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The Illinois Department of Revenue (The Department) announced an error in the distribution of personal property replacement taxes, resulting in an overpayment of an estimated $168 million to local tax districts. The Department expects to have a plan in place to begin collecting the overpayments from the local tax districts in January 2017. It is expected that the overpayment will be repaid by the local governments through a reduction of future replacement tax receipts, over a period of time.

Local governments have been notified of the excess distribution and will need to make a determination as to the proper accounting for it. While this excess distribution meets the definition of a liability under governmental accounting standards, each local government will need to make a determination as to whether the excess received is material to their financial statements, considering its effect at both the fund level and the government-wide financial statement level. If material, the liability should be recorded. Future replacement tax receipts should be recorded as revenue at their gross amount, and the reductions taken by the state (difference between gross allocation and cash received) should be a reduction of the liability. If the liability was determined not to be material, future replacement tax receipts would be recorded as revenue at the net amount received.

A listing of the taxing districts affected by the allocation overpayment is available here.

Edward Tracy

As an audit shareholder and head of the firm’s governmental audit practice, Ed Tracy directs the supervision of audit engagements, the majority of which are in the government and non-profit sector. In addition to his role as an accountant, Ed especially enjoys serving as a sounding board for his clients, and helps them develop creative solutions for broader management and business issues.