our study looks at the roughly two-thirds of Illinois corporate income tax filers that show no tax liability. The study covers tax years 2007 through 2011.
What we found
Federal taxable income (FTI), which is the starting point for computing Illinois tax liability is by far the primary factor in determining whether an Illinois filer will have an Illinois corporate income tax liability – not Illinois deductions or credits. On average, of the 66.9 percent of corporate tax filers with no Illinois corporate tax liability, the most significant factor in determining whether a corporation would have an Illinois tax liability was whether or not a corporation showed federal taxable income (FTI) on line 1 of their Illinois return.
In addition, Illinois corporate tax deductions play a very minor role in reducing a corporation’s tax liability to zero even if the corporation does have a positive FTI. The average number of returns filed showing no Illinois corporate income tax (Illinois CIT) liability over the five-year period was 75,517 (out of a total of 112,919 CIT returns filed). Of those 75,517 filers, on average only 4,049 corporations had a positive FTI on line 1 of their Illinois return but no CIT liability, but only 721 or 17.8 percent of the returns initially showing FTI wound up with no tax liability after applying Illinois deductions.
More specifically, the 2011 suspension of the Net Operating Loss Deduction (NOLD) did not have a significant impact in moving corporations from a non-taxpaying status to a taxpaying status. Revenues generated by the suspension of the NOLD came primarily from taxpayers that were already paying corporate income tax.
Illinois tax credits have almost no impact in explaining why businesses have no corporate income tax liability. Of the total 75,517 returns filed with no CIT liability, only 132 (0.2 percent) fall into the no liability category through the use of tax credits.
“ For those with thinking caps and reading skills.”
So that rules out the entire Chicago City Council, 70% of the Illinois State Legislature, and 85% of the Executive.
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