50 ILCS 355/ Local Government Revenue Recapture Act.

(50 ILCS 355/Art. 5 heading) Article 5. Local Government Revenue Recapture. (Source: P.A. 101-628, eff. 6-1-20.)

(50 ILCS 355/5-5)

Sec. 5-5. Definitions. As used in this Article:

"Department" means the Department of Revenue.

"Family member" means the following, whether by whole blood, half-blood, or adoption:

(1) a parent or step-parent;

(2) a child or step-child;

(3) a grandparent or step-grandparent;

(4) an aunt, uncle, great-aunt, or great-uncle;

(4.1) a niece, nephew, great-niece, or great-nephew;

(5) a sibling;

(6) a spouse or domestic partner; and

(7) the spouse or domestic partner of any person referenced in items (1) through (5).

"Financial information" means the information provided to the municipality or county by the Department under Section 11 of the Retailers' Occupation Tax Act that is reported to the Department by a business located in a given municipality or county.

"Person" means an individual, sole proprietorship, corporation, registered limited liability partnership, limited liability company, partnership, professional service corporation, or any other form of organization.

"Misallocation" means tax paid by the taxpayer and allocated to one unit of local government that should have been allocated to a different unit of local government. This includes misallocations discovered by a unit of local government through the tax location verification process under Section 8-11-16 of the Illinois Municipal Code and misallocations discovered by the Department other than through an audit of the taxpayer. "Misallocation" does not, however, include any amount reported by a taxpayer in an amended return or any amount discovered in an audit of the taxpayer by the Department or discovered in an audit of the taxpayer by a qualified practitioner under Article 10 of this Act. "Misallocation" also does not include amounts overpaid by the taxpayer and therefore not owed to any unit of local government, nor amounts underpaid by the taxpayer and therefore not previously allocated to any unit of local government.

"Monitoring disbursements" means keeping track of payments from the Department by a municipality, county, or third party for the limited purpose of tracking previous misallocations.

"Third party" means 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.

(Source: P.A. 101-628, eff. 6-1-20; 102-40, eff. 6-25-21.)

(50 ILCS 355/5-10)

Sec. 5-10. Contracts with third parties. A municipality or county that receives a disbursement of tax proceeds from the Department may contract with a third party for the purpose of ensuring that the municipality or county receives the correct disbursement from the Department and monitoring disbursements. The third party may not contact the Department on behalf of the municipality or county, but instead must work directly with the municipality or county to acquire financial information. A third party may, however, directly access a municipality's or county's financial information that is provided by the Department by electronic means under Section 11 of the Retailers' Occupation Tax Act, provided that the third party meets all other conditions under this Section for the receipt of financial information. To be eligible to receive financial information from the municipality or county, the third party must:

(1) enter into a confidentiality agreement with the municipality or county in the form and manner required by the Department prior to receiving the financial information;

(2) have an existing contract with the municipality or county at the time the third party enters into the confidentiality agreement with the municipality or county; a copy of that existing contract must be on file with the Department;

(3) abide by the same conditions as the municipality or county with respect to the furnishing of financial information under Section 11 of the Retailers' Occupation Tax Act; and

(4) be registered with the Department as required by Section 5-35 of this Act.

(Source: P.A. 101-628, eff. 6-1-20; 102-40, eff. 6-25-21.)

(50 ILCS 355/5-15)

Sec. 5-15. Financial information. The third party may use the financial information it receives from the contracting municipality or county only for the purpose of providing services to the municipality or county as specified in this Act and may not use the information for any other purpose. Electronic data submitted to third parties by the contracting municipality or county must be accessible only to third parties who have entered into a confidentiality agreement with the municipality or county or who have an existing contract with the municipality or county.

(Source: P.A. 101-628, eff. 6-1-20; 102-40, eff. 6-25-21.)

(50 ILCS 355/5-20)

Sec. 5-20. Retention, collection, disclosure, and destruction of financial information.

(a) A third party in possession of a taxpayer's financial information must permanently destroy that financial information pursuant to this Act. The financial information shall be destroyed upon the soonest of the following to occur:

(1) if the taxpayer is not referred to the Department, within 30 days after receipt of the taxpayer's financial information from either the municipality or county, unless the third party is monitoring disbursements from the Department on an ongoing basis for a municipality or county, in which case the financial information shall be destroyed no later than 3 years after receipt; or

(2) within 30 days after the Department receives a taxpayer audit referral from a third party referring the taxpayer to the Department for additional review.

