Sept 07
Governor Floats New "Loophole Closure" to Fund Capital Spending Program
Late last week, Governor Blagojevich proposed yet another business tax increase in the form of "loophole closures" as a way to fund a state capital program. Among other things, the list includes repealing the single sales factor apportionment formula, decoupling from the 2004 federal qualified production activity deduction, repealing the deduction for foreign and domestic dividends received by corporations, ending the deduction for company owned life insurance, taxing custom software used by business, capping the amount retailers are allowed to keep as a retailers discount under the sales tax, repealing the manufacturers purchase credit, and decoupling from federal accelerated depreciation to mandate straight line depreciation for all Illinois businesses. For more details on the Governor's proposals and the Illinois Chamber response, see here.
All but one of the purported "loopholes" has been suggested by Governor Blagojevich in prior years, and all of them have been rejected by the Illinois legislature in this and prior years. These proposals are in addition to the significant anti-business proposals enacted by Governor Blagojevich in 2004--not to mention yet another $300 million in additional business tax increases already enacted this year with the enactment of SB 1544.
"Loopholes and the Governor: A Translation"
Governor Signs Senate Bill 1544 to Eliminate Deductions and Change Income Tax Apportionment Rules.
On August 16, Governor Blagojevich signed SB 1544 which contains a number of important tax changes for Illinois business taxpayers. Among other things, the bill disallows several deductions from gross income, including interest or intangible expenses or costs paid to 80/20 companies, expenses and costs paid to affiliated insurance companies, interest expense on bonds, and dividends paid to real estate investment trusts. It also eliminates the financial organization "lock box" rules and shifts to market based sourcing rules for financial organizations and service businesses. The bill also establishes an amnesty program for Illinois franchise tax or license fees from February 1, 2008 through March 15, 2008. The changes in SB 1544 are effective for taxable years ending on or after December 31, 2008. For a brief summary of the provisions of SB 1544, see here.
There are numerous technical problems with the provisions of SB 1544 and the Tax Institute has been working closely with the Illinois Department of Revenue to address these issues in an agreed "trailer bill" that we hope will be introduced and passed during the fall veto session. For more information on the trailer bill, contact Connie Beard.
August Report of Commission on Government Forecasting and Accountability shows flat revenues for Illinois
According to the Commission on Government Forecasting and Accountability for the State of Illinois:
"General funds revenues grew $55 million in August. However, virtually all of that gain was attributed to federal reimbursement from Medicaid spending. Absent the $50 million gain in federal sources, all other revenues were basically flat."
The Commission's August report also indicated that individual income tax revenues were up $29 million (net of refunds) while gross corporate tax revenues fell $7 million as compared to last year. Sales tax revenues fell by $56 million last month. For more information on the Illinois economic picture and state tax receipts, see the Commission's August 2007 report.
HB 664 / Cook County Property Tax Assessment Cap
Governor Blagojevich has amendatorily vetoed HB 664 to make the 7 percent assessment cap on Cook County residential property permanent. As passed by the legislature, the assessment cap would have been extended for three more years. While we wait to see whether the legislature will override the Governor's veto, Cook County will be unable to issue property tax bills resulting in budget uncertainties and potentially serious funding delays for public schools and local governments. By limiting residential assessments, the tax burden necessarily shifts once again to the business community. Cook County already has the highest business property tax rates in the nation and the Governor's actions will only make a bad situation worse.
Illinois Department of Revenue warns businesses about tax ID website rip-off.
Department of Revenue Director Brian Hamer warns businesses about websites charging money to connect users to services the IDOR offers for free. Protect yourself: read IDOR's news release.
Department of Revenue issues Compliance Alert for Taxpayers who Took the Federal "Extraterritorial Income Exclusion"
The Department of Revenue has determined that a significant number of taxpayers who took the extraterritorial income exclusion (EIE) for federal income tax purposes are not correctly completing their Illinois business tax returns. Specifically, taxpayers are not properly taking into account the EIE when computing the Illinois sales factor. For more information and the proper calculation method see IDOR Compliance Alert.
Next Tax Institute Meeting: November 16, 2007, Chicago.
For more information email Connie Beard