Tax Amnesty Program for Illinois taxpayers and preparers

Tax Amnesty Program for Illinois taxpayers and preparers

I-L-L-I-N-I (ois) News Break! 

This week’s offering is directed specifically to Illinois taxpayers and the preparers who love them.

Attention all Illinois Taxpayers who owe the state or are behind in IL filings – Illinois Introduces New Tax Amnesty Program!

Also….Illinois issues a sales tax exemption for manufacturing!

And…if that wasn’t enough…Illinois is going to eliminate the corporate replacement tax! 

These are highlights from budget bills P.A. 101-0008 and P.A. 101-0009.

The Amnesty Program

…a Two-Pronged Approach…
…one with the Secretary of State and the Second with the Department of Revenue

The Illinois Legislature recently passed two laws requiring the Secretary of State and the Department of Revenue to implement separate tax amnesty programs beginning on Oct. 1, 2019.

Be careful! The amnesty program is not available to taxpayers who are a party to any criminal investigation or to any civil or criminal litigation pending in any circuit court or appellate court or the Supreme Court of Illinois for nonpayment, delinquency, or fraud in relation to any Illinois tax imposed by any Illinois law.

1. Illinois Secretary of State

The Secretary of State’s new tax amnesty program applies to all franchise taxes and license fees imposed by Article 15 of the Business Corporation Act of 1983 for any tax period ending after March 15, 2008, and on or before June 30, 2019.  

Here’s a little excerpt from Article 15:  Sec. 15.05. Fees, franchise taxes, and charges to be collected by Secretary of State. The Secretary of State shall charge and collect in accordance with the provisions of this Act: 

    (a) Fees for filing documents. 

    (b) License fees. 

    (c) Franchise taxes. 

    (d) Miscellaneous charges. 

    (e) Fees for filing annual reports. 

(Source: P.A. 93-59, eff. 7-1-03.)

This new temporary amnesty program is only available from Oct. 1 through Nov. 15, 2019. 

So while your clients still have to pay the fees and taxes due, participants in the amnesty program will have any penalties and interest associated with tax due from the franchise tax amnesty period waived in their entirety! And get this…unlike previous Illinois amnesty programs, this one will not have what I’m calling a ‘do-or-die clause.’ In past amnesty programs, the penalties and interest for those taxpayers who didn’t participate in the amnesty program doubled. These taxpayers were later determined to owe taxes to the state for an amnesty eligible period. So it looks like a great opportunity for that tardy corporation with past due annual reports and involuntary dissolutions to get reinstated!

 2.  Illinois Department of Revenue

All taxes (except for motor fuel use tax) administered by the department for tax periods from June 30, 2011, through July 1, 2018, can be dealt with under the department’s separate amnesty program. This program  also runs from Oct. 1 through Nov. 15, 2019. All penalties and interest associated with any taxes due for an amnesty eligible period for participants in the department’s amnesty program will be waived. .  Just like the Secretary of State’s amnesty program, and unlike the department’s previous amnesty program, there is no ‘do-or-die’ clause.

Getting Ready for the Amnesty Programs:  Get this—Illinois is not going to tell taxpayers if they are eligible for amnesty—Tax Pros to the Rescue!

1. Secretary of State

Over the next several weeks, taxpayers (which really means this will be up to you) should carefully review their Illinois entity status, annual reports, and other filings (i.e., name or registered agent changes, etc.) to confirm their records with the state are correct. Go to cyberdriveillinois.com to check out your clients’ status.

2. Department of Revenue

You might want to get your client set up with MyTaxIllinois if you’re not already using it. I’ve found it’s a good resource to see where your client stands currently and to find any outstanding items from at least several years past. Plus, taxpayers can pay a myriad of taxes directly through the website. I especially like using it for sales tax, unemployment (no more $50 penalties for late postmarks!), and withholding filings and tax payment.

Guess what though (does this even need to be said?)… your client is still going to have to pay the taxes and/or fees due—just not the interest or penalties…

Watch for specific guidance regarding the procedures for amnesty filing to be released soon and hopefully before the October 1 launch date….

Sales Tax Exemption for Manufacturing

Shout out to U of I Tax School Facebook friend, Kathleen Orlando, for finding this little tidbit from our friends in the Illinois legislature. Thanks Kathleen!

A manufacturing, machinery, and equipment exemption is available for machinery and equipment used primarily (over 50% of the time) in the manufacturing and/or assembling of items for wholesale or retail sale or lease. Effective July 1, 2019, the manufacturing machinery and equipment exemption includes production related tangible personal property.

• The term “manufacturing” is defined as the production of any article of tangible personal property, whether the article is a finished product or is an article for use in the process of manufacturing or assembling a different article of tangible personal property, by procedures commonly regarded as manufacturing. The manufacturing process must change some existing material or materials into a material with a different use, form, or name, and the changes must result from the process in question and be substantial and significant.
• The term “machinery” means major mechanical machines or major components of those machines that contribute to a manufacturing or assembling process.
• The term “equipment” includes any independent device or tool that is separate from any machinery but is essential to an integrated manufacturing or assembling process.
• This exemption also covers repair and replacement parts as long as the parts are incorporated into machinery and equipment that is exempt under the regulation.
• IDOR form ST-587 is the exemption certificate the manufacturer should provide to its vendor to document the exemption.  The manufacturer is required to provide the form for each purchase order until IDOR develops a blanket exemption for all future purchases.

See Illinois Administrative Code, Title 86, 130.330 for more information.

Phase Out of Replacement Tax

Currently, taxpayers are required to remit a franchise tax (aka personal property replacement tax) in addition to the Illinois income tax. However, beginning on January 1, 2020 (tax years beginning on or after that date), the Illinois replacement tax will begin phasing out and will be fully phased out beginning in 2024. The current replacement tax rates are 2.5% for C corporations and 1.5% for pass-through entities such as S corps, partnerships and trusts.

Here is the phase out schedule for tax years beginning on:

• January 1, 2020 – December 31, 2020 – First $30 of franchise tax liability is exempt
• January 1, 2021 – December 31, 2021 – First $1,000 of franchise tax liability is exempt
• January 1, 2022 – December 31, 2022 – First $10,000 of franchise tax liability is exempt
• January 1, 2023 – December 31, 2023 – First $100,000 of franchise tax liability is exempt
• January 1, 2024 – After – replacement tax is fully phased out

Stay tuned for more developments such as Illinois wanting to increase the corporate tax rate from 7% to 7.99% and introduce a graduated income tax schedule for individual taxpayers.  Illinois voters will have to pass a constitutional amendment to make those happen…(P.A. 101-0008)

by Tom O’Saben, EA