(b) No third party in possession of financial information may sell, lease, trade, market, or otherwise utilize or profit from a taxpayer's financial information. The municipality or county may, however, negotiate a fee with the third party. The fee may be in the form of a contingency fee for a percentage of the amount of additional distributions the municipality or county receives for no more than 3 years following the first disbursement to the municipality or county as a result of the services of the third party under this Act.

(c) No third party may permanently or temporarily collect, capture, purchase, use, receive through trade, or otherwise retain a taxpayer's financial information beyond the scope of subsection (a) of this Section.

(d) No third party in possession of confidential information may disclose, redisclose, share, or otherwise disseminate a taxpayer's financial information.

(e) A third party must dispose of the materials containing financial information in a manner that renders the financial information unreadable, unusable, and undecipherable. Proper disposal methods include, but are not limited to, the following:

(1) in the case of paper documents, burning, pulverizing, or shredding so that the information cannot practicably be read or reconstructed; and

(2) in the case of electronic media and other non-paper media containing information, destroying or erasing so that information cannot practicably be read, reconstructed, or otherwise utilized by the third party or others.

(Source: P.A. 101-628, eff. 6-1-20; 102-40, eff. 6-25-21; 102-687, eff. 12-17-21.)

(50 ILCS 355/5-25)

Sec. 5-25. Notice of intent to contract; award of contracts. A municipality or county that chooses to contract with a third party pursuant to this Act shall follow all rules set forth in the Illinois Municipal Code or the Counties Code, as applicable, concerning those contracts.

(Source: P.A. 101-628, eff. 6-1-20.)

(50 ILCS 355/5-30)

Sec. 5-30. Posting results. Annually, the third party shall provide the municipality or county with a final summary of the review for publication. It is the responsibility of the third party to ensure that this summary includes no personal or identifying information of taxpayers and that all such taxpayer information is kept confidential. If the summary includes any discussion of tax revenue, it shall include only aggregate amounts by tax type, and shall in no way include information about an individual return or an individual taxpayer, even with identifying information redacted. No aggregated data may be published that includes taxpayer information for 4 or fewer taxpayers. In addition, due to the preliminary nature of such a summary based only on unaudited financial information, no claim of specific tax savings or revenue generation may be made in the summary.

(Source: P.A. 101-628, eff. 6-1-20; 102-40, eff. 6-25-21.)

(50 ILCS 355/5-35)

Sec. 5-35. Third party registration.

(a) Beginning on January 1, 2021, no person shall engage in business as a third party pursuant to this Act in this State without first having registered with the Department. Application for registration or renewal of registration shall be made to the Department, by electronic means, in a form and at the time prescribed by the Department. Each applicant for registration or renewal of registration under this Section shall furnish to the Department, in an electronic format established by the Department, the following information:

(1) the name and address of the applicant;

(2) the address of the location at which the applicant proposes to engage in business as a third party in this State;

(3) valid and updated contact information;

(4) attestation of good standing to do business in Illinois;

(5) a copy of each contract it has entered into with a municipality or county; if an applicant has a contract with a municipality or county prior to the effective date of this Act, a copy of all existing contracts must be provided;

(6) an annual certification of process letter that:

(A) is signed by an attorney or certified public accountant licensed and authorized to practice in the State of Illinois;

(B) contains findings that, after due diligence, the author is of the opinion that:

(i) the third party's confidentiality standards for storing encrypted data at rest, using a cryptographic algorithm, conform to Security Level 1 of the Federal Information Processing Standard (FIPS) Publication 140-2, or conform to similar security requirements contained in any successor publication;

(ii) the third party uses multi-factor authentication;

(iii) the third party uses HTTPS with at least TLS 1.2 or its successor to protect the data files while in transit between a browser and server;

(iv) the third party adheres to best practices as recommended by the Open Web Application Security Project (OWASP);

(v) the third party has a firewall which protects against unauthorized use of the data; and

(vi) the third party shall maintain a physical location in this State at all times; if, at any time, the third party fails to have a physical location in this State, the third party's registration shall be revoked; and

(7) such other additional information as the Department may require by rule.

