The Tax Foundation has just released a tax burden calculator for 2011 designed to allow taxpayers to get an estimate of approximately how much their tax burden will increase if the Bush-Era Tax Cuts expire at the end of 2010.  There is also an additional column that approximates a taxpayer’s liability if President Obama’s budget is adopted, which includes a variety of federal tax changes for different income levels.

According to the Tax Foundation, a typical middle-income family earns $63,366 per year and will experience a tax increase of approximately $1,500 if the Bush-Era Tax Cuts are allowed to expire.  Obviously this will vary somewhat by state, as well as other factors such as number of dependents, income sources, and income level.

Using the calculator to determine the new income tax burden for the A. Lincoln Family, a fictional suburban Chicago dual-income family of four (let’s say a police officer and a school teacher with two high-school aged children), with a total annual income of $90,000, $4,000 in annual real estate taxes and a $10,000 per year mortgage interest deduction, the calculator estimates an increase of $2,288 for tax year 2011.  This represents an almost 2 ½% increase in federal tax liability and seriously impacts the A. Lincoln Family’s disposable income for goods, services, and future college tuition.

However, the A. Lincoln Families’ tax woes may not end with the federal tax increase.  The Illinois General Assembly is currently contemplating a state income tax increase of 1-2%, depending upon who is sponsoring the legislation, in order to temporarily bail the state out of its fiscal crisis.  Illinois taxpayers should be aware of the possibility of this two-tiered tax increase.

To access the Tax Foundation’s 2011 Income Tax Calculator, please use the following link: http://www.mytaxburden.org/

Public Act 96-1429 (formerly HB 5230), signed by Gov. Quinn this week, amends the Corporate Accountability for Tax Expenditures Act to reduce the amount of paperwork required for businesses receiving multiple development awards for a single project in the same award year. 

This legislation is intended to greatly simplify progress report filing requirements.  Companies needing to demonstrate a base level of job creation and job retention in order to qualify for and maintain eligibility for development assistance programs run by the Department of Commerce and Economic Opportunity (DCEO), will now need to file only one consolidated progress report for a single project site in a given award year.  Previously, the same information was filed multiple times for each development assistance award. 

The Illinois Chamber Tax Institute was instrumental in the success of this legislative initiative-- from drafting the legislation to working with DCEO to satisfy statutory disclosure requirements. 

The Comptroller’s FY 2009 Fee Imposition Report, released this month, asks a rather unsettling question without giving a complete answer. That question is: Should Illinois shift its reliance on state taxes to state imposed fees for balancing the budget and running state programs? In other words, are fees less vulnerable to the peaks and valleys of the economy and therefore a more stable source of income for Illinois?

The following excerpt from the report explains the current significance of fees as a revenue source:

If the $7.1 billion in fee revenues were tracked as a single combined source, they would have been the fourth largest state revenue source in fiscal year 2009, trailing the state income taxes ($12.3 billion), federal aid ($16.4 billion), and the state sales taxes ($8.2 billion).

Of the $7.1 billion if fees collected in Illinois, 4 agencies account for almost $5 billion of those collections. Those agencies are the Secretary of State ($1.8 billion), Healthcare and Family Services ($1.7 billion), the University of Illinois ($823 million) and the Illinois State Toll Highway Authority ($640 million). Other significant sources of fees include all the remaining state universities, the Illinois Department of Revenue, the Department of Financial and Professional Regulation, the Treasurer’s Office, Illinois EPA, CMS and the Department of Natural Resources. In FY2009 these 16 agencies were responsible for collecting 95% of total state fees.

The question of whether fees are a more reliable revenue source was never completely answered in the report. Fees that were categorized as "economically sensitive" declined by 3.4% between FY2008 and FY2009, however, this decline appears to be less severe than the drop in sales and income tax revenues. According to the report, inflation is of greater concern when utilizing fees to fund state programs. Fees for services that are not closely monitored or reviewed on an annual basis can quickly be outpaced by inflation creating a budget deficit for the agency providing the service.

