AP-motorfueltaxphoto courtesy of The Associated Press

Opponents to a proposed 9.5 percent wholesale fuel tax say its passage would prompt people who fill their gas tanks in Illinois to cross into neighboring states to do business, potentially threatening the livelihood of retailers in the Land of Lincoln.
    The Transportation for Illinois Coalition’s proposal to replace the state’s portion of the gas tax with a 9.5 percent wholesale fuel tax is meeting with fierce opposition from distributors, who say such action would drive more motorists across the borders to fill their tanks and drive Illinois gas retailers out of business.
   The coalition — comprised of labor, construction, transportation and trade associations and the Illinois Chamber of Commerce — is proposing the tax in tandem with vehicle license and registration fee increases to raise a projected $800 million annually.
   Coalition co-chairman Doug Whitley, president and chief executive officer of the Illinois Chamber of Commerce, says something has to be done to build and maintain Illinois’ roads and bridges without relying on the feds because that well has run dry.
   Illinois motorists would pay an additional 14 to 17 cents per gallon on top of the current tax if the proposal were adopted.
   “The federal government has been unreliable in the past two federal highway bills,” Whitley said. “The federal gas (and diesel) tax has not increased since 1993, so they haven’t put any more money into the road fund either. Congress has had to supplement the Highway Trust Fund with additional money out of the General Fund just to shore up the Trust Fund. The states lack confidence that the federal government is going to help them.”
    The coalition’s proposal, Whitley says, is linked closely to the end of the 2009 Illinois capital bill, Illinois Jobs Now!, which will expire in July 2014. There is no new state funding allocated toward construction.

AP-cigarette-taxphoto courtesy of The Associated Press

An area store clerk stocks cigarette shelves recently. The Illinois comptroller says the state took in $30 million beyond what it expected in the year since the $1-per-pack tax increase took effect June 24, 2012.
   Although the numbers show that Illinois’ cigarette tax revenue more than doubled in July compared to the same period last year, details behind the stats actually reflect inventories returning to normal.
   According to the Illinois Commission on Government Forecasting and Accountability, what initially appears as a hefty spike in revenues for the state was — in reality — evidence of cigarette distributors statewide restocking their pantries after their stockpiled purchases of pre-tax-hiked product from last spring-summer was depleted. July’s net increase was $18 million.
   Revenues for August of this year were also up appreciably, 73 percent or $25 million, compared to a year ago.
   Jim Muschinske, the commission’s revenue manager, says the General Assembly’s $1-per-pack tax increase on cigarettes (which took effect June 24, 2012) caused a last-minute “rush” of massive distributor purchasing last spring — one that the Illinois Department of Revenue tried unsuccessfully to prevent under the old tax rate.
    “Last year, the IDR attempted to thwart that stockpiling by putting a floor tax on distributors to immediately put the higher rate on and limit the amount of cigarettes they could purchase under the old rate,” said Muschinske. “But the courts said no. So there was a big purchase statewide of cigarette tax stamps, those that are affixed to the back of the packs by licensed distributors. It took a number of months for the effect of that (excessive purchasing by cigarette distributors) to go away. Now we’re back at the statutory amount. So the dollar amount you see comparing July FY 2013 to July 2012 is no surprise.”

   While Illinois’ backlog of unpaid bills is more than $6 billion, there is some relief for the state’s vendors. A private, for-profit startup company called Vendor Assistance Program LLC — created at the behest of state officials — is buying receivables through a state-sanctioned process.
   The basic idea of paying cash today for a stream of income in the future, a process known as factoring, is not new. An individual or business in need of immediate cash can assign a receivable due in the future to a third party in return for a cash payment of somewhat less than the full amount due. The third-party investor profits by collecting the full amount when it becomes due.
   “People from the governor’s office and CMS (Illinois Department of Central Management Services) approached us,” said VAP  Chief Executive Officer David Reape. “What they wanted to do was figure out a way that we could put a program together to monetize the penalties that are associated with late payment. It was very important to the state that if a vendor did $10,000 worth of work they got paid $10,000. The state was aware that there were a number of factoring organizations out there that were offering vendors fairly steep discounts in order to get cash sooner; that there were vendors that weren’t able to bid on state business because of the delay in payment; and that there were vendors that were really struggling to stay in business because of the delays. We came up with the program and helped the state develop the terms. It’s a unique kind of program.”
   A qualified purchaser, in accordance with the state-approved program, offers Illinois’ creditors 100 percent of the amount owed by the state for goods and services provided. The Illinois Prompt Payment Act (30 ILCS 540) provides that the state must pay an additional 1 percent per month late fee on bills paid more than 90 days after they are due. By accepting assignment of receivables only after they are eligible for the late charge, qualified purchasers like VAP can afford to pay vendors the full face value of receivables. Ninety percent of the amount is paid to the vendor within seven to 10 days of assignment, and the balance in two additional installments. The first installment is paid after the qualified purchaser receives the amount due on the invoice and the second is paid after the purchaser receives the late payment charge.