March 28, 2023

Patrick Lawler - RSM US, LLP - [email protected]

Jacob Seitz - Andersen - [email protected]

 

December 9, 2022

Mimoza Baholli - RSM US, LLP

Steven Oster - CSC Corptax, LLC

Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.

February 10, 2020

Steve Oster
CSC Corptax LLC
[email protected]

You have great news - several clients expanded into Ohio. The C corp likes there's no state corporate income tax and your pass-through clients love that Ohio individual rates are lower than Illinois. Now to deliver the bad news - all must pay income tax to every city they have nexus in. Worse, these are your first clients in Ohio and now you have to learn to navigate this new situation. You've heard every city has different forms, rules, rates, and sometimes the returns get mailed to a different city entirely. You've heard even PTE's are taxed. However things are not quite as bad as may seem. Take a deep breath, and let's start.

About the MNP tax

Ohio Revised Code 718 lets municipalities impose an income tax, also known as a Municipal Net Profits ("MNP") tax. So can Joint Economic Development Zones and Districts (JEDZ's and JEDD's). However as of 2016 all must follow the same methodology for computing taxable income and apportionment, and all must accept a generic form if it reports the necessary information. For simplicity we'll refer to all taxing bodies as cities or municipalities.

Features of Ohio MNP returns

Ohio municipal returns are like simplified state returns but there are some differences. Some are explained further in the next sections.

• Three factor apportionment, city by city
• PTE's generally pay an entity level tax
• Generic forms accepted in place of official forms without prior approval
• Many cities contract with an agency or another city for tax collection and administration.

Each Ohio city requires estimates when the estimated annual liability exceeds $200. For the tax return no tax is due if the amount is $10 or less, and no refund needs to be paid if the amount is $10 or less.

Filing Obligations

First determine which cities have nexus. ORC 718.02 specifies 3 factor apportionment and defines situs for sales or rentals of property, sales of services, and royalties.

Next determine if you file directly with the city or with an agency. Many cities, especially smaller ones, contract their tax function to the Regional Income Tax Authority ("RITA") or the Central Collection Agency ("CCA"). These agencies use a single form that aggregates the reporting and payments for their member cities. Almost half the cities in Ohio contract with RITA or CCA which often helps simplify filing.

Whether your cities are part of RITA or CCA, or do their own tax administration, computing apportionable income is exactly the same for each city. You will need the within apportionment amounts for each city though.

Computing taxable income

The formula is below. Additions and subtractions are from ORC 718.01(E)

Starting Income	1120 line 28 1065 Sch K Analysis of Net Income 1120-S Sch K line 18
Plus additions (some are only relevant for PTE's)	Section 1221 and 1231 losses Taxes based on income allowed as a Federal deduction 5% of intangible income reported as a subtraction REIT and RIC dividends allowed as a Federal deduction Guaranteed payments Excess charitable contributions Excess 179 expense Certain benefit expenses of a PTE Loss from a partnership interest Other additions, with explanation
Less subtractions	Section 1221 and 1231 income Certain intangible income Income from a partnership interest Other subtractions, with explanation

= Adjusted Federal Taxable Income

Adjusted FTI is apportioned per ORC 718.02. An equally weighted three-factor formula is prescribed. Like with states, taxpayers may request an alternative method; and a municipal tax administrator may require an alternative method if the standard formula does not "fairly represent the extent of a taxpayer's business activity in a municipal corporation" - ORC 718.02(B)(1).

FILING

There are three options for filing municipal returns. Paper and e-file have some features you should know, and there is a third option called the gateway.

PAPER - unless you're a gateway filer (below) you can complete a form for each city and mail it in. While each city can have a unique form, the computation is the same. There are over 700 MNP taxing jurisdictions in Ohio, but about half those are administered through RITA or CCA, and their forms cover all their cities. Therefore you may only find yourself dealing with a few form submissions. Cities that handle their own collection will have their own forms and mailing addresses which are easily found online. Starting income, additions, subtractions, and e/w apportionment are the same for each city.

