- Allocation of Assets. Confirm whether your company is allocating a portion of its assets to another state in its Illinois annual reports and evaluate whether the Illinois Secretary of State may take the position that your company has been underpaying its Illinois franchise taxes.
- Interrogatories. If you have received interrogatories from the Illinois Secretary of State's office, obtain the advice of counsel before responding to them.
- Timing Considerations. The amnesty period currently runs until November 15, 2019. However, because it is possible there may be legislative or other relief prior to that time, your company should evaluate any possible underpayment of its franchise tax but you may want to wait to pay fees, or apply for the amnesty program, until closer to the deadline of November 15, 2019.
Financial Institutions That Should Be Concerned:
- If you have received interrogatories from the Illinois Secretary of State;
- Are incorporated in Illinois and use an allocation factor of less than 1.0 in Illinois annual reports; or
- Are incorporated in another state, but are qualified as a foreign corporation in Illinois and use an allocation factor of less than 1.0 in Illinois annual reports.
Increased Efforts to Collect Franchise Taxes
The Illinois Secretary of State's office has ramped up its efforts to collect corporate franchise taxes. In recent months, the office has sent out interrogatories to corporations that are holding companies — such as bank holding companies — asking whether the corporations are reporting they hold property outside the state of Illinois based on the physical location of the stock certificates representing ownership of their subsidiaries.
What Does This Mean for Your Financial Institution?
These interrogatories signal a potential change by the Secretary of State's office from a prior interpretation of Illinois franchise tax law that holding the stock certificates of a subsidiary in another state can reduce the value of a company's gross assets held in Illinois by the value of the underlying subsidiary. Under this prior interpretation, and as self-reported on a company's annual reports, the company's Illinois franchise taxes would be reduced by the percentage of the value of its gross assets held outside the state of Illinois.
Failure to resolve issues regarding a company's Illinois franchise taxes could result in the Secretary of State's office refusing to issue a good standing certificate or to accept for filing a company's articles of merger, articles of dissolution, an annual or cumulative report, or any other required corporate filing.
Amnesty Program In Effect
The Illinois Secretary of State's office is currently offering an amnesty program until November 15, 2019, to allow companies to pay any franchise taxes owed for past years, without interest or penalties.
We Can Help You
If you would like to discuss this further, or need assistance in requesting amnesty, please contact us. We have addressed the Illinois franchise tax amnesty program in a recent Client Alert:
- Client Alert: Amnesty Program Offered by Illinois Secretary of State for Unpaid Franchise Taxes