Invoice Might Erase as much as $1 billion in Enterprise Tax Help

In the final hours of the 101st General Assembly, Illinois lawmakers nearly broke with federal law and remove a tax break intended to help small businesses during the pandemic, something estimated to cost Illinois businesses up to $1 billion in additional state taxes. 

Congress approved the change last year as part of the first CARES Act. It would allow some businesses to deduct losses from their taxes in the current year, rather than being required to spread them out over multiple years. House Amendment 2 to Senate Bill 1199 would decouple Illinois’ tax code from this portion of federal tax code, meaning businesses would not be able to write off those losses on their state taxes. Other states that follow the federal tax law would be able to write that off. 

Illinois’ S-corps and limited liability companies, most commonly small businesses, would be the ones who would see the tax hit. It’s estimated to hit 440,000 businesses, costing them $500 million to $1 billion by not removing that expected revenue to the state’s coffers. The state is facing a $4 billion budget deficit.

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A vote on the bill in the first hours of Wednesday morning saw the House fall ten votes short, with several Democrats abstaining. Through a procedural maneuver, the measure’s supporters could call the bill again before the 101st General Assembly concludes at noon. 

State Rep. Mike Zalewski, D-Riverside, objected to those who called the bill a tax hike, rather saying it would hold the state harmless from a federal measure.

“I don’t consider this a tax increase,” he said. “You should not have been relying on these two deductions until the department put out its circular at the end of January.”

Republicans decried the bill as kicking businesses when they were already hanging by threads due to pandemic-related business slowdowns and government-ordered shutdowns.

“This is a $1 billion tax increase on businesses that cannot pay their bills,” said state Rep. David McSweeney, R-Barrington Hills. “We are telling people to leave the state of Illinois.”

Assistant Republican Leader Norine Hammond, R-Macomb, sits on the Commission on Government Forecasting and Accountability. She said the state’s Department of Revenue erred in not telling them or the Legislature that the spring federal pandemic relief would put such a dent in the state’s finances. 

“The Department of Revenue dropped the ball and it’s not on us to pick it up,” she said.

New York decoupled from the same provision in the CARES Act, but did so in April.

Gov. J.B. Pritzker proposed decoupling from federal law in this matter, calling the hundreds of millions of dollars “corporate loopholes.” 

“My administration recognizes the many challenges facing businesses during this unique time, which is why we are going above and beyond the federal support program by providing hundreds of millions of dollars in support to our small businesses, our best job creators who have been impacted severely by COVID-19,” said Pritzker in December. “Unfortunately, COVID also hit our state budget, requiring tough choices about what we can and cannot afford. Right now, we cannot afford to expand tax breaks to businesses that already receive tax breaks. As we recover from the pandemic, we must focus on job creation and balancing our state budget. I am confident in our ability to grow our economy and put our state on firmer fiscal footing.”

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