To ease the compliance burden all jurisdictions must accept generic forms. Some practitioners and small business operators create a report that conforms to the basic layout of all city returns. If your compliance software includes Ohio cities you may find them providing a generic form. No cause for concern because they must be accepted.

E-FILE DIRECT TO CITIES AND AGENCIES - RITA, CCA, and some cities also allow e-filing if your compliance software supports it.

GATEWAY ELECTRONIC FILING - your client may have registered for this. The Ohio Department of Taxation operates the gateway. It lets taxpayers make a single filing (and payment) for all their Ohio cities. Filings can be on an Excel spreadsheet provided by the gateway (uploadable via their website) or e-filed if your software supports it. The state distributes the appropriate amounts due to each city. To file an income tax return through the gateway you must register no later than 10 months before your year end. For a calendar year filer that will be March 10. Once successfully registered all your estimates for the year will also be filed and paid through the gateway instead of directly with the cities.

Conclusion

Ohio municipal income tax compliance may seem daunting at first but is basically like a simplified state return. You may need additional recordkeeping detail to have correct apportionment within amounts. Determine early where you'll have filing obligations in case estimates are necessary; and if you want gateway filing you'll have to register within the first two months of your full tax year.

Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.

July 19, 2019

By:  Joe Bigane | [email protected]

Effective July 1st, manufacturers in Illinois no longer have to pay sales tax on most of the supplies and consumables used in a manufacturing facility.  The Department of Revenue published informational Bulletin FY 2019-28 which covers the general rules prior to their updating the appropriate regulation.

The law recites the following as production related tangible personal property that is used for consumed in a manufacturing process:  property that is purchased for incorporation into real property within a manufacturing facility, supplies and consumables used in a manufacturing facility including fuels, coolants, solvents, oils, lubricants, and adhesives, hand tools, protective apparel, and fir and safety equipment. 

This addition to the law is in the same statute granting sales tax exemption for machinery and equipment used in manufacturing.  While it appears to read that these new items would also be exempt if used in the production of graphic arts, clarification will have to be provided y the Department of Revenue. 

IDOR form ST-587 is the exemption certificate that the manufacturer should provide to its vendor in order to document the exemption.  Since this form is not yet set up to permit a "blanket" exemption for all future purchases, the manufacturer is required to provide the form for each purchase order.

If goods were delivered after June 30th, you should contact your vendor, provide a ST-587 and ask for a refund of sales tax paid (or short pay open invoices).

 Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.

June 7, 2019

By:  David Hughes | [email protected]

As you may be aware, the Illinois legislature recently completed its 2019 legislative session. This session was particularly productive from a tax legislation perspective and we would like to update you on the key state and local tax changes that may affect you or your business.
Please do not hesitate to reach out to any member of the HMB SALT team if you have questions regarding any of these updates.

Retailers Occupation Tax and Use Tax Changes
1. New Rules for Marketplace Sellers and Facilitators
SB 689 adds new rules for marketplace sellers and facilitators that take effect on January 1, 2020. The new rules provide that a “marketplace facilitator” with gross receipts of $100,000 or more from Illinois sales or 200 or more separate transactions for the sale of tangible personal property in Illinois will be the deemed retailer for sales made through the facilitator’s marketplace. The facilitator will be responsible for collecting and remitting all applicable taxes. When these rules initially take effect in January 2020, “all applicable taxes” will mean Illinois use tax plus any taxes specific to the item sold. Beginning July 1, 2020, marketplace facilitators will be required to remit state and local ROT on behalf of their sellers. 
Marketplace facilitator is defined broadly to include any person who facilitates sales of tangible personal property through a physical or electronic marketplace. A marketplace facilitator must keep records for sales through its marketplaces and certify to its sellers that it has assumed the responsibilities of a retailer with respect to sales made through its marketplace.
Note that sales made by a marketplace seller through a marketplace are not counted when determining whether the seller has economic nexus with Illinois.

