A bill making its way through the Illinois legislature has some observers worried that it will be a vehicle for an amendment to decouple the state from the federal tax code, potentially increasing taxes on small businesses by hundreds of millions of dollars.
S.B. 217 as introduced would amend the state's Parking Excise Tax Act. However, Bryce Hill with the Illinois Policy Institute, a conservative think tank, believes the bill is a shell that will serve as a vehicle for legislation that would decouple the state from the net operating loss provisions of the federal Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-36).
A decoupling amendment could be added on to a shell bill to attempt to push through potentially unpopular legislation, Hill told Tax Notes March 18. He said decoupling from the NOL provisions could cost small businesses $500 million to $1 billion in tax breaks.
“Elimination of the carryback provision for struggling small businesses would be a major mistake by Springfield,” Hill said. “At a time when half a million Illinoisans are still out of work and 35 percent of small businesses have already shuttered, it would be unwise to pass legislation that makes it less likely a struggling business can pay its bills, retain employees, or simply survive.”
S.B. 217, which passed the Senate March 10 and was approved March 17 by the House Executive Committee, is sponsored by Sen. Cristina Castro (D) and lists House Revenue and Finance Committee Chair Michael Zalewski (D) as a House sponsor.
In January Zalewski filed an amendment to S.B. 1199 — a bill originally filed to amend the state's property tax code — that would have decoupled the state from the NOL provisions, but the bill died in the House at the end of the last legislative session. Zalewski filed the amendment a few days after Gov. J.B. Pritzker (D) called for legislation decoupling the state from the provisions, which the governor said is necessary because of the state's $3.9 billion budget shortfall.
A spokesperson for Zalewski did not reply to a request for comment by press time.
Pritzker said in a January 6 press conference that the tax changes implemented under the CARES Act would “essentially deprive Illinois of revenues that it otherwise should get.”
Republicans, however, have come out strongly against any proposals to decouple from the act, cautioning that doing so would take away a necessary federal tax lifeline for already struggling businesses.
The governor’s office did not return a request for comment by press time.
With S.B. 217 now through committee, it will be alive through the remainder of the legislative session, as Democrats hoping to inject revenue into the state’s coffers are pitted against Republicans clamoring for further small business tax relief. The Illinois House reconvened in-person March 18, though no action was taken on the legislation. The session is scheduled to end May 31.