5 ways the new state budget could affect your business
Business owners around the suburbs are reviewing the effects of the new state budget, especially when it includes a $5 billion tax increase from hikes and other changes.
Although the budget fails to rectify Illinois' $15 billion debt, nor does it address the $130 billion shortfall in government worker pensions, it's a start, said James Hamilton partner with Weiss & Co. in Glenview.
“While it looks like we're done (with taxes and credits) for 2017, I expect more to come in 2018,” Hamilton said.
The budget has its share of increased taxes, but it also offers some exemptions. Here's a look at a few highlights and what this could mean for your business.
1. The Illinois income tax rate for individuals increased from 3.75 percent to 4.95 percent, which also is used for small, mom-and-pop businesses. Also, the corporate income tax rate increased from 5.25 percent to 7 percent for larger companies.
Small businesses will take a hit with the new taxes, said Craig Bolanos, founding partner and CEO of Wealth Management Group in Downers Grove. “Any business that can relocate to another state, will do so,” Bolanos said. “To think anything else would be disingenuous,” he added.
2. The tax credit for residential real estate property will be eliminated for the taxable years on or after Jan. 1, 2017. Taxpayers may not claim a credit if their adjusted gross income for the taxable year exceeds $500,000 for spouses filing jointly or $250,000 for all other taxpayers.
Already, there is a statewide shortage of available homes on the market, which has led to increased prices and more competition. Realtors who have their own firms likely will be watching this new change carefully. If fewer homes sell, that's less for the Realtor as well, said Jon Broadbooks, spokesman for Illinois Realtors. “Any changes to the property tax structure is important and can affect the market and the realtor's business,” Broadbooks said.
3. The tax incentives for gasohol ended on July 1, instead of Dec. 31, 2018.
The good news is, gasoline suppliers that sell to state facilities will be paid now that a new budget is in place. The bad news is business, as well as consumers, will be paying more for gasoline. If consumers hold back on driving and buy less gasoline at the pump, they likely will also not buy as much in the convenience store. Then the station owners will see a decrease in profits, said Bill Fleischli, vice president of the Illinois Petroleum Marketers Association. “Station owners will have less money now to put back into their businesses,” Fleischli said. “This tax will affect how consumers will buy gas and how they will spend in their stores. If volumes go down, then profits will go down.”
4. The exemption for machinery and equipment used for graphic arts will be reinstated under the manufacturing exemption. This exemption originally ended on Aug. 30, 2014.
Print manufacturers will benefit from the permanent graphic arts exemption, said Mark Denzler, vice president and chief operating officer for the Illinois Manufacturers' Association.
5. The research-and-development credit will be reinstated and extended through Jan. 1, 2022. The credit originally expired as of Jan. 1, 2016, but will now apply continuously for all tax years ending on or after Dec. 31, 2004 until Jan. 1, 2022.
The research-and-development credit was not made permanent, nor was it updated. It does not provide certainty or predictability, Denzler said.
And manufacturers lost because the assembly failed to extend the Manufacturers Purchase Credit that had expired in 2015 and they also decoupled from the Qualified Production Activities Deduction. This federal incentive was to encourage manufacturing production in America. “Illinois has now decoupled, meaning that Illinois companies will not get the same benefit as state companies that manufacture in the United States,” Denzler said.