The annual registration fee payable to the Department for each third party shall be $15,000. The fee shall be deposited into the Tax Compliance and Administration Fund and shall be used for the cost of administering the certified audit pilot project under Article 10.

Each applicant shall pay the fee to the Department at the time of submitting its application or renewal to the Department. The Department may require an applicant under this Section to electronically file and pay the fee.

(b) The following are ineligible to register as a third party under this Act:

(1) a person who has been convicted of a felony related to financial crimes under any federal or State law, if the Department, after investigation and a hearing if requested by the applicant, determines that the person has not been sufficiently rehabilitated to warrant the public trust, including an individual or any employee, officer, manager, member, partner, or director of an entity that has been convicted as provided in this paragraph (1);

(2) a person, if any employee, contractual employee, officer, manager, or director thereof, or any person or persons owning in the aggregate more than 5% thereof, is employed by or appointed or elected to the corporate authorities of any municipality or county in this State;

(3) a person, if any employee, contractual employee, officer, manager, or director thereof, or any person or persons owning in the aggregate more than 5% thereof, is not or would not be eligible to receive a certificate of registration under this Act or a license under the Illinois Public Accounting Act for any reason;

(4) a person who is a family member of any person who is employed by or appointed or elected to the corporate authorities of any municipality or county in the State;

(5) a person who is a qualified practitioner, as defined by Section 10-15 of this Act;

(6) a third party owned, in whole or in part, by any entity that competes directly or indirectly with any taxpayer whose financial information they are seeking or receiving; and

(7) a third party owning in whole or in part, directly or indirectly, any entity that competes, directly or indirectly, with any taxpayer whose financial information they are seeking or receiving.

(c) The Department shall begin accepting applications no later than January 1, 2021. Upon receipt of an application and registration fee in proper form from a person who is eligible to register as a third party under this Act, the Department shall issue, within 60 days after receipt of an application, a certificate of registration to such applicant in such form as prescribed by the Department. That certificate of registration shall permit the applicant to whom it is issued to engage in business as a third party under this Act. All certificates of registration issued by the Department under this Section shall be valid for a period not to exceed one year after issuance unless sooner revoked or suspended as provided in this Act. No certificate of registration issued under this Section is transferable or assignable. A person who obtains a certificate of registration as a third party who ceases to do business as specified in the certificate of registration, or who never commenced business, or whose certificate of registration is suspended or revoked, shall immediately surrender the certificate of registration to the Department.

(d) Any person aggrieved by any decision of the Department under this Section may, within 60 days after notice of the decision, protest and request a hearing. Upon receiving a request for a hearing, the Department shall give written notice to the person requesting the hearing of the time and place fixed for the hearing and shall hold a hearing and then issue its final administrative decision in the matter to that person within 60 days after the date of the hearing or at a later date upon agreement of all of the parties. In the absence of a protest and request for a hearing within 60 days, the Department's decision shall become final without any further determination being made or notice given.

(e) All final decisions by the Department under this Section are subject to judicial review under the provisions of the Administrative Review Law.

(Source: P.A. 101-628, eff. 6-1-20; 102-40, eff. 6-25-21.)

(50 ILCS 355/5-37)

Sec. 5-37. Insurance policy requirement. A third party is required to file and maintain in force an insurance policy issued by an insurance company authorized to transact fidelity and surety business in the State of Illinois. The insurance policy shall be for coverage of potential legal claims, including, but not limited to, penalties set forth under Section 5-60, embezzlement, dishonesty, fraud, omissions or errors, or other financial wrongdoing in the course of providing services. The policy shall be in the sum of $500,000. The policy shall be continuous in form and run concurrently with the original and each renewal certification period unless terminated by the insurance company. An insurance company may terminate a policy and avoid further liability by filing a 60-day notice of termination with the Department and at the same time sending the same notice to the licensee. A licensee that receives a notice of termination must promptly notify each municipality and county with whom it has a contract under this Act of the notice of termination. A license shall be canceled on the termination date of the policy unless a new policy is filed with the Department and becomes effective at the termination date of the prior policy. If a policy has been canceled under this Section, the third party must file a new application and will be considered a new applicant if it obtains a new policy.

