The Tax State of The State: Illinois Tax Implications of the Illinois Budget Shortfall- Issues That

Clients/Taxpayers are Concerned With

Chicago Bar Association State and Local Tax Seminar

April 19, 2010David J. Kupiec, Esq, CPAwww.kupiecandmartin.com

Issues That Clients/Taxpayers are Concerned With

• Certainty – When?• Clarity – Statutory Language.• Administration – What Do I Have To Do?• Cost – What Is The Financial Impact?• Future Impact – Does It Change Business?

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Certainty - When

• New Illinois Law – Beginning Of Calendar Year– When Governor Signs

• Change To Existing Illinois Law– Prospective– Retroactive– Expiration/Sunset

• Federal Law Change– Illinois Follows/Decouples

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Certainty - Examples • New Illinois Law

– Previously Proposed Gross Receipts Tax – Existing Contractual Provisions?

• Change To Existing Illinois Law– Increase In Income Tax Rates: Deferred Taxes– Market Based Apportionment Sourcing: Aug 2007– Repeal Of Existing Provisions: Credits, Net Loss

Deductions, …

• Federal Law Change– Bonus Depreciation: Illinois Decoupling

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Clarity – Statutory Language• Strict Statutory Language

– Existing Illinois Law– Clarifying Amendatory Language

• Legislative Intent– Floor Debates– Committee Meetings and Hearings

• Judicial Interpretation• Regulatory Provisions

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Clarity – Recent Illinois Supreme Court Opinions

• Exelon Corporation (July 15, 2009)– Personal Property Tax Replacement Tax Investment Tax Credit – What

is “electricity”

• Kean v. WAL-MART (November 19, 2009)– Sales Tax On Delivery Charges For Online Purchase

• Provena Covenant Medical (March 18, 2010)– Property Tax Not For Profit Exemption For Religious Hospital

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Administration – What To Do

• Financial Statement Disclosures?• Accounting Changes? • Customer/Client Notifications?• Additional Administrative Requirements:

– System Updates?– Record Keeping?– Additional Resources?

• Additional Tax Filings/Payments?

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Cost – Financial Impact

• Is There A Financial Impact?• Is It A Material Impact?• Is It An Ongoing Cost/Benefit?• Who Incurs The Financial Impact?• Is This A Timing Issue?

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Future Impact – Business Changed?

• Reduction In My Illinois Business As A Result Of Statutory Change (Impact On Specific Industry).

• Change In Illinois Market (Impact On All Illinois Businesses).

• Resulting New Jobs/Downsizing.• Impact On Growth/Expansion Into Illinois.• Options?

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Future Impact – Positive Options

• Green Incentives– Wind, Solar, Energy Efficient,…

• Net Operating Loss Deductions– Expand Carryforward Periods– Add Carryback Periods

• Monetize Tax Credits– Film Industry – Sell Credit To Third Parties– Auto Industry - Edge Credits For Withholding Taxes

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2010 Proposed Tax Joint Resolution Illinois Constitutional

Amendments• House Joint Resolution Constitutional Amendment

0027 – Income Tax Rates Non-Graduated By Category.

• Senate Joint Resolution Constitutional Amendment 0038 – Removes A Provision That Provides That A Tax On Income Shall Be Measured At A Non-Graduated Rate.

• Senate Joint Resolution Constitutional Amendment 0092 – Authorizes A Tax On Or Measured By Income At A Graduated Rate.

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2009 Proposed Senate Bill 2252 – Not Passed

• 2 Year Temporary Income Tax Rate Increase (2010 and 2011)

• Individual Income Tax Rate Would Increase From 3% to 4.5% and Earned Income Tax Credit Would Increase from 5% to 10% of the Federal Tax Credit.

• Corporate Income Tax Rate Would Increase From 4.8% to 7.2% (Personal Property Tax Replacement Tax Combined Rate of 9.7%)

• Status – Illinois House Voted Against (May 31, 2009).

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2009 Proposed House Bill 0174 (“750”) – Not Passed

• Individual Income Tax Rate Would Increase From 3% to 5% on July 1, 2009.

• Corporate Income Tax Rate Would Increase From 4.8% to 5% (Personal Property Tax Replacement Tax Combined Rate of 7.5%).

• Increase Property Tax Credit on Income Taxes From 5% to 10% and Earned Income Tax Credit From 5% to 15% of the Federal tax credit.

• Expand Sales Tax Based - 39 Additional Services.• Status – Illinois Senate Passed 31-27 (May 30, 2009).

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2009 - House Bill 0174(“750”) Sales Tax Base Increase To 39 Services

• Other warehousing and storage• Travel agent services• Carpet and upholstery cleaning services• Dating services• Dry cleaning and laundry (except coin operated)• Consumer goods rental• Health clubs, tanning parlors, reducing salons• Linen supply• Interior design services• Other business services, including copy shops• Bowling Centers• Coin operated video games and pinball machines• Membership fees in private clubs• Admission to spectator sports (excluding horse tracks)• Admission to cultural events• Billiard Parlors• Scenic and sightseeing transportation• Taxi and Limousine services• Unscheduled chartered passenger air transportation• Motion pictures theaters, except drive-in theaters

• Pet grooming• Landscaping services (including lawn care)• Income from intrastate transportation of persons• Mini-storage• Household goods storage• Cold storage• Marina Service (docking, storage, cleaning, repair)• Marina towing service (including tugboats)• Gift and package wrapping service• Laundry and dry cleaning services, coin operated• Other services to buildings and dwellings• Water softening and conditioning• Internet Service Providers• Short term auto rental• Information Service• Amusement park admission and rides• Circuses and fairs – admission and games• Cable and other program distribution• Rental of video tapes for home viewing

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• SB 1912 (PA 096-0045) – Amendment to Partnership Replacement Tax Computation. (Repealed)

• SB 0081 (PA 096-0120) – Tuition Savings Refund Addition Modification.

