Latest Post | Last 10 Posts | Archives
Previous Post: Criminal justice reform bill set to move forward
Next Post: Musical interlude
Posted in:
* I told subscribers about some of this earlier today…
Due to the budget crisis caused by the ongoing COVID-19 pandemic, Governor JB Pritzker is freezing the implementation of a new set of state business tax credits and calling for a decoupling of Illinois tax law from recently enacted federal business tax changes that would cost Illinois in excess of $500 million.
The expanded state tax credits were authorized in 2019 as part of a series of tax changes contained in PA 101-9 and were scheduled to take effect January 1, 2021. The new, expanded credits are estimated to cost the state an additional $20 million annually.
The proposed decoupling would keep the Illinois income tax framework the same as it was before Congress amended the federal income tax law in March 2020 as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act. The amendments substantially changed federal tax treatment of net operating losses and excess business losses, automatically causing the same change in Illinois tax treatment. Without decoupling, these federal tax changes could reduce Illinois income tax revenue by more than $500 million.
“My administration recognizes the many challenges facing businesses during this unique time, which is why we are going above and beyond the federal support program by providing hundreds of millions of dollars in support to our small businesses, our best job creators who have been impacted severely by COVID-19,” said Governor JB Pritzker. “Unfortunately, COVID also hit our state budget, requiring tough choices about what we can and cannot afford. Right now, we cannot afford to expand tax breaks to businesses that already receive tax breaks. As we recover from the pandemic, we must focus on job creation and balancing our state budget. I am confident in our ability to grow our economy and put our state on firmer fiscal footing.”
The state business incentives in PA 101-9 allow companies that already receive tax credits for relocating or expanding in Illinois through the State’s Enterprise Zone, River’s Edge Redevelopment Zone, Economic Development for a Growing Economy (EDGE), or High Impact Business tax credit programs, to qualify for even more credits based on wages paid to workers for construction associated with that relocation or expansion. Companies would be eligible for up to $20 million in credits across these four programs. These new credits will not be implemented while the state is working to overcome its current fiscal challenges.
The CARES Act repealed the federal tax law provision that limited net operating losses to 80% of taxable income and added another provision allowing a 5-year carryback of losses incurred after December 31, 2017 and before January 1, 2021. As a result, instead of the previous practice of limiting immediate deductibility and permitting deduction of such business losses gradually over a period of years using loss carryforwards, taxpayers are permitted to deduct such business losses immediately in tax year 2020. The decoupling will affect the tax treatment of such losses for owners of pass-through entities such as partnerships and limited liability companies.
The CARES Act also deferred until 2021 the federal tax law provision limiting the immediate deductibility of excess business losses for noncorporate taxpayers. Decoupling will reinstitute the previous limits.
The Governor said the two actions were necessary given Illinois’ current fiscal challenges and are part of the Pritzker Administration’s ongoing budget review. In December, the Governor announced $700 million in spending reductions for fiscal year 2021 that included a hiring freeze, grant reductions and operational savings. Today’s announcement will get the state another step closer to balancing the budget.
“The recently announced budget cuts along with these new roll backs of corporate tax breaks are just the first steps in this budget process. More will be necessary. We will need to scrutinize and potentially roll back other corporate tax breaks – including those that have been on the books for many years. We hope to hear from members of the General Assembly on both sides of the aisle about their best ideas for progress in this regard.”
*** UPDATE *** Center Square…
National Federation of Independent Business Illinois State Director Mark Grant said from what he’s hearing the change the governor characterized as “technical” would have consequences for some small businesses in Illinois hit the hardest by the pandemic and the government’s restrictions to slow the spread of the disease.
“It just takes away an avenue for our small businesses, sole proprietors, to be able to recover from this incredible economic damage that’s been done to them over the last year,” Grant said. “It takes away avenue the federal government thought was a good idea, and would help our small businesses recover, and this would take away that ability to help with that.”
posted by Rich Miller
Friday, Jan 8, 21 @ 2:14 pm
Sorry, comments are closed at this time.
Previous Post: Criminal justice reform bill set to move forward
Next Post: Musical interlude
WordPress Mobile Edition available at alexking.org.
powered by WordPress.
