don't know how we're wrong, Tim, but apparently we're wrong sometimes. [00:04:16] Speaker A: I mean, we are. And, you know, obviously, we're seeing a lot of uptick in people challenging this law. Like I said, it was very apparent from the day that they actually passed the legislation. A lot of us were like, what? What are they doing? And now we're starting to see a lot of people challenge us up through either audit activity, through the tax tribunal, things of that nature. And it's going to get really, really interesting to see because now they've just done an update. And, Jenny, you want to read about the update? [00:04:39] Speaker B: Yeah, sure. [00:04:40] Speaker A: Awesome. [00:04:41] Speaker B: Here we go. So Illinois Governor JB Pritzker signed legislation on August 9, 2024. So we're not doing this podcast much more after that. [00:04:50] Speaker A: There you go. [00:04:51] Speaker B: This is pretty recent. Anyway, it's providing that a retailer maintaining a place of business in Illinois, making retail sales of tangible personal property, TPP, to Illinois customers from a location or locations outside of Illinois, is engaged in the occupation of selling at retail in Illinois and is liable for all applicable state and locally imposed sales and use taxes. That is effective January 1 of 2025. [00:05:21] Speaker A: Right. And what about the sourcing component? This is what's interesting. [00:05:24] Speaker B: All right, here's the sourcing. Try to stay with me. Now, a retailer maintaining a place of business in Illinois that makes retail sales of tangible personal property. Again, TPP to Illinois customers from a location or locations outside of Illinois is engaged in the business of selling at the Illinois location to which the tangible personal property is shipped or delivered or at which possession is taken by the purchaser. [00:05:52] Speaker A: Wow. What? [00:05:53] Speaker B: So let's. I know. So just. Yeah, dumb that down for us, Tim. [00:05:57] Speaker A: I mean, effectively, what their basic basically saying is if you're a retailer and you have a brick and mortar location in Illinois and you're making sales of the property to customers within Illinois. So, Jenny. I have a store. I sell something to Jenny, but the goods actually come from a location outside of Illinois. They're now saying, hey, guess what? You have to use destination based sourcing wherever the possession is actually taken by the purchaser. Okay. [00:06:25] Speaker C: They're making more money doing that. [00:06:26] Speaker A: I mean, effectively, they are. They're actually enacting the fact that it needs to be know, it needs to be charged at the higher rate. Whereas previously they had kind of done, you know, this origin based sourcing type rule that if you were shipping from outside the state and you didn't have a physical presence within the state or you had a physical presence in the state, you could use an origin based sourcing type rule, which means you would only have to collect at the state rate for it coming outside. So what this is kind of doing is redefining that, but it's still really opening up the idea of what is a maintaining a place of business. What's the true definition of maintaining a place of business? Hey, guess what? Do I have a PO box? Do I have an office facility that takes orders? What is this? They're not helping. They're sketching these really, really broad strokes, and it's not helping the Illinois Department of Revenue. And this isn't bashing anybody at the DOR because all they can really do is, as we talked about in the past, the DOR has to enforce the laws. Frank O'Connell sat right here and said, we don't make the laws. If you guys want to change the laws, you need to go to the legislature and ask them to change the law. All we have the ability to do is enforce it, and we're required to enforce it based off of either the legislative intent or the department's interpretation and the regulations that they provided to interpret that law. Right. So it's just, they're not helping their case. They're muddying the waters. It's becoming really, really complex. [00:07:46] Speaker B: Well, explain to me and to JB's question why it's called leveling the playing field. Right. But it seems like the intent is really to keep inventory and businesses in Illinois. [00:07:58] Speaker A: That's basically it. It's basically to iron out their sourcing rules because Illinois has what we call modified origin based sourcing. I mean, the fact is, is that you need to just go to destination based sourcing if you're going to want to change this law and you want to make everything really fair, go to destination based sourcing. It's super easy. [00:08:15] Speaker C: What are they trying to stop or. [00:08:16] Speaker B: Yeah, what's. [00:08:17] Speaker C: Yeah, so every law, right? They're like, hey, we're either trying to make this better, stop this, or make this happen. [00:08:22] Speaker B: They're saying leveling the playing field, but why is it unlevel? [00:08:25] Speaker