This Week in State Tax

The Illinois Department of Revenue (Department) recently issued a guidance on the application of retail sales tax to tariffed goods. The key issued addressed was whether separately itemized tariffs on an invoice are included in the price of the product and therefore subject to sales tax. Illinois Retailers’ Occupation Tax (ROT) is imposed on the sale of tangible personal property for use or consumption in the state, and no deductions are allowed for the cost of the property sold. Illinois’ Use Tax complements the ROT and is imposed on the privilege of using any tangible personal property in Illinois that was purchased at retail anywhere.

The Department clarified that tariffs are not deductible in computing the ROT from the gross receipts of the person selling tangible personal property. The Department indicated the critical factor in assessing the application of ROT is that the “importer of record” is the person legally responsible for paying the tariff. Therefore, if the importer of record is the seller of the product, tariffs itemized on the invoice are considered part of the sale price and are not deductible or excludible from the taxable base. However, if the importer of record is the end-user of the product, the tariff is not part of the selling price for purposes of computing the purchaser’s use tax liability as the tariff is an amount paid separately to the federal government. Contact Drew Olson for more information on Ill. Dep’t of Revenue, ST 25-0022-GIL. 

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The Kansas Legislature recently overrode a gubernatorial veto to enact a bill that will trigger automatic annual reductions in personal income, corporate income, and financial institutions privilege tax rates when certain fiscal conditions are met. Under the bill, rate cuts will be implemented in any year when general revenue from the income and privilege taxes exceeds the amount collected in 2024 (adjusted for inflation) and the amount in the state budget stabilization fund exceeds 15 percent of the previous year’s tax revenues.

The scheme laid out in the bill initially focuses on cutting the individual tax rates. Once all individual tax rates are reduced to 4 percent from a current maximum of 5.58 percent, further cuts will apply to the corporate rate and privilege tax rate. The bill would reduce the current corporate income tax rate of 6.5 percent (3.5% plus 3% surtax for income over $50,000) to a potential maximum rate of 4 percent. Concurrent with any corporate rate reduction, the bill also reduces the privilege tax rate to a maximum of 2.6 percent for banks or 2.62 percent for trust companies and loan associations. Contact Alexander Karscig with questions about S.B. 269.

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The New Jersey Division of Taxation is introducing a Pilot Mediation Program beginning October 1, 2025, that will be available to taxpayers involved in Corporate Business Tax (CBT) and Sales & Use Tax (S&U) disputes. The primary objective is to enable taxpayers to resolve tax issues without escalating them to the Conference and Appeals Branch of the Division or the New Jersey Tax Court. The pilot program will run for two years, at which point its effectiveness will be evaluated to determine if it should continue.

Eligibility for the program is extended to taxpayers with CBT or S&U controversies amounting to at least $5,000, excluding penalties and interest; all business entity types are eligible for the program. Applicants must demonstrate good faith and cooperation during the audit process, or the application for mediation may be rejected. Taxpayers will be notified of their option to apply for mediation prior to issuance of the final audit determination during a post-audit conference that will be held for all unagreed cases. Taxpayers in the mediation program are required to consent to extend the statute of limitations for assessments, collections, and refunds for 210 days. The required extension allows 180 days for mediation to proceed and 30 days for issuance of closing documents. While penalties and interest are not considered in determining eligibility for the program, they may be the subject of mediation.

To apply for mediation, taxpayers or their representatives (with an executed Form M-5008-R) must submit Form NJMED (Application for Mediation), a mediation contract, and a signed consent to extend the statute of limitations (which will be returned unsigned (i.e., not in effect) if the application to participate is denied) to the Mediation Administrator. Upon acceptance into the program, the mediation will be conducted by a trained mediator employed by the Division of Taxation. The mediator is to serve as an impartial facilitator to enable the parties to reach an agreement, will not advocate to sustain the Division’s position, and may not impose a resolution to the issues on the parties. All agreements reached in the mediation will be memorialized in a closing agreement. A taxpayer participating in the mediation program is not foreclosed from any statutory protest and appeal rights if the mediation is unsuccessful or if any matters remain unagreed at the close of the mediation. All documents regarding the settlement are not admissible in any further proceedings, and nothing stated in the mediation, written or otherwise, may be used by either party in any subsequent proceeding. For further information regarding the program, please review New Jersey Technical Bulletin 115 or contact Jim Venere, Andrew Eskola, Stephen Carlozzi, or Robert Weyman. The Division indicates an FAQ document will also be forthcoming.

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