SPRINGFIELD – December 16, 2009. Governor Pat Quinn today signed into law a bill that shields professional service partnerships from paying an additional tax when their partners are already paying individual income tax.
The additional tax would have affected many business partnerships across Illinois starting with the tax year ending December 31, 2009. House Bill 2239 eliminates an additional 1.5 percent tax on partnership profits earned by businesses providing accounting, legal and business consulting.
“Healthy small companies and partnerships are essential to our economy by generating needed employment and business innovation. Making sure these enterprises are treated fairly under the state tax code is vitally important,” said Governor Quinn. “This bill helps ensure the state does not unfairly tax these entrepreneurs.”
A provision in the Budget Implementation Act passed earlier this year (Public Act 96-0045) changed Illinois tax policy by limiting partnerships’ deductions to “guaranteed payments” instead of “reasonable compensation.” This resulted in an additional tax burden on partnerships.
House Bill 2239 amends subsection 203(d) of the Illinois Income Tax Act (35 ILCS 5) to restore the previous tax treatment for personal service partnerships. It allows for the deduction of personal service income when calculating a business partnership’s base income.
Without House Bill 2239, this personal service income could not be deducted from partnerships’ base income. This would have effectively double-taxed the personal service income of many of Illinois’ partnerships and limited liability companies, many of which are small employers.
The bill passed the General Assembly unanimously and was sponsored Sen. Don Harmon (D-Oak Park) and House Majority Leader Rep. Barbara Flynn Currie (D-Chicago). It is effective immediately.