A: I guess, is what they're the original unleashed. The idea of it not being level was the fact that if you had a place in Illinois, you can use origin based sourcing. So when you ship from outside of Illinois, you're going to use the tax rate that's outside of Illinois. Well, what would that be? That would be the state only rate. You're not having to do any local taxes. And that's the way it was written. So it's just 6.25%. Whereas if you didn't have a place of business within Illinois and you were shipping into Illinois, you were required to use destination based sourcing because a transfer of title actually occurred when the user or the purchaser actually took possession of the item. So it would be city of Chicago or Cook county or Springfield or Joliet or any of these other cities. And you have to collect the state and the local taxes. Whereas before you're using the origin based sourcing, all you have to do is it's coming outside the state. Guess what? I just have to collect state based tax. So it created an unfair business advantage. [00:09:14] Speaker B: So basically they're stomping their foot and going home and saying it's not fair. [00:09:17] Speaker A: That's exactly it. A lot of businesses are saying it's not fair. Because guess what? I'm a business that's shipping from goods. I'm located in California. I've exceeded Illinois's economic nexus threshold. I don't have physical presence in Illinois. I'm shipping into Illinois. I have to collect at a ten, nine, whatever percentage rate based off of this local where this other guy just has an office there or a Po box. He says he's maintaining a place of business. All he has to collect at 6.25. If I'm selling the same exact. Good. Who do you think people are going to go to? The guy who's charging six and a quarter as opposed to the guy who's having to charge the full state? [00:09:55] Speaker C: Everybody has to do full. [00:09:57] Speaker A: It's still open for interpretation as to who has to do. That's the biggest problem. [00:10:01] Speaker C: It's just so leveling and you're not even. [00:10:03] Speaker A: You're not leveling it and you're also not providing clarity. [00:10:05] Speaker B: It's a little shady. [00:10:06] Speaker A: It's ridiculously shady how? [00:10:09] Speaker B: No, likeyri. [00:10:11] Speaker C: Like, you see what they were trying to do, it just didn't work. Or was it always a bad idea? [00:10:15] Speaker A: We totally understand what they were trying to do. But the problem is, is unless you change your sourcing rules, you're never going to get to a level of equality here. All you really had to do is just, you know, write a law and stroke something that says, guess what? Cause Ohio did this, Tennessee's done it. A number of states have said we're getting rid of origin based sourcing. We're done. Or, you know, if we're going to do origin based sourcing, we're going to do it on intrastate shipments instead of interstate shipments. Okay, fine. Do origin based sourcing. That way, make sure everybody has to collect the local tax and make sure everybody's doing it on the same. That would be leveling the playing field. This is not level. [00:10:51] Speaker B: That's what I don't understand, why states just don't model after another state when it works. [00:10:56] Speaker C: Hey, it worked, right. We'll just do that like one hand not talking to. [00:10:59] Speaker B: Exactly. It's like, well, this is working in Ohio. Why don't we do the same thing? [00:11:03] Speaker A: Exactly. [00:11:03] Speaker B: But when politicians get involved, you know. [00:11:06] Speaker A: It'S always, there's another angle. [00:11:08] Speaker B: Right? [00:11:09] Speaker A: Always some other angle. [00:11:11] Speaker C: Somebody's making more money now than they. [00:11:13] Speaker A: Were before and know who. [00:11:15] Speaker B: But yeah, it's not me. [00:11:16] Speaker A: As Jenny likes to point out, Tim Howe is never wrong. Guess what? Most politicians don't want to ever be wrong. [00:11:21] Speaker B: Wait, did I say that? [00:11:22] Speaker A: I think he did. So anyways, so that's a big thing. On level the playing field, we're seeing still a ton of traction and a ton of movement with the level the playing field law because there's a huge gap period right between the time that even this modification comes in back to 2021 when it came originally came into play. A lot of auditors have already found that people owed a lot of tax based off of level of playing field. So a lot of our clients even are challenging it. And if you have questions about leveling the playing field or wanting to understand how you can defend against it, please feel free to reach out to [email protected]. dot we would love to talk to you and we can definitely help you out. [00:11:59] Speaker B: We obviously have a passion for this. [00:12:01] Speaker A: Heck yeah. Boo. Illinois not dub airs. [00:12:05] Speaker B: Dub airs. [00:12:06] Speaker A: All right. [00:12:07] Speaker B: All right. I think we feel really