Here’s the site where you can find a lot of information on businesses going back to 2004 that have gotten these types of tax credits/incentives:
https://www.ilcorpacct.com/corpacct/
“As of January 1, 2004, the Department of Commerce and Economic Opportunity was required to comply with Public Act 93-552, the Corporate Accountability for Tax Expenditures Act, which was signed into law on August 20, 2003. PA 93-552 requires any recipient that receives economic development assistance from a state granting body, as defined by the Act, to report annually on the progress of the employment commitments for the project.”
Comment by Anon221 Friday, Jan 8, 21 @ 2:25 pm
If halting the credits saves the state “$20 million annually,” does the decoupling separately save “in excess of $500 million” annually?
Did I miss news stories about federal tax law changes that were scheduled to cost Illinois more than $500 million a year?
Or is this one of those tricky “over the next 10 years” exercises?
Comment by Perplexed Friday, Jan 8, 21 @ 2:49 pm
===“over the next 10 years” ===
Federal changes are for 2020 tax year.
Comment by Rich Miller Friday, Jan 8, 21 @ 2:52 pm
On the individuals side has the State taken a side on the lawsuit with the US Supreme Court in regards to work-from-home and individual income taxes? Is there an estimate of how much this could cost the state as New Jersey, Connecticut, Iowa, etc. are likely to be successful.
https://www.cnbc.com/2020/12/23/new-jersey-latest-state-to-join-supreme-court-battle-remote-worker-tax.html#:~:text=New%20Jersey%2C%20along%20with%20Connecticut,between%20New%20Hampshire%20and%20Massachusetts.
Comment by 1st Ward Friday, Jan 8, 21 @ 3:07 pm
If Republican’s don’t like the Governor’s cuts, they can offer some of their own. Put up or shut up.
Comment by PublicServant Friday, Jan 8, 21 @ 3:31 pm
NFIB is right, this is a potential disaster for every small business if they aren’t exempted from the Federal net loss carryover & other provisions. This is awful.
The paused tax credits are usually to technical for many small businesses to pursue but NOL changes are a big deal to most of them.
Comment by ChicagoBars Friday, Jan 8, 21 @ 4:11 pm
Did anyone catch the last part of Q&A at the Governor’s press conference this past Wednesday?
The part where Jordan relayed to him Jim Leach’s question on whether AFSCME has reached out to him on trying to offer their budget cut ideas (or something like that). He sounded like he very quickly said something like “No they haven’t.” Anyone know more about this?
Comment by Essential State Employee Friday, Jan 8, 21 @ 4:25 pm
The NOL changes and decoupling from excess business losses are going to hit small businesses. This won’t affect corporations because they have been decoupled for many years. So it isn’t going to have any effect on big businesses that generally are organizations as corporations.
This seems like a terrible policy decision.
Think about a restaurant or a bar operated as a sol proprietorship. The CARES Act allowed them to file amended returns for prior profitable years to carry back losses and receive refunds of taxes paid in those prior years. That treatment also flows through to the state income tax return. What this proposal would do is decouple for state income tax purposes, so the small businesses would lose that extra cash they would receive in the form of a state income tax refund that could help them stay afloat.
Comment by Facts Matter Friday, Jan 8, 21 @ 4:38 pm
sorry about the typos above
Comment by Facts Matter Friday, Jan 8, 21 @ 4:39 pm
Brutal. A small business could really be counting on the net loss carryover right now.
Comment by California Guy Friday, Jan 8, 21 @ 5:55 pm
I’m pretty sure the truth is in the middle here. I’m sure these cuts will hurt small business. I’m also sure that NFIB strongly opposed the fair tax. You reap what you sow. My property taxes will be going up undoubtedly and services will decrease. NFIB and the Manufacturers Association always want to cut pensions (affecting my family). My appreciation for their pain equals their appreciation for mine. I voted for the fair tax so I could pay less tax and get better services. I would have been perfectly happy if these services extended to these tax credits. Alas the tax didn’t pass. Not sure what businesses thought would happen
Comment by Stormsw7706 Friday, Jan 8, 21 @ 6:40 pm
Have they shut down the obsolete emission tests for cars? Have they reclassified the monster truck-cranes and make them get license plates?
Have they closed all the other loopholes?
https://ilsr.org/four-corporate-tax-loopholes-states-should-close/
Comment by DuPage Friday, Jan 8, 21 @ 9:18 pm