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Illinois Fiscal Year 2020 Income and Franchise Tax Changes

The Illinois General Assembly enacted a number of new tax measures in a flurry of activity at the end of its legislative session. Some of the changes are taxpayer friendly and others are not. Unlike the no-deal chaos of past years, all of the measures have been or are expected to be signed by the state’s new Democratic governor, J.B. Pritzker. This blog post summarizes the income-tax and franchise tax-related changes approved by the General Assembly. Subsequent posts will address sales/use, property and other tax changes. Graduated Income Tax The General Assembly approved, by a three-fifths vote in each Chamber, a referendum to appear on the November 2020 ballot in which Illinois taxpayers will be asked whether the Illinois Constitution should be amended to permit the imposition of a graduated income tax. Article IX, Section 3 of the current Constitution provides that any tax on or measured by income “shall be at a non-graduated rate,” and that only one such...

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Illinois Moves One Step Closer to Enacting Captive Reform

On November 14, the second day of its 2018 veto session, the Illinois Senate voted unanimously to override Governor Rauner’s amendatory veto of Senate Bill 1737 (Bill). As we have previously reported, the Bill is a proposed new law that would reform the Illinois Insurance Code’s regulatory framework for captive insurance companies and significantly drop the state’s current premium tax rate on self-procured insurance. The Illinois General Assembly passed the Bill on May 31, 2018, with bi-partisan support. The Illinois Department of Insurance, key industry groups and several large Illinois-based taxpayers also support the legislation. If it becomes law, the Bill would create a much more favorable regulatory framework for Illinois captives, following the lead of multiple jurisdictions, including Vermont, Hawaii, South Carolina and the District of Columbia. The Bill also would substantially drop the premium tax rate for contracts of insurance independently...

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Update on Illinois Legislative Session

On May 31, the Illinois General Assembly closed its regular legislative session, without a budget agreement. Senate Bill 9 As we previously reported, the Senate passed a modified version of Senate Bill 9 (Bill), a tax proposal that is part of the Illinois “Grand Bargain” that we described in a previous post. The version of Senate Bill 9 that passed out of the Senate passed the House Revenue Committee on May 29 on a partisan vote. The House has extended the Bill’s final action deadline to June 30. The current version of the Bill is similar but not identical to the version that we have previously described. Some of the more significant amendments include the following: Two New Taxes. The Bill now proposes to create two new taxes. The “Video Service Tax Modernization Act” purports to impose a tax on satellite television and streaming television services at a rate of 5 percent of the gross revenues that a provider earns from its Illinois customers. The Bill also...

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Finishing SALT: InsideSALT’s Monthly Recap

Wrapping Up May – and Looking Forward to June Our May 2017 blog posts are available on our Inside SALT blog, or read each article by clicking on the titles below. To receive the latest on state and local tax news and commentary directly in your inbox as they are posted, fill out the form on the right to subscribe to our email list. May 16, 2017: Illinois Department of Revenue Affirms Cloud-Based Services Not Taxable In two recent General Information Letters (GILs), the Illinois Department of Revenue (Department) reaffirmed that computer software provided through a cloud-based delivery system is not subject to tax in Illinois. The Department announced that while it continues to review cloud-based arrangements and may determine they are taxable at some point, any decision to tax cloud-based services will be applied prospectively only. May 24, 2017: Illinois Bills to Watch Just days away from the May 31 close of its regular legislative session, the Illinois...

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Illinois Bills to Watch

Just days away from the May 31 close of its regular legislative session, the Illinois General Assembly has yet to enact the comprehensive series of tax and budget reforms that were first proposed by the Illinois Senate leadership late last year. Yesterday, the Senate passed a modified version of Senate Bill (SB) 9, the tax proposal we described in a previous post, without any Republican support. SB 9 now moves to the Democratically-controlled House for consideration. Even if approved by the House, it seems likely that Illinois’ Republican Governor will veto the legislation. Other bills to watch over the next week include the following: False Claims Act Penalty Increase Proposal Senate Bill 1577 proposes to change the penalty amounts imposed for violation of the Illinois False Claims Act (740 ILCS 175/1 et. seq.). Currently, a penalty of between $5,500 and $11,000 is imposed for each violation of the Illinois False Claims Act (740 ILCS 175/3(a)(1)). The...