2. New “Leveling the Playing Field for Illinois Retail Act”
SB 690 introduces the Leveling the Playing Field for Illinois Retail Act. This Act has three effects. First, the Department of Revenue is required to establish taxability databases. Second, certified service providers are authorized to perform use and occupation tax functions on behalf of remote retailers. Third, remote retailers are permitted to use certified automated systems to collect and remit state and local use and occupation taxes.
The Act provides that the Department has until July 1, 2020 to provide taxability databases. These databases must (1) be downloadable; (2) contain defined product categories that identify the taxability of each category; (3) contain all applicable ROT rates for all jurisdictions in the state; and (4) assign delivery addresses in Illinois to the applicable taxing jurisdictions. The accuracy of ROT rates and delivery addresses are subject to annual verification by the local taxing jurisdictions.
The Department has until December 31, 2019 to establish standards for certifying service providers and automated systems. Certified service providers will act pursuant to a contract between the State and the provider. The Department will provide uniform minimum standards for companies and automated systems that wish to become certified no later than July 1, 2020.
Certified service providers and operators of certified automated systems will receive 1.75 percent of the tax dollars collected and remitted to the state. Remote retailers using a certified service provider may not claim the vendor’s discount against occupation taxes.
Effective January 1, 2020, remote retailers that use certified service providers or certified automated systems are relieved of liability for charging and collecting incorrect amounts of tax only to the extent that the provider or system relied on erroneous data provided by the State. 
Certified service providers and remote retailers using certified automated systems are also protected from class action suits arising from overpayment of ROT if the collector relied on information provided by the Department. However, customers are still entitled to seek refunds from remote retailers. 

3. New Sales Tax Sourcing Rules for Remote Retailers
Beginning July 1, 2020, remote retailers that meet economic nexus thresholds ($100,000 in annual Illinois gross receipts or 200 separate sales) will be liable for all applicable state and local Retailer Occupation Tax (ROT) on all retail sales to Illinois purchasers. Previously remote retailers that did not maintain a place of business in Illinois were required to collect the state use tax at a rate of 6.25% on retail sales in Illinois.
Significantly, Illinois is changing from an origin-sourcing to a destination-sourcing rule for remote retailers that exceed the economic nexus threshold. Beginning July 1, 2020, retail sales made by these retailers will be deemed to be made at the Illinois location to which the tangible personal property sold is shipped, delivered, or at which the purchaser takes possession. As a result, remote sellers will not be required to pay state and local ROT taxes on delivery location in Illinois rather than merely the state use tax of 6.25%.

4. Revived and Expanded Manufacturing Machinery & Equipment Sales Tax Exemption
SB 689 improves on the former Manufacturing Production Credit regime by reviving benefits without the accompanying administrative burden. Effective July 1, 2019, production-related tangible personal property is added to the list of tangible personal property that is exempt from sales and use taxes. The definition of production related tangible personal property is also expanded to include “supplies and consumables used in a manufacturing facility including fuels, coolants, solvents, oils, lubricants, and adhesives, hand tools, protective apparel, and fire and safety equipment used or consumed within a manufacturing facility”. The bill provides that the Department shall adopt rules for administering this exemption, so more detailed regulations will be forthcoming.

5. Trade-in Credit for Certain Motor Vehicles Capped at $10,000
Except for certain purchases by motor vehicle lessors, Illinois’ current law generally excludes from gross receipts subject to ROT the entire value of tangible personal property that is traded in for property of like kind and character. SB 690 alters this rule for motor vehicles that are designed to carry 10 or fewer persons. Beginning January 1, 2020, the trade-in credit for such vehicles will be capped at $10,000. Any trade-in value in excess of that amount will be included in the selling price of the replacement property and subject to ROT or Use Tax, whichever is applicable. 

