Personal Property Replacement Tax
Because of past Illinois Department of Revenue rulings holding that investment income received by private equity funds was not Illinois-sourced income and therefore not subject to Illinois taxation in the hands of the fund or its nonresident partners, few firms and individuals actually paid this tax over the many years it was in effect.
However, increased audit activity in 2002 and 2003 indicated that the department had begun to classify passive investment income gained through investing with Illinois private equity funds as taxable income subject to the 1.5% replacement tax. This increased audit activity significantly heightened IVCA members’ concerns and called for a resolution to this uncompetitive tax. (No other competing money states have such taxes.)
In early January 2004, the IVCA alerted the Illinois Department of Revenue (DOR) to the serious negative impact that collecting this tax would have on expanding private equity investment in the state. The DOR agreed with our assessment and introduced legislation to correct this problem. The IVCA actively worked to gain legislative support for the proposal. At the request of the IVCA and the DOR, key provisions of the legislation exempting investment partnership income from the PPRT were included in the final budget package agreed to by the legislature and the governor.