(Source: P.A. 101-628, eff. 6-1-20; 102-40, eff. 6-25-21.)

(50 ILCS 355/5-40)

Sec. 5-40. Revocation or suspension of certification.

(a) A contracting municipality or county shall refuse to provide any information, including financial information, to any third party who violates this Act or rules adopted pursuant to this Act or the Retailers' Occupation Tax Act or rules adopted pursuant to the Retailers' Occupation Tax Act.

(b) The Department may, after notice and a hearing, revoke or suspend the certificate of registration of any third party for a violation of any provision of this Act, for noncompliance with any provision contained in this Act, or because the Department determines that the third party is ineligible for a certificate of registration for any one or more of the reasons provided for in Section 5-35 of this Act. The decision whether to suspend or revoke and, if a suspension is in order, the duration of the suspension shall be made by taking into account factors that include but are not limited to, the registrant's previous history of compliance with the Act as of its creation, the number, seriousness, and duration of the violations, and the registrant's cooperation in discontinuing and correcting violations.

(Source: P.A. 101-628, eff. 6-1-20.)

(50 ILCS 355/5-50)

Sec. 5-50. Audit referrals; restrictions.

(a) Upon entering into a contract with a municipality or county, a third party shall be prohibited from communicating directly or indirectly in any manner with a taxpayer known or believed to be operating within that municipality or county about any matters directly or indirectly related to, or covered by, the contract.

(b) If, based on a review of the financial information provided by the Department to a municipality or a county, or provided by a municipality or county to a registered third party, a municipality, county, or third party discovers that local retailers' or service occupation tax may have been underpaid, then it may refer the matter to the Department for a limited-scope audit in accordance with Article 10 of this Act.

(c) With respect to taxes administered by the Department, units of local government and third parties are not authorized to (i) access, review, or compel the production of taxpayers' actual tax returns or (ii) access, review, or compel the production of taxpayers' books and records.

(d) With respect to taxes administered by the Department, units of local government and third parties are prohibited from (i) engaging in an audit of any taxpayer, (ii) assessing tax against any taxpayer, (iii) engaging in collection actions against any taxpayer for the tax, or (iv) engaging in any other action related to such taxes that is assigned by law to the Department.

(e) A local government shall not share any financial information received with another local government or another third party. Further, a local government may not share the findings of a third party with another local government or another third party.

(Source: P.A. 101-628, eff. 6-1-20.)

(50 ILCS 355/5-60)

Sec. 5-60. Penalties.

(a) Any third party who violates any provision of this Act shall be subject to the penalties set forth in Section 11 of the Retailers' Occupation Tax Act.

(b) Any third party who violates Section 5-20 is subject to a civil penalty of not more than $10,000 for each taxpayer with respect to whom financial information is improperly disclosed, profited from, or disposed of in violation of that Section. The Attorney General may impose a civil penalty not to exceed $50,000 for each instance of improper disposal of materials containing financial information. The Attorney General may impose a civil penalty after notice to the person accused of violating Section 5-20 and an opportunity for that person to be heard in the matter. The Attorney General may file a civil action in the circuit court to recover any penalty imposed for a violation of Section 5-20. In addition to the authority to impose a civil penalty under this Section, the Attorney General may bring an action in the circuit court to remedy a violation of this Section, seeking any appropriate relief.

(c) Neither the State nor any municipality or county shall be held liable for the mishandling of information by a third party, including information from the Department or any other financial information of taxpayers.

(d) Any taxpayer aggrieved by a violation of this Act shall have a right of action in a State circuit court or as a supplemental claim in federal district court against a third party. A taxpayer may recover for each violation:

(1) against a third party that, by gross negligence, violates a provision of this Act, liquidated damages of $5,000 or actual damages, whichever is greater;

(2) against a third party that intentionally or recklessly violates a provision of this Act, liquidated damages of $10,000 or actual damages, whichever is greater;

(3) reasonable attorney's fees and costs, including expert witness fees and other litigation expenses; and

(4) other relief, including an injunction, as the State or federal court may deem appropriate.

(Source: P.A. 101-628, eff. 6-1-20.)