Income Tax Changes
1. New FDII Add-back
The 2017 Tax Cuts and Jobs Act introduced a federal deduction of 37.5% of foreign derived intangible income (FDII). Illinois did not implement this deduction, creating discrepancies between taxable income for federal and Illinois purposes. 
SB 689 remedies this discrepancy by requiring an add-back to a corporation’s taxable income in the amount of the FDII deduction permitted under IRC §250.

2. New Rules for Income Taxes on Non-Residents Working in Illinois
SB 1515 amends Illinois’ “base of operations” rule for tax years ending on or after December 31, 2020.
Previously, Illinois employed a “base of operations” rule to determine whether a non-resident was subject to Illinois income tax. If the non-resident’s base of operations was outside of Illinois, then Illinois considered all the non-resident’s income to have been earned outside of the state and would not tax compensation for services performed in Illinois. 
The new amendment does away with the base of operations rule and instead provides that Illinois non-residents that spend more than 30 days working in Illinois during a year are now considered to earn compensation in Illinois and are subject to Illinois income tax. A day is worked “in Illinois” if the employee performs duties on behalf of his or her employer within Illinois for more time during the day than he or she spends performing duties outside of Illinois. Time spent traveling in Illinois constitutes performance of a duty for purposes of this calculation. Employees that perform services in Illinois in response to a disaster or emergency are not subject to the 30-day threshold.
Employers with nonresident employees that perform services in Illinois are required to either maintain records of the number of days each nonresident employee spent performing services in Illinois, or, at the beginning of each taxable year, obtain a written statement from each nonresident employee that contains the number of days reasonably expected to be spent performing services in Illinois during the taxable year.
Note that this new rule also affects the “foreign” tax credit available to Illinois residents. That credit no longer depends on whether an Illinois resident has a base of operations outside the state. Instead, the credit depends on whether the resident has compensation subject to tax in another state.

3. Possible New Graduated Income Tax Rates
Implementing graduated income tax rates was a foundational part of Governor Pritzker’s campaign platform, but the Illinois Constitution only permits a flat income tax. Establishing graduated income tax rates therefore requires two bills: a proposal to put amending the constitution on the election ballot and a new income tax statute containing the graduated rates.
SJRCA 0001 places on the November 2020 ballot a proposal to amend the Illinois Constitution to allow a graduated income tax. This proposed amendment requires the approval of either 60% of those voting on the amendment or a majority of those voting in the election. 
SB 687 sets out the graduated income tax rates that will be imposed effective January 1, 2021 if the voters approve the proposed constitutional amendment. Should this happen, the corporate income tax rate will increase from 7 percent to 7.99 percent. Individual rates will be based on income and filing status and will range from 4.75% of net income to 7.99% of net income.

Franchise Tax
1. Franchise Tax to be Phased Out
SB 689 phases out the Franchise Tax from 2020 to 2024.
The phase-out operates by exempting increasing amounts of a taxpayer’s franchise tax liability as follows:
For Tax Years Beginning                                                     Amount of Tax Exempt
On/after January 1, 2020 and prior to January 1, 2021      $30
On/after January 1, 2021 and prior to January 1, 2022      $1,000
On/after January 1, 2022 and prior to January 1, 2023      $10,000
On/after January 1, 2023 and prior to January 1, 2024      $100,000
On/after January 1, 2024 No Franchise Tax due

Amnesty Programs
1. New Department of Revenue Tax Amnesty
SB 689 introduces a new tax amnesty program that will cover all taxes administered by the Department of Revenue. The amnesty period runs from October 1, 2019 through and including November 15, 2019 and covers the taxable period after June 30, 2011 and prior to July 1, 2018. Participating taxpayers will have penalties and interest abated and the Department will not pursue any civil or criminal prosecution related to the taxes paid. Our interpretation of the new legislation is that, unlike prior amnesty programs, double interest and double penalties will not apply to taxpayers that decline to participate and are later assessed a deficiency.
Please note that the most recent amnesty program covered the taxable period after June 30, 2002 and prior to July 1, 2009. The upcoming amnesty period covers periods beginning July 1, 2011. This means that tax liabilities accruing between July 1, 2009 and June 30, 2011 are not covered by an amnesty program.

