The 2016 Cubs’ World Series win finally put to rest the long standing “Wait ’Til Next Year” slogan. However, the slogan may be resurrected in connection with Illinois’s state budget. For nearly two years, the Illinois legislature has failed to pass a comprehensive annual budget. Last year, on June 30, 2016, the ongoing partisan divide resulted in Illinois Governor Bruce Rauner signing a last-minute, stopgap budget to fund critical state operations for the remainder of 2016. With just over a month remaining in the 2017 legislative session, there appears to be little traction on any significant tax reform. That said, a number of bills have sparked widespread attention in the Illinois taxpayer community over the past few months and potentially may foreshadow significant tax reform in the coming years.
Senate Bill 9: The So-Called “Grand Bargain”
Central to the 2017 annual budget discussions is Senate Bill 9 (“SB 9”), which has been featured as the legislature’s “grand bargain.” Formally introduced on January 11, 2017, and amended on March 2, 2017, SB 9–at one point or another–has proposed wide-ranging tax reform, including: increasing the corporate and individual income tax rates, eliminating the non-combination rule for unitary companies filing Illinois corporate income tax returns, eliminating the Illinois franchise tax, and amending the False Claims Act to exclude “any taxes imposed, collected, or administered by the State of Illinois.” While any immediate major tax overhaul through SB 9 seems unlikely at this point, at least one component of the bill that has had some traction is the implementation of a statewide sales tax on the following services: storage space (including parking and lot space for vehicles and aircraft), landscaping, commercial laundry services, pest control, private detective and alarm services, photo processing services, various repair and maintenance services, certain cosmetic services, and cable television and audio and visual streaming services (the “Netflix Tax”).
Fortunately, with respect to the proposed Netflix Tax, the Illinois House recently passed a resolution rejecting any imposition of state sales tax on streaming services. Taxation of the remaining services, however, remains a real proposal at this stage. We will continue to monitor SB 9 in its entirety and will provide an update at the end of the 2017 legislative session.
Senate Bill 1798 / House Bill 3419: Tax Haven Legislation
Proposed “tax haven” legislation has also received widespread attention over the past several weeks. Companion Illinois Senate and House bills (SB 1798 and HB 3419) were proposed with the goal of developing a “blacklist” of 36 countries that the legislature has deemed to be likely locations for businesses to evade tax by sourcing income to subsidiaries located in these specified jurisdictions.
The proposed tax haven legislation was severely criticized by the taxpayer community, at least in part, because appropriate statutory income addback provisions already exist in the current Illinois Income Tax Act, rending any tax haven legislation duplicative and unnecessary. Fortunately, by April 28th, both SB 1798 and HB 3419 had lost momentum and were amended to remove the “tax haven” provisions.
Illinois cannot operate without a comprehensive budget forever. Over the next month, the Illinois legislature will determine what–if any–proposed tax reform will become law. Illinois corporate taxpayers need to keep a close eye on the status of Illinois tax legislation, as this year may be “The Year” Illinois finally gets a comprehensive budget.