Over the 4th of July weekend, the Illinois Senate finally passed a budget for the first time in three years. This budget contains a package of legislation that affects individual taxpayers and businesses alike. While it’s still a little early to determine exactly how this new legislation will impact companies throughout Illinois, one thing is certain—the way businesses handle taxes and other financial matters will be affected both this year and in years to come in various ways.
On the downside, many businesses may now face higher tax liabilities as certain exemptions in Illinois tax law have been closed. These exemptions allowed companies to minimize their tax liability using various tactics, such as by producing their products domestically or by operating financial institutions outside of the state. These changes will ultimately cost Illinois companies millions in extra taxes.
One example of these changes is the suspension of the non-combination rule. This rule, which affected transportation companies, insurance companies, and financial organizations, allowed them a certain amount of freedom in terms of tax reporting. Normally, businesses need to report their income on a single combined tax return, but these institutions were exempted from that rule. This is no longer the case, which means that if they establish organizations outside the state and transfer the profits, they will still be liable for that revenue in their taxes.
These changes mean companies will need to review their activities and consider how those will affect their tax obligations. Likely, this will necessitate modifications to policies, activities, and operations in order to keep that liability down.
Research and Development
On the upside, the new bill extended the research and development tax credit through the next five years. This will allow businesses to continue to save thousands on their taxes every year for research and development costs. Determining which activities qualify as research and development under this law is still a matter of careful assessment of the company's operations, so it’s important to tread lightly here (as it is with any matter of minimizing tax liability).
Workers’ Compensation Cuts
There are other changes that were proposed in the bill that are either still being negotiated or simply did not pass. One of these is workers’ compensation reform. The reform would have created a state-run workers’ comp insurance entity with regulated pricing in an effort to keep the costs of premiums down for companies. This wasn’t passed, and as such, businesses will likely continue to pay the same rates for workers’ comp insurance as always.
Overall, the budget does provide some stability to the state, which is a good point for businesses in Illinois in general, even if some of the provisions in the bill itself have some negative impacts on their tax liability and asset protection practices.
Regardless of your industry, company size, or structure, you will likely face some impact from the legislation in the new budget. It’s important to plan ahead, and that will require some legal expertise. Consulting with an experienced corporate attorney, such as us at Hart David Carlson, LLP, will be vital to successfully navigate the coming years.