The greater concern for Illinois taxpayers should be: When does a fee become a tax? Should Illinois choose to increase the use of fees for government services to avoid increasing state taxes, Illinois taxpayers must monitor whether those fees directly relate to the cost of providing the government service or are being collected and used for other general revenue fund purposes. Many states are currently considering this method of stealth tax as a viable option since it is becoming increasingly difficult for legislatures to pass broad based tax increases.

SB 459, which creates a Use Tax Amnesty for individuals, was signed today by Governor Quinn. The use tax amnesty period will run from January 1, 2011 through October 15, 2011. During that time period, individual taxpayers can report any unpaid use tax for any period starting after June 30, 2004 and ending before January 1, 2011. If a taxpayer’s liability is less than $600, the taxpayer can report it on their individual income tax return. The income tax returns will be amended to provide a space for reporting the use tax due. If the use tax is reported on the individual’s income tax return, the use tax due will be assessed, collected, and deposited in the same manner as income tax due and will be treated as an income tax liability for all tax collection purposes.  Taxpayers reporting more than $600 in use tax will be required to file a separate report.   Taxpayers coming forward under the use tax amnesty will not be liable for penalties or interest on the amount due. 

Amnesty will not be granted to any taxpayer that is a party to any criminal investigation or to any civil or criminal litigation related to the eligible taxes, is under audit for eligible taxes, or has been contacted in writing by the Department of Revenue concerning eligible taxes prior to the taxpayer reporting and paying the tax due.

According to the Department of Revenue, you owe use tax if the person or business you bought merchandise from did not collect sales tax on the transaction and

• the items purchased are taxable in Illinois;
• you will use or consume the items purchased in Illinois; and
• you have not yet paid Illinois sales tax or an equivalent amount to another state.

Out-of-state retailers may not collect a sales tax on items sold through catalogs, over the internet, or through magazine or TV advertisements. If no sales tax was collected on these types of sales, then you may owe Illinois Use Tax on the amount of the purchase price. The Department of Revenue has stepped up its use tax enforcement and shares available information with other states and the U.S. Customs Service (Use tax is due whether or not an item has to be declared or is subject to duty tax). Individuals that have made purchases from out-of-state vendors since June 30, 2004, may want to review receipts to determine any potential use tax liability that can be reported during the Amnesty period starting January 1, 2011.

This tax amnesty program should not be confused with the general tax amnesty program passed by the General Assembly in SB 377, which would apply to all taxpayers and taxes administered by the Department of Revenue.  SB 377 was sent to the Governor on June 25, 2010, but no action has been taken on the bill to-date. 

We have updated our list of the 2010 Key Tax & Budget Bills sent to Governor Quinn for his review to reflect recent bill signings.  The Governor has taken action on several key tax bills, including SB 459 which provides for an individual use tax amnesty, see below. 

Despite the state's budget woes, Governor Quinn's back-to-school sales tax holiday is scheduled for August 6th through the 15th.  During this 10 day period, qualifying items will be exempt from the state portion of the sales tax--at an estimated cost to the state of up to $60 million.  Retailers will be required to subtract 5% (the state portion of the 6.25% sales tax rate) from the total sales tax rate for the municipality or county in which they do business.  Taxpayers will remain liable for any local sales taxes. 

The exemption applies to certain clothing and footware items if their price does not exceed $100 and general school supplies.  Non-qualifying items include sports and recreational equipment, certain athletic shoes, some art supplies, instructional materials such as reference books and maps/globes and textbooks, computers and computer supplies, and electronics.  

The Department of Revenue has issued an Informational Bulletin (FY 2010-17) to retailers to assist them in determining how to handle sales tax transactions during the sales tax holiday.  The Bulletin provides a detailed list of exempt and non-exempt items.  It also addresses how to handle “bundled sales” where exempt and non-exempt sales are sold as a unit (the value of the exempt items must exceed the value of the non-exempt items in order to qualify all of the items for exemption); prohibits splitting items like pairs of shoes that exceed the $100 maximum in order to qualify for the exemption; disallows the exemption for purchases made through business accounts; and discusses how to handle rain checks, refunds/exchanges, back orders and returns. 

