IVCA Provides Updates for State Legislative Issues – 01/18/2023
Illinois Venture Capital Association Illinois Legislative Report
David Stricklin / Stricklin & Associates
Wednesday, January 18, 2023
DO NOT PASS GO – DO NOT COLLECT $200
The 102nd Illinois General Assembly ended with no further progress on the IVCA initiative to better define an investment partnership to cover Private Equity funds under the definition in Illinois statute. Because the Illinois Department of Revenue insists PE funds are a “trade or business” and not investment partnerships, investors in Illinois funds face a tax consequence which if enforced could create a competitive disadvantage for Illinois funds and managers.
Our legislation to correct this interpretation passed the Illinois Senate unanimously but was held up in the House. The chairman the Revenue Committee did not support the bill, and the House sponsor was neutralized as an advocate, and was denied a chairmanship in the 103rd General Assembly, stemming from allegations of mismanagement in his district office.
IVCA will continue to pursue a favorable resolution in the Spring Session of the 103rd General Assembly. The new chair of the Revenue Committee, Leader Kelly Burke, is familiar with the issue and has worked with IVCA during her time of service in the General Assembly. Watch for updates when a new bill is introduced, and we have additional details to share.
TAXES
Watch for several bills to be introduced this session to increase taxes on high income taxpayers.
PRIVILEGE TAX ALL OVER AGAIN?
For specifics we must see the introduced bill, which should be available this week, but brace yourselves for further discussion of how capital gains and other sources of income should be taxed in alignment with proposals made by U.S. Sen. Elizabeth Warren.
In four states — the three that drafted bills with Saez’s involvement, along with Illinois — lawmakers say they will float versions of a tax on wealthy people’s holdings, or so-called “mark-to-market” taxes on their unrealized capital gains. But other states will pitch more conventional tax proposals.
During the Rauner administration, a bill to impose a 20% “privilege tax” on capital gains (carried interest) passed the Senate and made it out of House Revenue. While it was widely seen as a campaign tactic for the Senate sponsor and a dig at the governor, it nonetheless had to be opposed vigorously, which we did. Similar bills were not introduced during the first term of Governor Pritzker, who has stated he believes these are federal income tax issues and not appropriate for state-by-state enactment.
Still, expect this session to include at least a fair amount of conversation and publicity around whether higher income earners should be paying more in Illinois taxes.
GRADUATED INCOME TAX REVISITEDA new plan to raise taxes on wealthy Illinoisans—and use at least some of the proceeds to lower taxes on those who are less well off—would almost certainly set off a major furor in Springfield. It also could create a bit of a dilemma for Gov. J.B. Pritzker, who strongly pushed what he call “the fair tax” in the 2020 referendum and has continued to hint that he’s still interested in tax reform but may not want not to deal with this issue at a time when he’s clearly pondering a race for president if incumbent Joe Biden retires.
LAME DUCK RECAP
Illinois legislators and the governor agreed on a supplemental spending bill which included pay raises for legislators, which skeptics pointed out was done past bedtime on a Friday night. The governor won approval for a $400M “closing fund” which he can tap for finalizing deals to attract major manufacturing prospects, etc. Legislators and the governor also agreed on putting
The bill also put money into hospital systems and social services in the state which have been strained by higher labor costs, inflation, and supply chain issues. The bill also put some $800 million into the state’s rainy-day fund.
LAME DUCK FLIES
SPRINGFIELD, Ill. (WTVO) — A bill that would guarantee paid sick leave in Illinois is now awaiting Governor JB Pritzker’s signature. It would mandate all employers to provide five days of paid leave to be used for reason if signed into law. It would also allow workers to roll over 40 hours of unused time.
Legislators spent the last four years working with labor and business groups to reach a deal. The Illinois Chamber of Commerce is neutral on the bill, but they are concerned that it could create issues for small businesses, or businesses with seasonal employees. Pritzker said that he is “looking forward” to signing the legislation, which would take effect at the start of next year.
HOT BUTTONS PUSHED
Heated debates and enthusiastic lobbying on each side of the gun and abortion issues took place during the lame duck session, which resulted in passage of landmark legislation on both issues.
REPRODUCTIVE RIGHTS
PROPONENTS HAIL GUN BAN
SHERIFFS SAY THEY’LL IGNORE GUN BAN