2. New Franchise Tax Amnesty
SB 689 also introduces a Franchise Tax amnesty program that covers any outstanding franchise tax liabilities or license fees. The amnesty period will run from October 1, 2019 through and including November 15, 2019. The program will cover all taxable periods after March 15, 2008 through and including June 30, 2019. Participating taxpayers have penalties and interest abated and the Secretary of State will not pursue any civil or criminal prosecution relating to the taxes and fees paid. 
Note that the end date of the covered taxable period may be a trap for the unwary as businesses whose anniversary year is after June 30 should have already filed their reports.

Credits and Incentives
1. Expanded Blue Collar Jobs Act
SB 689 introduces four new or expanded income tax credits targeting different levels of investment. These credits are available beginning January 1, 2021. Each of the credits has a five-year carryforward and will flow through to the owners of pass-through entities.
The High Impact Business construction jobs credit is available to designated High-Impact Businesses that undertake and commission projects to build new structures, buildings or make improvements of any kind to real property. The credit is calculated as either (1) 50% of incremental income tax from High-Impact Business construction job employees or (2) 75% of incremental income tax from High-Impact Business construction job employees for projects in underserved areas. The credit is capped at $20 million per Illinois fiscal year.
The Enterprise Zones construction jobs credit is available to business entities in certified Enterprise Zones that make capital investments of at least $10 million in Enterprise Zone construction projects. The credit is calculated as either (1) 50% of the incremental income tax attributable to Enterprise Zone construction jobs employees employed in the course of completing an Enterprise Zone construction project; or (2) 75% of that amount if the project is in an underserved area. The credit is capped at $20 million per Illinois fiscal year.
The Economic Development for a Growing Economy (EDGE) tax credit is expanded to include New Construction EDGE Agreements. This credit is available for projects that construct new structures, buildings, or make improvements to real property beyond routine maintenance, operation, or repair. The credit is calculated as either (1) up to 50% of the incremental income tax from New Construction EDGE employees at the approved project or (2) up to 75% of such tax if the approved project is in an underserved area.
The River Edge Redevelopment Zone credit is renewed for taxpayers that make a capital investment of at least $1 million in a qualified rehabilitation plan for a qualified historic structure located in a River Edge Redevelopment Zone. As during the prior credit period, the credit is calculated as 25% of qualified expenditures incurred by the taxpayer during the qualified rehabilitation project. The credit is only available for taxable years beginning on or after January 1, 2021 and ending prior to January 1, 2022.

2. New Data Centers Legislation
SB 690 introduces both exemption certificates for qualifying data centers and an employment tax credit.
The exemption certificates exempt qualified tangible personal property used in the construction or operation of the data center from all state and local occupation taxes, state use taxes, the Chicago non-titled Use Tax, and the Electricity Excise Tax. The certificates also provide a credit certification against net income taxes for taxable years beginning on or after January 1, 2019. The certificates are available from the Department of Commerce and Economic Opportunity and will be valid for a period of up to 20 years.
Data centers that qualify for the certificates are new or existing data centers located in Illinois in which the owner and tenants have collectively made a $250 million capital investment over a sixty-month period. The data center must also create at least 20 new jobs earning at least 120% of the median wage paid to full-time employees in the county where the data center is located; and the building itself must be either carbon neutral or a certified green building. 
Effective immediately, an income tax credit is awarded to certified data centers and provides an income tax credit equal to 20 percent of the wages paid to construction contractor employees for data centers in impoverished areas.
This income tax credit flows through to the owners of pass-through entities and has a five-year carryforward period. Credits are applied to liabilities on a FIFO basis. If the Department revokes its certification of the data center, then any credits earned during that taxable year will also be revoked.

