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Illinois Budget Bills

On May 27, the Illinois General Assembly passed several bills comprising the fiscal year 2011 budget. Major tax provisions include the following:

Tax Amnesty
The bill would establish a tax amnesty program that would run from October 1 – November 8, 2010. Some major terms of the program:

• All taxes administered by the Illinois Department of Revenue other than motor fuel use taxes would be covered.
• Periods covered begin July 1, 2002, and end June 30, 2009.
• If all tax is paid during the amnesty period, all penalties and interest would be abated.
• Taxes not satisfied during the amnesty period would be subject to 200% penalties and interest.
• Taxpayer cannot be party to any criminal investigation or any civil or criminal litigation pending in court for any Illinois tax nonpayment, delinquency, or fraud.
• Unlike the previous amnesty, refund claims for unrelated issues would not be precluded.
• Unlike the previous amnesty, if a federal audit has not been completed, the doubling of penalties and interest would not occur.

This bill was sent to the Governor for signature on June 25, 2010.

Angel Investment Credit
Beginning after December 31, 2010, and ending on or before December 31, 2016, the Angel Investment Credit is equal to 25% of the amount invested directly in a “qualified new business venture.” The maximum investment that may be used as a basis for the credit is $2 million per investment and includes a five-year carryforward. The program is capped at $10 million in tax credits per calendar year. Credits cannot be sold or transferred. Credits flow-thru to partners and shareholders in flow-thru entities.

The Department of Commerce and Economic Opportunity will implement a program to certify applicants on an annual basis, and upon acceptance, issue a tax-credit certificate stating the amount of the credit. If the investment is held by the claimant for less than three years or the entity no longer qualifies, there is a recapture provision.

To qualify as a “new business venture,” the enterprise must satisfy all of the following conditions:

• Be headquartered in Illinois
• Have at least 51% of its employees employed in Illinois
• Have potential for increasing jobs, increasing capital invested in Illinois, or both, and be either of the following:
  • principally engaged in
    • manufacturing
    • biotechnology
    • nanotechnology
    • communications
    • agricultural sciences
    • clean energy creation or storage technology,
    • processing or assembling of (1) products including medical devices, pharmaceuticals, computer software, computer hardware, semiconductors, or other innovative technology products, or (2) products that are produced using manufacturing methods that are enabled by applying proprietary technology, providing services that are enabled by applying proprietary technology
  • undertaking pre-commercialization activity related to proprietary technology including conducting research, developing a new product or business process, or developing a service that is principally reliant on applying proprietary technology
• Have fewer than 100 employees
• Have been in operation in Illinois for less than 10 consecutive years
• Have not received more than (1) $10 million in aggregate private equity investment in cash or (2) $4 million in investments that qualified for the angel investment tax credit

Governor Quinn signed this bill with an effective date of June 24, 2010.

Back-to-School Sales Tax Holiday
The bill would establish a state sales tax holiday for school clothing and supplies purchased between August 6 and 15. If the bill is enacted, the applicable sales tax rate would be reduced by 5%, the state portion of the sales tax. Local taxes would still apply.

Items qualifying include:

• Clothing items that sell for less than $100 but not clothing accessories, protective equipment, sports equipment, or recreational equipment
• School supplies including binders, book bags, lunch boxes, calculators, pens, and pencils but not art supplies, instructional materials, cameras, tapes, film, memory cards, PDAs, videotapes, computers, cell phones, or computer supplies

The law contains a detailed definition of most qualifying and non-qualifying items along with a detailed explanation of how to treat bundled transactions, coupons, discounts, rain checks, exchanges, and similar items.

This bill was sent to Governor Quinn on June 17, 2010.

Summary
Since some of the bills have been sent to Governor Quinn for signature or rejection, what happens from here is anybody’s guess. The governor has 60 days from when he received the bills to either sign them or return them to the Senate, or otherwise the bills automatically become law.

State and local taxes are an increasing burden on Illinois taxpayers. If you would like a comprehensive review of your state tax situation, please contact Deb Rood at drood@BlackmanKallick.com or 312-980-2995 or your Blackman Kallick representative.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.