• HB 0255 (PA 096-0034) - Revenue Component of Capital Package. In part, revenue proceeds from: video poker machines; weekly lottery games & management; sales tax from candy, coffee, tea beverages and beauty products at 6.25% rate; beer, wine and spirits tax increases and driver’s license fee increase. (Effective 7/1/09)

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2009 TAX BILLS ENACTED

• SB 1691 (PA 096-0116) – Tax Credit/Exemption Extensions: Graphic Arts Machinery and Equipment, Manufacturer’s Purchase & Investment Tax.

• SB 0256 (PA 096-0115) – Excludes Electricity from Investment Tax Credit.

• SB 1923 (PA 096-0028) – Wind Energy High Impact Business Designation.

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2009 TAX BILLS ENACTED

• SB 1739 (PA 96-0763) – Broadcasting Sourcing & Charities Property Tax Exemption Continuation.

• SB 1975 (PA 96-0641) - Amends Captive REIT Definition.

• SB 0089 (PA 96-0609) – Property Tax Settlement Agreements.

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2009 TAX BILLS ENACTED

• SB 0450 (PA 96-0759) – Exempts Certain Airplane Repairs and Maintenance from Sales and Use Tax.

• HB 3854 (PA 96-0754) - Establishes Carbon Capture and Sequestration Commission.

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2009 TAX BILLS ENACTED

SB 1912 (Public Act 096-0045)

• Public Act 096-0045 enacted on July 15, 2009.• Amends Illinois Income Tax Act Section 203(d)(2)(C) – no

longer requires add back of guaranteed payments to individual partners.

• Amends Illinois Income Tax Act Section 203(d)(2)(H) – no longer allows partnerships to subtract the greater of: income that constitutes personal service income as defined in Internal Revenue Code 1348(b)(1) or a reasonable compensation paid or accrued for services rendered by the partners to the partnership.

• Effective for tax years ending on or after December 31, 2009.

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SB 0081 (Public Act 096-0120)• Public Act 096-0120 enacted on August 4, 2009.• Amends Section 203(a)(2)(D-22) of the Illinois Income Tax Act. • Requires an addition modification to base income of an

amount equal to the contribution component of any nonqualified withdrawal or refund from a tuition savings program that was previously deducted from base income and that did not result from the death or disability of the beneficiary.

• Effective for taxable years ending on of after January 1, 2009.

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HB 0255 (Public Act 096-0034)

• Public Act 096-0034 enacted on July 13, 2009.• Amends the Use Tax and Occupation Tax Acts to: (1) provide

clarity that candy, certain beverages, and grooming and hygiene products are taxed at the 6.25% rate instead of the 1% rate; and (2) require the deposit of the increased revenue into the Capital Projects Fund.

• Amends the Motor Fuel Tax Law to make changes concerning the Grade Crossing Protection Fund.

• Amends the Liquor Control Act of 1934 to increase the tax on wine, beer and alcohol and spirits.

• Other non tax items contained in the Act not listed above.

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SB 1691 (Public Act 096-0116)

• Public Act 096-0116 enacted on July 31, 2009.• Amends Retailers’ Occupation Tax - extends the graphics arts

machinery and equipment exemption which expired on July 30, 2009 to August 30, 2014.

• Amends Retails’ Occupation Tax – manufacturers’ purchase credit which expired on July 30, 2009 to August 30, 2014.

• Amends Illinois Income Tax Act Section 201(e) – extends the Illinois personal property tax replacement income tax investment tax credit which expired on December 31, 2008 to December 31, 2013.

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SB 0256 (Public Act 096-0115)• Public Act 096-0115 enacted on July 31, 2009.• Amends Illinois Income Tax Act Section 201(e) – for tax years

ending after December 31, 2008 and for purposes of the investment credit, the term “tangible personal property” does not include the generation, transmission or distribution of electricity, and has the same meaning as when used in the Retailers’ Occupation Tax Act.

• Amends Illinois Income Tax Act Section 201(e) – for tax years ending after December 31, 2008 and for purposes of the investment credit, the term “retailing” means the sale of tangible personal property for use or consumption and not for resale, or services rendered in conjunction with the sale of tangible personal property for use or consumption and not for resale.

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SB 1923 (Public Act 096-0028)• Public Act 096-0028 enacted on June 30, 2009.• Amends Illinois Enterprise Zone Act and Illinois Prevailing

Wage Act.• Provides that businesses that intend to establish a new wind

power facility in Illinois may be considered a “high impact business” and qualify for certain tax exemptions.

• Effective July 1, 2009.

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• Current Session – Scheduled To End Early May• Fall Veto Session – After Elections• 2011

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IL General Assembly - Next Steps

Questions?For Additional Information Concerning This

Presentation You May Contact:

David Kupiec Natalie Martin(312) 632-1022 (312) 632-1023dkupiec@kupiecandmartin.com nmartin@kupiecandmartin.com

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CIRCULAR 230 DISCLOSURE• CIRCULAR 230 DISCLOSURE - To comply with Treasury Department

regulations, we inform you that, unless otherwise expressly indicated, any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (2) promoting, marketing or recommending to another party any transaction, arrangement or other matter.

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