Legislative Alert: Illinois Senate Passes “Privilege” Tax: Gains on investments in private companies would be taxed at 20%

Legislative Alert -  Illinois Senate Passes “Privilege” Tax:  Gains on investments in private companies would be taxed at 20%

May 24, 2017

On May 23rd, 2017 the Illinois Senate passed SB 1719.  Dubbed the “Privilege Tax” by its sponsor, this bill will need to pass a House vote in order to move to the Governor for signature.   
 
The final vote was 32-24 plus one voting present and two not voting.    
 
Should this bill become law, Illinois VC & PE firms will be taxed at a rate that is 20% higher than in any other state creating a huge disincentive for firms to open offices in Illinois and creating a net outflow of the very citizens we need to help Illinois emerge from our financial woes. 
 
Now is the time to let your voice be heard. 
IVCA members should immediately contact their Illinois House of Representatives member to encourage a NO vote on SB 1719. 
  • Click here for legislators’ contact information. 
  • Click here to find who your legislators are.
  • Click here for a SAMPLE EMAIL (and see the one at the end of this article)

 
SB 1719 is sponsored by Illinois State Senator Daniel Biss, who is also a candidate for the Democratic nomination for Governor of Illinois.
 
The bill imposes a 20% "privilege tax" on income derived from investment management services, income which is taxed for federal purposes at the capital gains rate and not at the higher personal income tax rate.
 
Despite the opposition of a coalition including IVCA, Illinois Bankers, CPAS, Chamber of Commerce and others, Senator Biss (D-9) argued that because carried interest is taxed at a capital gains rate as opposed to the top ordinary income rate, Illinois should capture the tax dollars he believes the Federal government is missing.   There is no mechanism to lower this rate should future capital gains or ordinary income rates change at the Federal level.
 
The negative impact on Illinois’ economic and job growth is likely to be dramatic.  According to Pitchbook, over a five-year period from Jan 1, 2011 to December 31, 2016, Illinois based venture capital & private equity professionals invested $15.7 billion in 587 Illinois companies - an investment figure few other industries in Illinois can match.
 
It was pointed out clearly that the state will likely receive no additional income from the bill even if it did become law because individuals subject to the "privilege tax" would simply move themselves and/or their firms to states more friendly to their concerns. 
 
It is ironic that just as the Illinois Tech community is gaining momentum, and all of our neighboring Great Lakes states envy our status as an investment hub, that the Illinois Senate chooses to drive out the very investors that can help our state recover its financial footing.  The $15.7 billion invested by VC & PE investors in Illinois over the past 5 years will decline markedly in the next five years which will lower Illinois’ tax base even further.
 
Illinois State Senator Chris Nybo (R-24) carried the opposition to the bill along with his colleagues Senator Pamela Althoff (R-32) and Senator Sue Rezin (R-38).  
 
The “yes” and “no” votes may be found here:
http://www.ilga.gov/legislation/votehistory/100/senate/10000SB1719_05232017_020000T.pdf

SAMPLE EMAIL

Subject: Vote “no” on SB 1719
 
Dear Rep. ______,

I am deeply concerned that the Illinois Legislature has chosen to target Investment Advisors with a 20% tax on gross fee income. 

Investment is the engine of our economy.  Without investor dollars to back management growing a company’s property, plant, equipment, and human resources, Illinois’ economy will stagnate and then decline precipitously. Please ensure that the poorly considered bill does not move forward.

I strongly encourage you to vote “no” on SB1719.

Sincerely,


NAME
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