INC TX-PASS THROUGH ENTITIES
The proposed amendment intends to simplify the tax reporting process for individuals and partnerships, especially those engaged in cross-border business activities. By clarifying what constitutes Illinois-sourced income, the bill aims to ease the burden on taxpayers, reducing the compliance costs and complexities associated with multi-state operations. Furthermore, the legislation mandates that if a Schedule K-1-P is issued indicating that taxes have been paid at the partnership level, the Illinois Department of Revenue will collect any outstanding amounts directly from the partnership rather than from individuals who are partners, streamlining tax collections.
House Bill 4157, introduced by Rep. Michael T. Marron, seeks to amend the Illinois Income Tax Act by providing modifications to how taxpayers calculate their base income. The bill stipulates that when calculating base income, a taxpayer's federal adjusted gross income will be adjusted to exclude any income or loss sourced from businesses that operate both within and outside of Illinois, as well as from pass-through entities whose income is not connected to Illinois. This change is aimed at refining tax calculations for individuals and entities in Illinois, potentially benefiting businesses conducting operations outside the state.
Despite its potential benefits, there are concerns regarding how this bill may impact local tax revenues and responsibilities. Critics fear that by excluding certain income from tax calculations, the state could experience a shortfall in tax revenues, which could ultimately affect funding for public services. Moreover, the delineation between income derived from Illinois vs. non-Illinois sources could lead to disputes over classification, thus requiring additional regulatory clarification. Supporters argue that this clarity will enhance transparency and fairness in how taxes are assessed and collected, particularly for businesses engaged in interstate commerce.