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Constitutional Issues

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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.

Continuing the unpleasant theme of aggressive state tax proposals, a bill has surfaced in the New York Assembly (following a companion bill that was introduced in the New York Senate last Spring) that seeks to impose a five percent tax on the “gross income . . . [from] every corporation that derives income from the data individuals of this state share with such corporations.” The new data tax is being proposed for inclusion in Section…

In an era of ever-expanding state tax bases, there are two new legislative proposals in Maryland (SB 2) and Nebraska (LB 989) that seek to either extend a current tax base (in the case of Nebraska, the sales tax base) or create a new tax (in the case of Maryland) to capture digital advertising revenues. The Maryland tax also signals a continued trend toward nuanced gross-receipts-type taxes. If a tax targeting digital advertising services sounds familiar, that is because the Ohio Department of Taxation attempted to extend the Ohio sales tax to digital advertising services in 2016 (though this extension was rejected by the Ohio Legislature’s enactment of an exemption from the sales tax for digital advertising services later that same year).

Massachusetts recently joined a handful of other states (read: States over the Edge and Testing Boundaries with Business Activity Tax Nexus) by issuing a final revised regulation adopting a bright-line, $500,000, nexus threshold for its corporate excise tax. See generally 830 CMR 63.39.1. Echoing the language of the Wayfair decision, the state’s revised nexus regulation provides that “the Commissioner will presume that a general business corporation’s virtual and economic contacts subject the corporation to the tax jurisdiction of Massachusetts under M.G.L. c. 63, § 39, where the volume of the corporation’s Massachusetts sales for the taxable year exceeds five hundred thousand dollars.” 830 CMR 63.39.1(3)(d).