Miscellaneous
 1. New Parking Excise Tax
SB 690 implements a new state-level parking excise tax. 
Beginning January 1, 2020, parking area or garage operators are required to collect and remit to the Department of Revenue an excise tax of 6% on the purchase price of parking spaces paid for on an hourly, daily, or weekly basis and 9% on the purchase price of parking spaces paid for on a monthly or annual basis. 
The excise tax does not apply to (1) federal government parking areas or garages; (2) residential off-street parking if the parking arrangement is provided for in a lease, condominium agreement, or other writing between tenant and the landlord; (3) parking spaces owned and operated by a hospital for use by hospital employees; and (4) parking areas or garages with no more than 3 parking spaces.

2. Casinos Expanded and Sports Gambling Introduced
SB 690 introduces the Sports Wagering Act, which permits the establishment of six new casinos, allows sports wagering for individuals physically located in Illinois, allows slots at tracks, and increases the video gaming tax. This Act is extremely detailed so we will just focus on the salient tax aspects.
The Act establishes a surcharge on the gain from the sale or exchange of assets used in, or related to, gaming. The surcharge is equal to the amount of the federal income tax liability attributable to the sale or exchange. The Act also provides that any winnings from an Illinois gaming establishment will be sourced to Illinois and subject to withholding at the rate applicable to individuals. Currently this is 4.95%, but this rate may rise in 2021 for certain taxpayers if the constitutional amendment to permit a graduated income tax is approved by voters in November 2020.

3. Motor Fuel Taxes Increase
SB 1939 increases the Motor Fuel Tax and additional Diesel Tax. Beginning July 1, 2019, the Motor Fuel Tax will rise from 19 cents per gallon to 38 cents per gallon. The additional Diesel Tax will also increase from 2.5 cents per gallon to 7.5 cents per gallon. These rates are indexed to inflation and will be adjusted accordingly every July 1.
New local-level motor fuel taxes are also authorized. Municipalities in counties of more than 3 million inhabitants may now impose an additional local motor fuel tax of up to 3 cents per gallon. Additionally, Lake and Will counties join DuPage, Kane, and McHenry counties as counties permitted to impose an additional county motor fuel tax of up to 8 cents per gallon. The county-level tax may be adjusted for annual inflation.

4. Recreational Cannabis Permitted
HB 1438 legalizes recreational cannabis in Illinois. Regulation issues aside, this bill creates a substantial new multi-level excise tax regime based on gross receipts. This is a departure from the norm of other states with legalized recreational cannabis, which have generally imposed tax on the weight of cannabis product sold. 
Cannabis excise taxes are authorized at the municipal, county, and state levels. Municipalities may impose an excise tax of up to 3 percent of the purchase price. Counties may impose an excise tax of up to 3 percent of the purchase price in incorporated areas and up to 3.75 percent in unincorporated areas. There are also two state-level excise taxes. First, a 7 percent tax on a cultivator’s gross receipts from sales to dispensing organizations. Next, a tax is imposed on the retail sale of cannabis and cannabis-infused products, the rate of which is determined by the adjusted delta-9-tetrahydrocannabinol level of the cannabis sold. These rates range from 10 percent to 25 percent for cannabis and are a flat 20 percent for cannabis-infused products.
Keep in mind that each of these excise taxes are imposed in addition to the applicable ROT.

August 16, 2018

Joe Bigane
[email protected]
 
On June 21, 2018 the world of collecting sales tax in jurisdictions all over the United States changed forever.  The US Supreme Court held that it was no longer required that a seller must have a physical presence in a jurisdiction in order for that state (or subdivision thereof) to impose an obligation on sellers to collect the jurisdiction’s sales tax.  The dust has not yet settled and many jurisdictions are still determining how and when they will impose this duty.  Further, different states have different taxes, which for this article will all be referred to as “sales tax.”  Finally, the rules of South Dakota, the state in the Wayfair case, established a floor of $100,000 or more than 199 transactions in the prior year as the minimum activity in the state in order for the duty to collect to be imposed.  Other states may have different minimums but it is anticipated that they will not be smaller.

