Illinois can't afford the $500 million it would cost to conform to business tax relief provided under the 2020 federal Coronavirus Aid, Relief, and Economic Security Act, according to Gov. J.B. Pritzker (D).
Pritzker is calling on the General Assembly to pass legislation to decouple from specific CARES Act provisions that suspend or eliminate federal limitations imposed by the Tax Cuts and Jobs Act — drafters of the TCJA added limits and base-broadening provisions to offset the revenue losses of the act’s net federal tax cuts.
Pritzker wants Illinois to decouple from provisions addressing the treatment of net operating losses under section 172 and the excess business loss limitation applicable to passthroughs under section 461.
"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," Pritzker said in a January 8 statement. "Unfortunately, COVID also hit our state budget, requiring tough choices about what we can and cannot afford.”
Pritzker, who issued the statement at the start of a five-day lame-duck session, urged lawmakers to decouple from the CARES Act provisions before the new legislative session begins January 13. However, Democrats have retained control of the state’s governorship and both chambers of the General Assembly.
The Illinois Chamber of Commerce and the independent group Illinois Policy are among the organizations against the state decoupling from the provisions.
But in a December 17, 2020, paper, Michael Mazerov of the Center on Budget and Policy Priorities highlighted the same CARES Act provisions that Pritzker has since targeted. Mazerov wrote that decoupling from the provisions “should be a high priority for 2021 legislative sessions.”
Mazerov discussed in detail the differences between the TCJA and CARES Act treatment of the provisions in question. The TCJA, for example, repealed NOL carrybacks. TCJA drafters retained the deduction for NOL carryforwards but limited them to 80 percent of taxable income.
The CARES Act, however, eliminated that 80 percent cap on NOL carryforwards for 2018, 2019, and 2020. It also reinstated NOL carrybacks for corporations and passthroughs for tax years 2018, 2019, and 2020 and extended the carryback period from two to five years.
Regarding excess business losses, the TCJA imposed a $500,000 cap on the amount of business losses that passthrough managing owners filing jointly could deduct from their nonbusiness income in the year in which the losses were incurred; the cap was $250,000 for single filers. Losses above those limits could be carried forward and deducted from future income.
Mazerov noted that in addition to suspending those limitations for 2020, the CARES Act also retroactively suspended the caps for pre-pandemic tax years 2018 and 2019, “which means the government is subsidizing businesses that lost money during a strong economy.”
Pritzker, as part of his call to decouple from the CARES Act provisions, also announced that Illinois is putting on hold the January 1 scheduled start date of additional tax credits for businesses already receiving incentives for relocating and expanding in Illinois. The credits, enacted in 2019, would cost the state $20 million, according to the governor’s office.