good getting all that off our chest, right, Tim? [00:12:11] Speaker A: Absolutely. [00:12:11] Speaker B: All right. So now we're going to take a break and then we're coming back with a new segment. [00:12:15] Speaker A: Another one. [00:12:19] Speaker C: All right. [00:12:20] Speaker A: Welcome back, everyone, after that brief break. And as always, we have a new segment. If it doesn't seem like it, or does seem like it to you that we always have new segments, guess what, Jenny Dewey? [00:12:30] Speaker B: It's because we do. [00:12:31] Speaker A: It's because we always have one. Yes. [00:12:32] Speaker C: We got, we, you know, we're scatterbrained, but that's why you love listening to us. We always have a new idea and then we just do the new idea. [00:12:40] Speaker A: So what do you got for us today? [00:12:41] Speaker C: What's our new idea? Our new segment is called meaningless debate topics. And we are just going to debate something with the last couple of minutes that we have in the episode, and this is just give the people what they want. It's the first rule of journalism. [00:12:53] Speaker A: I love it. I love it. Let's do it. Tim and Jenny fighting. Let's go. [00:12:56] Speaker B: Oh, yeah. [00:12:57] Speaker C: Okay. Would you rather fight 100 duck sized horses or one horse sized duck? [00:13:06] Speaker B: Hold on. I'm trying to get a mental picture of this. So 100 duck sized horses or one horse sized duck? [00:13:13] Speaker C: Yeah. And so here's the thing. Ducks can fly. So that's a dragon. [00:13:17] Speaker B: I was just gonna say. I'm gonna say I would fight a one horse sized duck because I would try to ride it. [00:13:25] Speaker C: Okay. [00:13:26] Speaker B: And just like House of the dragon ducks are mean. [00:13:28] Speaker C: You ever been around a duck? [00:13:29] Speaker A: Yeah. [00:13:29] Speaker B: They're not nice, but, I mean, I'm inspired by. Yeah. [00:13:33] Speaker A: My only concern, I hate getting kicked in the shins. I'm a boat owner. If you've ever racked your shin on a trailer hitch, it's the most uncomfortable thing ever. Imagine getting kicked by a hundred duck sized horses and getting smacked in your shins. [00:13:49] Speaker C: They're fast. [00:13:50] Speaker B: I feel like they're terrible. Their web feet, though, wouldn't be as. Wouldn't be as hurtful. Oh, no, no. [00:13:57] Speaker A: These are horses. They duck sized horses. [00:13:59] Speaker B: Picturing. Okay. A giant duck. [00:14:01] Speaker C: Yeah. Yeah, it's a giant duck. It's a giant mini horse. [00:14:04] Speaker A: Think stafe puff the marshmallow man. [00:14:06] Speaker B: I am right, but, yeah, so you're right. It's a giant duck. So it's not a horse leg. It is a duck leg. [00:14:12] Speaker A: No, but when you're thinking about 100 duck sized horses, you're talking a little tiny horse. It's about, like, this big. [00:14:16] Speaker B: Yeah. I'm not choosing that, though. [00:14:18] Speaker A: Exactly. Imagine him kicking you in the shins. [00:14:19] Speaker C: I'm not doing that. I still. I can't die, though. I'm going against. So I'm gonna pick the hundred duck sides. [00:14:27] Speaker B: What if they're like the ants in Indiana Jones? No. [00:14:29] Speaker A: It's gonna be annoying, right? [00:14:30] Speaker C: No. In just the amount of blood, you know, from me having to kill all these tiny little horses, it's gonna hurt me. It's gonna be a bad day for me. But that duck is like, that's a dragon. I can't fight a dragon. There's no war I'm gonna lose against a dragon. [00:14:44] Speaker A: You can fly. [00:14:45] Speaker B: You obviously have not been watching House of the dragon because you can tame a wild dragon and make it. [00:14:49] Speaker C: Your whole plan is just that you're gonna be nice enough to the correct. [00:14:52] Speaker A: Have you ever met a duck? [00:14:53] Speaker C: They are the worst I'm on the hundred ducks. [00:14:58] Speaker B: You're the hundred ducks? [00:14:58] Speaker A: Yeah, I think the hundred duck size. [00:15:00] Speaker C: Yours is fighting the dragon. [00:15:01] Speaker A: I'm fighting the dragon, dude. I'm doing the dragon. Give me a truck full of wonder bread and I'm going after that sucker. [00:15:09] Speaker B: I'm just going to make it my companion, and we're going to make a Disney movie together. All right, that was super fun. Thanks for listening to us debate about ducks and horses, and thanks for letting us get this off of our chest. It obviously is a very hot topic and very upsetting to my boss, Tim Howe, which I do not appreciate. Illinois, so be better. That's our other motto. [00:15:29] Speaker A: I'm not your boss. I'm your colleague. [00:15:30] Speaker B: Please stop. All right, thanks again for being with us today on taxing poetic. Just a reminder, you can listen to us on any platform where you get your podcasts, and you can email us [email protected]. dot. Let us know if you'd rather fight the 100 ducks or ride the one duck. [00:15:49] Speaker A: Thanks. [00:15:50] Speaker C: Kinda.