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The Illinois Franchise Tax is a weird tax. It is imposed on the privilege of exercising a franchise in Illinois or, in the case of foreign corporations, for the authority to transact business in the state. It is administered by the Illinois Secretary of State, not the Department of Revenue, and is measured by paid-in capital. Knowing the ins and outs of the Franchise Tax is a must for any corporation doing business in the state. Applicability of the Franchise…

Ontario's Divisional Court in 2092280 Ontario Inc. v. Voralto Group Inc., 2018 ONSC 2305, confirmed the requirements in obtaining an injunction on the dissipation of assets without notice. There, the Appellants were a landlord and contractor who had allegedly been defrauded in a scam involving the illegal dumping of waste. The court noted that where the five requirements for a Marevain junction that need to be met, wherein notice to the parties affected is not initially required. Make full and…

Like many states, Illinois and a number of Illinois localities impose motor fuel taxes. Although these taxes are each generally similar, they function slightly differently and are administered by different agencies. It is important not only for retailers of motor fuel, but any business that uses motor fuel in the operation of its business to understand the different layers of motor fuel taxes in Illinois. Illinois Overview Illinois' motor fuel tax is imposed on the retail sale of motor fuel.[1]…

For taxpayers surprised to find their business caught in the crosshairs of a Chicago or Cook County audit, substantial penalties can also be an alarming challenge. In a prior post, I outlined penalties assessed by the Illinois Department of Revenue ("Department"), the basis for relief, and the process for seeking penalty abatement. Although the basis for relief is similar for Chicago and Cook County penalties, there are key differences in the procedure and requirements for seeking penalty abatement. CHICAGO PENALTIES…

Every state recognizes the right of a company's shareholder (or member in the case of a limited liability company) to make a demand of the Board of Directors to initiate litigation that the shareholder believes will benefit the company. If the Board fails or refuses to act, the shareholder has the right to sue derivatively on behalf of the company. While derivative lawsuits can serve as a useful check on the unbridled authority of Directors, they are too often used by…

The Illinois Constitution was adopted on December 15, 1970. The constitution sets forth the taxing powers of home rule units and describes the exclusive power of the General Assembly to raise revenue. Because the constitution creates the framework for how Illinois' taxing system functions, this post will discuss the constitution's general structure and the impactit has on Illinois taxes. Background In 1968, the people of Illinois called a constitutional convention to "modernize, shorten, and liberalize" its 1870 constitution. One of…

The Illinois Department of Revenue has adopted a regulation (86 Ill. Admin. Code § 150.802, effective July 27, 2018) relating to registration of out-of-state retailers and trade show appearances. The new rule provides that the presence of an out-of-state retailer or its representative in Illinois for the purpose of engaging in trade show activities establishes nexus for the retailer and requires collection of use tax on all sales into Illinois unless the following three conditions are met: (1) the retailer…

At the close of an audit, in addition to tax and interest, a taxpayer may also be assessed various types of penalties that can often be substantial and even surpass the underlying tax liability. However, there are several courses of action for seeking penalty abatement, which can often prove to be a worthy exercise for taxpayers. As such, when faced with an audit, taxpayers should become familiar with: (1) the potential penalties that may result from underpayment or missed filing…

Like most states, Illinois statutes and regulations permit taxpayers and the Director of the Department of Revenue to obtain alternative apportionment of Illinois base income. Although case law is relatively scant, alternative apportionment remains an important means of reaching a fair income tax liability in the State. And with the State's amorphous treatment of market based sourcing, alternative apportionment is likely to become an increasingly important tool, particularly in resolving controversies. As I have previously discussed, Illinois transitioned to a…

Financial organizations in Illinois are required to follow different apportionment rules than general service providers. Prior to December 31, 2017, such businesses were also required to file separate unitary business returns from taxpayers that filed their income tax returns under the standard apportionment rules. Beginning with the tax year ending December 31, 2017, however, financial organizations must be included in the combined return with the entire unitary business group.[1] It is therefore crucial for taxpayers to understand the nuances as…

Everyone is by now likely familiar with the recent Wayfair decision and its central holding.  Prior to Wayfair, businesses had some degree of comfort that they would not be required to collect and remit sales or use taxes to states in which those businesses did not have physical presence.  Now that the physical presence test is gone, state legislation must be reviewed on a case-by-case basis to determine whether it will survive Commerce Clause scrutiny.  Rather than go over every…

The Commerce Clause and interstate commerce were thrust into the spotlight last week, as the United States Supreme Court reversed the longstanding physical presence standard for sales tax nexus. As states and businesses begin to grapple with the ramifications of the Supreme Court's decision in South Dakota v. Wayfair, Inc., et al,585 U.S. __ (2018), it will be important to assess each state's nexus statutes and regulations in light of Justice Kennedy's opinion. In this article, we will provide the context leading…

My Initial Reactions in Bold. 5 to 4 decision. Not surprising. Alito was the swing vote. "Quill is unsound and incorrect." Stare decisis basically stands for that premise.  You never have to rely upon stare decisis if the prior decision you were relying upon was and is still correct. "Each year, the physical presence rule becomes further removed from economic reality." True, but the rule has been in place for over 50 years and commerce has reasonably relied on it.…

