Illinois Legislative Tax Policy Subcommittees Issue Joint Report on Findings

By on May 29, 2014

On May 28, 2014, the Tax Policy Subcommittees of the Illinois General Assembly’s Joint Revenue and Finance and State Government Administration Committees (Subcommittees) issued their long-awaited Report on Findings regarding the State of Illinois (Report).  The Report was generated after months of hearings and solicitation of written comments from interested parties with respect to Illinois tax rates, tax incentives and tax policy issues.

The Report is chock full of facts and figures.  Unfortunately, it fails to offer much clear direction for the state, as the members of the Subcommittees were unable to agree on the majority of the issues considered.  For example, the Report provides that the state should “continue to explore” the question of whether Illinois should apply the sales tax to services, as do many surrounding states.  Similarly, the Report concludes that while most members of the Subcommittees believe that the corporate income tax rate should be reduced, they could not agree on the amount of the reduction, what corresponding cuts in state spending would offset such a reduction, or even whether the Illinois personal property replacement tax should be considered as part of the corporate income tax rate when comparing Illinois’ income tax rates to those of other states.  The Report also concludes that the Subcommittees are “strongly interested” in providing sales tax exemptions to customers who provide data centers in Illinois, but has not come to a consensus about how to move forward with that process.  The Subcommittees also failed to reach a consensus regarding any changes needed to the Economic Development for a Growing Economy credit, instead offering only the platitude that “it is imperative to ensure that Illinois remains competitive in today’s economy.”

The Report does, however, contain the following findings:

  1. In its most definitive finding, the Report recommends the elimination of the Illinois franchise tax.  No specific plan or timetable is put forward for the elimination of this tax.
  2. The Report concludes that Illinois’ eligibility criteria for the research and development (R&D) tax credit should be changed to match the federal requirements.  For instance, the federal alternative simplified R&D credit would require that R&D spending exceed 50 percent (instead of 100 percent) of the previous three year average.
  3. The Report concludes that initial filing fees for LLCs should be reduced.  No consensus was reached regarding the amount of the reduction.
  4. The Report recommends that the state streamline current processes by designating a point person to help businesses seeking the state’s help with respect to job creation, retention and relocation in Illinois.

In what appears to be an effort to boost the state’s image in the business community, the Report also references a number of favorable statements about Illinois’ business climate that the Report attributes to various business publications.  The Report touts that Illinois ranks third in corporate expansions, according to Site Selection Magazine, that Illinois was identified as among the top five states for “technology and innovation” and “infrastructure” according to CNBC Top States for Business 2013 and that Illinois ranks third best in business growth, according to the Chicago Examiner.  The Report concludes with a description of Forbes’ business climate rankings for the state in six categories, including business cost, regulatory environment, economic climate, growth prospects, labor supply and quality of life.  With the exception of the “quality of life” category, where Illinois ranked 14th, Illinois was ranked 29th or lower in each of the categories.

The Illinois General Assembly will end its current legislative session on or before Saturday, May 31, 2014.  It remains to be seen whether any of the Report’s recommendations will find their way into last-minute legislation.

Mary Kay McCalla Martire
Mary Kay McCalla Martire focuses her practice on state and local tax disputes. She helps clients with audits, tax-related litigation, letter rulings and settlement conferences. Mary Kay has experience resolving disputes involving income, sales and use, utility and telecommunications taxes, as well as premium and retaliatory tax. Read Mary Kay McCalla Martire's full bio.




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