Over the years, too many corporations doing business in Illinois have had the unfortunate experience of receiving a notice of delinquency from the Office of the Secretary of State of Illinois (the “Secretary of State”) demanding immediate payment of additional franchise tax, penalties, and interest. Not to be confused with the Illinois corporate income tax, which is administered by the Illinois Department of Revenue, the Illinois franchise tax is codified in the Business Corporate Act of 1983, 805 ILCS 5/1.01, et seq. (the “BCA”), and is administered by the Secretary of State. The franchise tax is considered a fee for the privilege and protections of “incorporation”, and therefore only applies to “corporations” and not other business entities (e.g., LLCs, LLP, GPs, etc.). The Illinois franchise tax base is measured by a corporation’s Illinois “paid-in capital” — meaning, funds generated by corporations by issuing stock, plus additional cash/equity contributed by shareholders.
On June 5, 2019, the Illinois legislature enacted Public Act 101-0009 which includes comprehensive amnesty programs covering taxes administered by both the Illinois Department of Revenue (the “Department”) and the Office of the Secretary of State of Illinois (the “Secretary of State”). Taxes covered by these programs include the corporate and individual income taxes, the Retailers’ Occupation Tax, the Use Tax, and the Illinois franchise tax. The amnesty programs run for the period October 1, 2019 through November 15, 2019, and, under both programs, 100% of penalties and interest will be waived in exchange for payment of any outstanding tax liability due. Unlike previous amnesty programs, taxpayers will not be punished for not participating — that is, Illinois will not impose double penalties and double interest on tax assessments issued after the amnesty period closes.
The Illinois Department of Revenue has big plans this holiday season to bring different types of unitary businesses that use different apportionment formulas together under a single, combined Illinois corporate income tax return. Like many states, Illinois corporate income taxpayers are generally required to file a unitary combined corporate income tax return. This combined reporting method aggregates in one tax return the income, deductions and apportionment factors generated by commonly owned corporations operating as a unitary group.
The physical presence standard is no more. In a 5-4 decision issued this morning, the U.S. Supreme Court reversed its own precedent that, for over fifty years, provided an in-state physical presence by a retailer was a prerequisite for the constitutional imposition of a state sales or use tax collection obligation. See South Dakota v. Wayfair, Inc., No. 17-494 (U.S. Jun. 21, 2018), rev’g Quill Corp. v. North Dakota, 504 U.S. 298 (1992) and National Bellas Hess Inc. v. Illinois, 386 U.S. 753 (1967).