A consent directive is an authorization providing for release of information or documents by a third party located anywhere in the world.  The form does not abrogate Fifth Amendment rights because it does not acknowledge that an account is in existence or is controlled by the party to sign the authorization. The U.S. Supreme Court gave its blessing to consent directives in Doe v. United States, 487 U.S. 201 (1988).  District courts rely on the All Writs Act, 28 U.S.C.…

As we have discussed previously, Illinois localities have adopted a variety of unique taxes, such as the Chicago Personal Property Lease Transaction Tax, the Amusement Tax, and dozens more. But, like many other states, Illinois localities may also impose a local option tax which is imposed in addition to the state Retailers' Occupation Tax ("ROT"). Unlike many other states, however, Illinois localities use a unique sourcing methodology. Whereas sales of tangible personal property to Illinois are subject to a destination-based…

We should have a Wayfair decision by then, but IL adopted a South Dakota remote seller nexus rule effective October 1, 2018. For purposes of the Use Tax Act, the definition of "retailer maintaining a place of business in this state" is amended, and for purposes of the Service Use Tax Act, the definition of "serviceman maintaining a place of business in this state" is amended. Beginning October 1, 2018, such a retailer will include a retailer making sales of…

In calculating the Illinois sales factor, Illinois employs both a "throw-back" and "throwout" rule.  Under the throw-back rule, if a sale of tangible personal property originates in Illinois and the taxpayer is not subject to tax in the destination state, the gross receipts from the sale will be "thrown back" to Illinois and will be included in the numerator of the Illinois sales factor.  Under the throwout rule, if a taxpayer is not subject to tax in the state in…

Illinois' treatment of leases is an anomaly when compared to almost all other jurisdictions.[1] While most jurisdictions impose sales tax on the lease receipts collected from the lessee, the user of the equipment, Illinois differs by treating the lessor as the user of the equipment.  As such, the lessor is subject to Illinois use tax.  86 Ill. Admin. 130.2010; GIL 16-0067 (12/27/2016).  Illinois' unique treatment presents many challenges for lessors.  First and foremost, Illinois' places the imposition of tax on…

Determining whether computer software is taxable is no easy task, especially in light of the changing technological landscape. The Illinois Department of Revenue ("Department") has been asked by taxpayers for a number of years to provide clarification, but until recently has been largely silent on the treatment of sales of computer software. In several non-binding General Information Letters ("GIL") and Private Letter Rulings ("PLR")[1], the Department has recently provided clarification on several key issues, including the taxability of cloud computing.…

In a previous post, we addressed the basics for calculating Illinois base income. Once a taxpayer has calculated its Illinois base income, a corporate taxpayer should use Form IL-1120, Step 4, lines 24 through 34 to calculate its Illinois sourced income. As the instructions show, Illinois has different apportionment formulae for general businesses, insurance companies, financial organizations, federally regulated exchanges, and transportation companies. See also 35 ILCS 5/304(a), (b), (c), (c-1), and (d). We will discuss Illinois' combined reporting rules and…

Alabama, Connecticut and Texas are offering tax amnesty programs that have some huge benefits. Amnesty programs are a great way to resolve nexus issues and underpayment issues. As with most amnesty programs, you must not have been contacted by the respective state's Department of Revenue to be eligible. In Alabama, the amnesty period runs from July 1, 2018 through September 30, 2018. It includes most tax incurred or due prior to January 1, 2017 and includes a full waiver of…

Although businesses entering a new jurisdiction are often primed to handle local sales and use taxes, even sophisticated taxpayers can be unprepared for the myriad of unfamiliar local taxes waiting to greet them when beginning to transact business in Chicago. Whether leasing equipment in the City of Chicago or transferring software to a licensee, the Chicago Personal Property Lease Transaction Tax ("Transaction Tax") tax may apply and present certain challenges for a taxpayer not familiar with the tax. This post…

Now that we have provided a primer on procedural issues at Illinois, Chicago, and Cook County, it's time to jump into the fun stuff! Illinois has a relatively high corporate income tax rate compared to most states (a combined 9.5%), coming in at the fourth highest rate in the United States. In 2019, the Governor's budget anticipates that corporate and personal income taxes will constitute more than 50% of Illinois' general funds revenues, generating over $20 billion. Consequently, Illinois' administration…

A recent national trend in the practice field of state and local tax has been the uptick in local jurisdictions' audit activity. The Cook County Department of Revenue ("Cook County" or "Department") is no exception to this trend where in recent years, the Department has increased its audit activity, and much to the chagrin of taxpayers, has taken aggressive positions in the interpretation of its tax ordinances. Consequently, this has led to increased litigation in the administrative proceedings before the…

Although not on the mind of most taxpayers, an audit by the City of Chicago Department of Finance ("Department") is a risk for any taxpayer who may be operating in the City or who enters Chicago for any business purpose. With a variety of unusual taxes, such as the Chicago Amusement Tax, Personal Property Lease Transaction Tax, and Real Property Transfer Tax, compliance is no easy task and an audit can come as an unwelcome surprise. Chicago's Authority to Tax…

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