Overview

Illinois’ July 2017 Revenue Bill for the 2018 fiscal year included the Invest in Kids Act (Act), which creates a new program, effective January 1, 2018, that provides up to $75 million in income tax credits for Illinois taxpayers making contributions to eligible organizations that grant scholarships to students attending private and parochial schools in Illinois. The Act allows approved Illinois taxpayers to receive state income tax credits of 75 percent of their total qualified contributions to Scholarship Granting Organizations (SGOs), up to $1 million annually per taxpayer. For example, a contribution of $100,000 to an SGO allows an approved taxpayer to claim a $75,000 income tax credit. The program is administered by the Illinois Department of Revenue (Department). The Department will allocate the credits among taxpayers on a first-come, first-served basis.

Who Benefits?

The Act is intended to benefit students who are members of households whose federal adjusted gross income does not exceed 300 percent of the federal poverty level before the scholarship and does not exceed 400 percent of the federal poverty level once the scholarship is received. The Illinois State Board of Education will annually provide the Department with a list of eligible private and parochial schools that may participate in the program and receive scholarship contributions from SGOs. As of December 18, 2017, the list of eligible private and parochial schools for 2018 has not been published. Continue Reading Illinois’ Invest in Kids Tax Credit

On August 31, 2017, in a 4-3 split decision, the Virginia Supreme Court (Court) affirmed a circuit court’s ruling that in order for income to qualify for the “subject-to-tax” exception to its addback statute, the income must actually be taxed by another state. Kohl’s Dep’t Stores, Inc. v. Va. Dep’t of Taxation, no. 160681 (Va. Aug. 31, 2017). A copy of the Opinion (Op) is available here. The Court, however, did find for the taxpayer on its alternative argument, concluding that the determination of where income was “actually taxed” includes combined return and addback states, in addition to separate return states, and includes income subject to tax in the hands of the payor, not just the recipient. For our prior coverage of the subject-to-tax exception, see here.

The issue here was whether Kohl’s Department Stores, Inc. (Kohl’s), which operates retail stores throughout the United States (including Virginia), was required to “add back” to its income royalties it paid to a related party for the use of intellectual property owned by that party. Kohl’s deducted the royalty payments as ordinary and necessary business expenses in the computation of its federal income, and the recipient related party included the royalty income in its taxable income calculations in the states in which it filed returns, including both separate and combined reporting states. The Court considered whether the royalty payments paid by Kohl’s must be “added backed” to Kohl’s taxable income under Virginia law, or whether the royalties fell within Virginia’s “subject-to-tax” exception. Continue Reading While Virginia Supreme Court Holds “Subject-To-Tax” Means “Actually Taxed,” Determination of “Actually Taxed” is Relatively Broad for Purposes of Addback Exception