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The 2011 Illinois Tax Hike and Other Changes — Just the Facts

Early in the morning of Wednesday, January 12, 2011, amendment #3 of Senate Bill #2505 was sent to Governor Quinn for signature. The bill, which the governor is anticipated to sign, is estimated to generate $6.8 billion of additional revenue. Major provisions of the bill include:

• Individual, trust, and estate tax rates as follows:
  • For years before 2011, 3%
  • For 2011–2014 tax years, 5%
  • For 2015–2024 tax years, 3.75%
  • For years 2025 and thereafter, 3.25%

• For owners of flow-through entities such as S corporations, partnerships, and trusts, the 1.5% Illinois replacement tax continues to apply

• Combined total corporate income tax rate (including the 2.5% Illinois replacement tax) for C corporations as follows:
  • For years ending before 2011, 7.3%
  • For 2011–2014 tax years, 9.5%
  • For 2015–2024 tax years, 7.75%
  • For years 2025 and thereafter, the rate will revert back to 7.3%
  With a 9.5% corporate income tax rate, Illinois has one of the highest state tax rates in the country.

• Estimated tax payments due after January 31, 2011 and before February 1, 2012 must be the lesser of 90% of the 2011 tax or 150% of the tax on a 12-month 2010 return showing a tax liability.
• C corporation net operating losses are suspended for tax years ending after December 31, 2010 and prior to December 31, 2014. The net operating loss carryforward would be increased and there are special rules for taxpayers with fiscal year-ends.
• For individuals dying after December 31, 2010, Illinois has reinstated its estate tax for estates greater than $2 million. Illinois continues not to have a gift tax.
• The legislation provides for no spending cuts. Failure to comply with prescribed spending limits will cause reinstatement of the pre-2011 income tax rates. According to the legislation, the spending limits are:
  • $36.818 billion for 2012
  • $37.554 billion for 2013
  • $38.305 billion for 2014
  • $39.072 billion for 2015
  The spending increases are approximately 1.7% and include pension plan contributions. Historically, spending increases have been in the 5%–7% range.

"Amazon" Nexus Bill

In addition, House Bill 3659 was sent to the governor on January 10, 2011 for signature. This bill is Illinois's first legislative attempt to require out-of-state online businesses to collect and remit Illinois sales tax. The "Amazon" legislation targets out-of-state internet retailers that utilize Illinois's residents to generate business for the online business.

Is There Anything Else?

• The current 5% property tax credit for individual income tax was retained. Prior versions of the legislation included a cash rebate that was not included in the final bill.
• The bill that included a $1-per-pack increase in the Cigarette Tax was not passed by the Senate.
• 100% Bonus Depreciation: the Illinois Department of Revenue's (IDOR) initial interpretation of Illinois law required the add-back of all bonus depreciation, and amounts subject to 100% bonus depreciation could not be deducted until the asset was disposed. IDOR has retracted that interpretation but considers this an unintended benefit. Don't be surprised if the 97th General Assembly enacts a law minimizing the Illinois deduction for items where 100% bonus depreciation is taken for federal income tax purposes.
• The Illinois research-and-development credit expired effective December 31, 2010. This is a popular incentive that may be reinstated by the 97th General Assembly.

Isn't It Too Late to Do Anything?

First, you may want to accelerate income into 2010 or defer deductions. Ideas to do this include electing out of the installment sale method or electing not to take bonus depreciation or Section 179 expenses.

For many taxpayers, now is the time to reexamine how Illinois taxes your income. Blackman Kallick's State and Local Tax professionals have several proven strategies for minimizing Illinois taxable income while complying with the law.

To review exactly how the provisions will affect your 2011 tax filings and discuss strategies to minimize Illinois tax, please contact Jason Parish at jparish@BlackmanKallick.com or 312-980-2959, or your Blackman Kallick representative. Our thanks to Deb Rood for her contribution to this article.

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.