Having to collect a State’s sales tax is referred to as having “nexus.”  This is not a new term.  Before the Wayfair decision, nexus was achieved by having some form of physical presence in the State.  Wayfair did not change that; it merely expanded it to include the concept of economic nexus – doing enough business in the state over the internet or by other, non-physical means to exceed a determined floor.  If the business had physical presence nexus before this decision then it has been exposed to the obligation to collect sales tax for a time period predating Wayfair.  Such a situation should be discussed with a professional that can help you “get squared away.”

Remote sellers who now have nexus in states outside their home states are going to have to consider the following issues:

1. determine how much sales dollars was earned in each state in your last fiscal year and  your current fiscal year
   - sales are made to the location to which physical goods are shipped, not to where they are billed
   - sales of services have special rules, but generally will be sourced to where they are received or, if point of receipt unknown, where they are billed
   - revenue subject to sales tax will vary by state.  It may or may not include: 
        i) freight and shipping
        ii) installation
        iii) training
        iv) warranties
   
2. determine if each state taxes your particular goods and/or services are the  goods/services that you sell exempt by state law
   - are the goods/services that you sell exempt to some or all of your buyers
   - if your buyers are exempt, you will need to obtain from them the appropriate state exemption certificate
   
   
3. do you sell by drop shipment
   - these sales will now be counted to determine if you exceed a state’s floor and either tax or an exemption certificate will need to be collected Unfortunately, the states do not at this time have a common set of laws stating what is and what is not taxable or exempt.  So, sales into one state may be taxed while sales into a different state may not.  Some states tax most services (SD, NM) while other states have a list of “enumerated services” which they tax.  Here, too, there may be wide differences in the definition of what a service does or does not entail.  If you sell or license software you will need to determine if the state considers it canned or custom or both.

While there is no fifty state determination at this point, nor is there any serious indication that the federal Congress will intervene to provide a national solution, there are many states which are setting up their rules to be applicable as of October 1, 2018 or January 1, 2019.  So, you do not have the luxury of putting this issue off.  Collecting sales tax is an administrative burden but the money is collected from your customer and does not come out of your bottom line.  If you fail to properly collect and remit taxes, and the state(s) ultimately find and audit you, then the money (tax, penalties and interest) will come out of your bottom line.
 
So now is the time to talk to your professionals and determine in what states you will have to register as a tax collector and how you will determine the amount of tax you will need to collect for each transaction.  While a certain number of states are members of the Streamlined Sales Tax Agreement and can provide a simplified method for registering and filing, it may still be necessary for you to invest in sales tax software to determine the correct amount to charge for each transaction.

Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.

 

December 13, 2017

Mark Wolfgram, CPA, MST
Vice Chair, Tax Executive Committee
[email protected]

 A new tax credit scholarship program offers corporations and individuals the opportunity to obtain a 75% income tax credit for donations to qualifying Scholarship Granting Organizations. The application process opens on January 2, 2018. 
 
A new program is coming in early 2018 which would allow corporations and individuals to obtain income tax credits for qualifying educational donations. This program is new for the state of Illinois but has been popular in other states so those looking to take advantage of the new credit should begin planning now so they don’t miss out on this unique opportunity.

The new program is a tax credit plan which offers a 75% state income tax credit in 2018 and beyond for corporations and individuals for donations to qualifying Scholarship Granting Organizations, or “SGOs” (list of approved organizations can be found here:  http://tax.illinois.gov/InvestInKids/ApprovedSGOs.htm).  The theory is that SGOs will take the donated funds and apply them towards tuition relief for low-income families as defined in the program. The program can issue up to $75 million in tax credits per year (meaning the first $100 million in donations will be awarded the corresponding tax credits). 