The Commission on Government Forecasting and Accountability (COGFA), which was created in 1972, is a bipartisan commission consisting of 12 Illinois legislators appointed by each of the four legislative leaders and is charged with monitoring and reviewing the economic impact of laws and proposed legislation on Illinois’ financial well being.

The Commission has just released an update to its 2001 report, “Sales Tax Issues in Illinois”.  The new report titled “Sales Taxes in Illinois” and dated May 2010 includes a broader explanation of Illinois’ sales tax base and updated sales tax statistics.  The reports new statistics give a grim and sobering projection for general revenue fund sales taxes which are expected to decline by 8.5% in 2010, the largest decline since 1950 when sales tax revenue records were first recorded.  The report also notes that since 1990, sales taxes have been a declining percentage of general revenue for the State of Illinois dropping to less than 23% in FY2010, down from approximately 30% in FY1990.

Included in the report are helpful charts breaking down Illinois sales taxes by county and municipality as well as comparisons of per capita sales tax dollars collected by all states that impose a sales tax. 

by Michael J. Wynne

ReedSmith, LLP

On March 22, 2010, the day after the historic passage by the House of Representatives of H.R. 3590, the Patient Protection and Affordable Care Act, the headline of a New York Times article announced "In Health Reform, Boons for Hospitals and Drug Makers." The New York Times article predicted that 32 million additional paying customers in the next few years will be "better able to pay for hospital stays, doctor visits, prescription drugs, and medical devices." President Obama signed H.R. 3590 into law on March 23, 2010.

Five days prior, the Illinois Supreme Court denied a Catholic hospital a property tax exemption in Provena Covenant Medical Center v. Department of Revenue,¹ The Court denied the exemption, in part, because the amount of charity care provided by the hospital was insufficient. The chilling national repercussions some portend for the Provena Covenant decision, with its inquiry into how much charity is enough to justify a property tax exemption, may ultimately be dwarfed by the repercussions of the new federal health care legislation.

After all, under the new federal health care legislation, in 2014 Medicaid coverage will be extended to households with income up to 133 percent of the federal poverty level. In addition, the new federal health care legislation will subsidize the purchase of insurance from state insurance exchanges for those below 400 percent of the federal poverty level. At that point, the extended coverage offered under Medicaid and the insurance exchanges will displace much of the charitable patient care that hospitals have traditionally dispensed. As hospital charitable patient care ebbs, so too may ebb the state and local grants of exemption for hospital properties.  More.....

On March 22, 2010, the day after the historic passage by the House of Representatives of H.R. 3590, the Patient Protection and Affordable Care Act, the headline of a New York Times article announced "In Health Reform, Boons for Hospitals and Drug Makers." The New York Times article predicted that 32 million additional paying customers in the next few years will be "better able to pay for hospital stays, doctor visits, prescription drugs, and medical devices." President Obama signed H.R. 3590 into law on March 23, 2010.

Five days prior, the Illinois Supreme Court denied a Catholic hospital a property tax exemption in Provena Covenant Medical Center v. Department of Revenue,¹ The Court denied the exemption, in part, because the amount of charity care provided by the hospital was insufficient. The chilling national repercussions some portend for the Provena Covenant decision, with its inquiry into how much charity is enough to justify a property tax exemption, may ultimately be dwarfed by the repercussions of the new federal health care legislation.

After all, under the new federal health care legislation, in 2014 Medicaid coverage will be extended to households with income up to 133 percent of the federal poverty level. In addition, the new federal health care legislation will subsidize the purchase of insurance from state insurance exchanges for those below 400 percent of the federal poverty level. At that point, the extended coverage offered under Medicaid and the insurance exchanges will displace much of the charitable patient care that hospitals have traditionally dispensed. As hospital charitable patient care ebbs, so too may ebb the state and local grants of exemption for hospital properties.  More...