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Another Effort at False Claims Act Reform: Bills Introduced to Amend Illinois Act to Restrict Tax-Related Claims

Illinois Legislators have recently introduced three bills that would amend the Illinois False Claims Act (“Act”) to restrict the ability to bring tax-related claims. Senate Bill 9, the proposed “grand bargain” to resolve Illinois’ budget stalemate, includes language that would eliminate the ability to use the Act to bring tax claims.  In addition, Representative Frank Wheeler and Senator Pam Althoff have introduced House Bill 1814 and Senate Bill 1250, respectively, which are identical pieces of legislation that would significantly restrict a private citizen’s right to bring tax-related claims. Senate Bill 9, if adopted in its current form, would eliminate the ability to bring a tax-related claim under the Act.  Currently, the Act only excludes the right to bring income tax-related claims. 740 ILCS 175/3(c).  This would effectively conform the Act to the federal False Claims Act, which does not extend to tax claims.  Rather, tax-related claims are brought...

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Illinois Industrial Insured Self-Procurement Tax Guidance Announced

As we have previously covered in detail, at the end of its 2014 regular legislative session, the Illinois General Assembly enacted a multimillion dollar tax on Illinois companies using captive insurance arrangements.  The law was enacted under the guise of technical corrections to the insurance code. Historically, Illinois businesses meeting basic levels of sophistication and size were entitled to obtain coverage from nonadmitted insurers under an “industrial insured” exception to the general prohibition on transacting unauthorized insurance.  Senate Bill 3324, now Public Act 98-0978 (the Act), tightened the qualifying criteria for the industrial insured exception and imposed new taxes and fees totaling between 3.6 percent and 4.6 percent of premium—equivalent to those imposed on a policy procured by a surplus lines broker.  The potential financial impact has been estimated at upward of $100 million, falling squarely on large- and mid-sized companies...

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Unfinished Business: Illinois General Assembly Fails to Repeal Self-Procured Insurance Tax

Despite a strong effort by a coalition of opponents, efforts to repeal the new Illinois self-procured insurance tax law in the veto session of the Illinois General Assembly were unsuccessful.  As a result, the law will take effect on January 1, 2015. As previously covered on this blog, Illinois allows “industrial insureds” to independently procure insurance.  Prior to the enactment of the self-procured insurance tax law, Illinois had not imposed tax on these transactions.  At the end of the spring legislative session, supposedly technical amendments to the insurance code were passed that imposed a 3.5 percent premium tax on these policies (plus an additional fire marshal tax and surplus line association fee, bringing the total to between 3.6 percent and 4.6 percent depending on the type of insurance).  This tax is imposed on the nationwide premium if the insured’s home state is Illinois.  Effectively, the statute is a tax on Illinois-headquartered businesses...

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Illinois Enacts Legislation Imposing a Self-Procurement Tax While Also Narrowing the Industrial Insured Exception for Transacting Nonadmitted Insurance

Illinois will soon begin taxing self-procured insurance premiums for the first time, as required by Senate Bill 3324, now Public Act 98-0978 (the Act).  The Act, which was signed into law by Governor Quinn on August 15, was quietly ushered through the General Assembly as a supposed technical amendment. The Act is anything but—it substantively amends Illinois law to tax Illinois-based companies who self-procure insurance as though they were surplus lines brokers, imposing a 3.5 percent self-procurement tax, together with additional fees and charges.  In addition, the Act makes it harder for Illinois companies to self-insure by narrowing the definition of an “industrial insured” and increasing the qualification requirements for risk managers.  The new law applies to policies of insurance effective on or after January 1, 2015. As we explained in a prior post, the Act hurts Illinois-headquartered businesses that manage risks using captive insurance arrangements....

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Illinois Legislative Tax Policy Subcommittees Issue Joint Report on Findings

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...

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