To illustrate the concept, assume that a corporation makes a qualifying donation of $10,000 in 2018. The corporation would receive a Contribution Authorization Certificate (“CAC”) from the Illinois Department of Revenue (“IDOR”) entitling the corporation to a $7,500 income tax credit on its 2018 Form IL-1120. 

Taxpayers wishing to participate in the program must have a MyTax Illinois account. Taxpayers without a MyTax Illinois account should begin the process of signing up now to avoid delays. Taxpayers can choose which organization to make the donation to as long as the desired organization is an approved SGO. Taxpayers must apply for the program starting on Tuesday, January 2, 2018 through MyTax Illinois. IDOR will issue a CAC through MyTax Illinois and the taxpayers will have 60 days to make the agreed-upon donation to the chosen SGO. A Certificate of Receipt will then be issued within 30 days of the donation through MyTax Illinois.

Three other relevant items to consider. First, there is a $1 million-dollar limit on the amount of credit which can be used on a return. Second, donations made as part of this program may not be deducted on the taxpayer’s federal income tax return. Third, these credits can be carried forward up to five years but may not be carried back to previously filed income tax returns.

This program is an opportunity for corporations and individuals to help educational organizations in their area while also generating a tax benefit which is structurally different from traditional cash/property donations. CPAs should review their client list (or internal tax situation for those in private industry) to determine whether this opportunity might be right for them. 

More information on the program can be found here:
http://tax.illinois.gov/InvestInKids/Contributor.htm

Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.

July 12, 2017

David J. Kupiec, Chair Illinois CPA Society State and Local Tax Committee

[email protected]

IMMEDIATE ACTION REQUIRED – Illinois Public Act 100-0022 amends the Illinois Income Tax Act and Retailers’ Occupation Tax Act resulting in numerous state tax changes including the items noted below:

 

• Effective July 1, 2017, Illinois income tax rates for individuals, trusts and estates increase from 3.75 percent to 4.95 percent;
• Employers, payroll service providers, software developers, and payers of gambling and lottery winnings who withhold Illinois income taxes must now immediately adjust withholding tax rates (Booklet IL-700-T, Illinois Withholding Tax Tables, has been updated and is available on the Department of Revenue’s website);
• For tax years beginning on or after January 1, 2017, taxpayer’s with AGI for the taxable years exceeding $500,000 for married filing jointly returns and $250,000 for all other returns may not claim: the personal exemption allowance; the K-12 Education Expense Credit; or the Illinois Property Tax Credit;
• Effective July 1, 2017, for corporations (excluding S corporations) the Illinois income tax rate is increased from 5.25 to 7 percent;
• For taxable years ending on or after December 31, 2017, the Domestic Production Activities Deduction allowed under IRC Section 199 must be added back to AGI for individuals or taxable income for all other taxpayers;
• The Illinois Research and Development Credit has been reinstated and is retroactive for the 2016 tax year subject to certain limitations;
• Illinois Unitary business groups will no longer be allowed to exclude members classified as financial organizations, insurance companies or transportation companies pursuant to IITA Section 304;
• Effective July 1, 2017, for sales and use tax, the manufacturing and assembling machinery and equipment exemption is expanded to include graphic arts machinery and equipment;
• Effective July 1, 2017, tax is imposed on 100 percent of the proceeds from the sales of gasohol, which eliminates the current 20 percent exemption;
• The 100 percent exemption for the majority blended ethanol fuel, 100 percent biodiesel, and biodiesel blends with more than 10 percent but no more the 99 percent biodiesel, is extended through December 31, 2023.

 The Illinois Department of Revenue has posted additional information concerning these changes on its website.  The Illinois CPA Society State and Local Tax Committee will continue to monitor these statutory changes and provide further guidance on the Illinois CPA Society’s website as well as at the January 17, 2018, Illinois CPA Society Annual State & Local Tax Conference.