California - Refunds or IOU's?????

In a press release on January 16, 2009, California State Controller John Chiang announced that he will be delaying the payment of corporation franchise and income tax and personal income tax refunds by 30 days. According to the Controller, eroding revenues and the inability of the state's governor and Legislature to address the state's chronic structural deficit has "destroyed the state's cash reserves." The internal special funds and money from Wall Street that the state has been borrowing in order to pay its bills for the last 17 months have almost been exhausted. The Controller warned that if no corrective action is taken by the governor and the Legislature, the state may have to further delay the payment of the tax refunds or issue IOUs.

Now, I don't know about you, but it sounds like if the state owes you a refund, you may have to hire a collection agency to go after the state to get your money. I mean, isn't that what governments or creditors do when you owe them money?

In other words, if you were projecting to receive a refund on your 2008 tax return,or had a protective refund claim filed for the unconstitutional LLC FEE, don't expect to receive your refund any time soon.

Illinois: New Withholding Requirements in 2009

The new IL withholding requirement applies to tax years ending on or after Dec. 31, 2008. It applies to S corporations, partnerships and trusts.

Pass-through entities (PTEs) must file Form IL-1000, Pass-through Entity Payment Income Tax Return and make a PTE payment on behalf of nonresident owners.

The due date is the PTE’s original due date (i.e., 3/15 for S corporations, 4/15 for partnerships and trusts). Estimates are not required.

PTE’s are required to make payments for all nonresident owners except:

1) individuals who are included in a IL Composite return; or
2) non-individual owners (corporations and other PTEs) who document to the pass-through entity on Form IL-1000-E, Certificate of Exemption for PTE Payments, that they will file a return and pay the IL income tax. (The PTE should keep copies of Form IL-1000-E in its files.)

Planning Note: Non-individual owners in tiered entity situations could provide Form IL-1000-E to lower tier entities to keep them from making nonresident withholding payments. This would hopefully minimize over-withholding situations from occurring.

If you have any questions, please contact me at leveragesalt@earthlink.net.

Illinois Department of Revenue, IL - Informational Bulletin FY 2009-02, October 2008

State Budget Problems

The Problem

According to the Center on Budget and Policy Priorities, some 44 states are facing shortfalls in their budgets for this and/or next year. New mid-year fiscal year 2009 shortfalls of $42 billion have opened up in the budgets of at least 41 states and the District of Columbia. Budget deficits are already projected in 38 states for the upcoming fiscal year. Initial estimates of these shortfalls total almost $80 billion. As the full extent of 2010 deficits become known, shortfalls are likely to equal $145 billion. Combined budget gaps for the remainder of this fiscal year and state fiscal years 2010 and 2011 are estimated to total $350 billion to $370 billion.

Balanced Budget Requirement

Unlike the federal government, states cannot run deficits when the economy turns down; they must cut expenditures, raise taxes or draw down reserve funds to balance their budgets. Therefore, at least 19 states have implemented or are considering cuts that will affect programs for low income children or families, and programs for the elderly and disabled. At least 18 states are cutting medical, rehabilitative, home care, or other services. At least 20 states are cutting or proposing to cut K-12 and early education; several of them are also reducing access to child care and early education, and at least 26 states have implemented or proposed cuts to public colleges and universities. In addition, at least 34 states have proposed or implemented reductions to their state workforce.

Potential Impact on Taxpayers

In addition to the reduction of services provided by the states, the states may be forced or compelled to raise taxes, or eliminate tax credits or exemptions. Therefore, over the next few months, we expect some states to propose tax increases, and/or to propose to eliminate popular tax credit/refund programs and exemptions. Meaning, the taxing structure of several states is likely to change. The impact of these changes will not be known until proposals are made and passed. In addition, we also expect states to become more aggressive with issuing notices and audit assessments.

Glass Half-Full

On a positive note, the projected budget shortfalls do not account for the effects of major economic recovery legislation. If states receive fiscal aid, these shortfalls would be smaller. In addition, if economic growth was significantly better than projected, state revenue collections would likely be higher than projected.

Conclusion

We will be monitoring any proposals by the states and keep you posted of any major changes that will impact taxpayers. If you have any questions regarding a specific state's activities, please contact me at leveragesalt@earthlink.net.