Illinois Bankers Association

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Important Alert: Secretary of State Franchise Tax Issue

Updated 11-7-19

As previously reported, the Secretary of State’s office restored its historical treatment of stock certificates held out of state for franchise tax purposes, which means such stock is not required to be reported and taxed as property held in Illinois. Due to the large number of bank holding companies that recently have received “interrogatories” relating to this issue, however, a number of subsequent communications have taken place with various parties and the Secretary of State’s office, and this apparently has resulted in some receiving inconsistent information from the office. Late this afternoon, the office issued the following statement in clarification:

 

I am writing to clarify the policy of the Office of the Secretary of State regarding stock certificates maintained in another state with regard to calculating Illinois franchise tax obligations. It is the position of this office that stock certificates maintained in another state shall be considered property allocated to that state and not to the State of Illinois, subject to verification. Furthermore, no corporation will be required to amend any previously filed franchise tax assessment for the purpose of treating stock certificates that can be verified as having been maintained in another state at the time of the previous filing, as property allocated to the State of Illinois.

 

The Department of Business Services will adhere to its policy of verifying the information contained in the corporation’s Annual Reports and other reports, including the corporation’s allocation factor. In that vein, corporations will need to prove that the stock certificates were actually transferred to another state, how long they have remained there, the value of said stock certificates, among other factors to be taken into account in order to reduce the amount of property reported to the State of Illinois as property located in the State of Illinois. Uncertificated stock will still be considered to be administered, managed and controlled from the State of Illinois. If necessary, and per Department policy, corporate board resolutions, tax returns, accountant’s affidavits and other evidence may be required of the corporation to verify its position.

 

Further, as you know, there is currently an amnesty in effect regarding the penalties and interest on any corporate franchise tax obligations. The amnesty period ends at the close of business on Friday November 15, 2019. All amnesty petitions must be filed or postmarked as of November 15, 2019. Please advise your members that if they have any potential franchise tax liability, it would behoove them to take advantage of the amnesty. Any petitions for amnesty filed after that date will be rejected, per statute.

 

If you have any questions, please contact the undersigned. Thank you.

 

Nathan Maddox

Senior Legal Adviser

Office of the Secretary of State

(217)785-3094


Second Alert 

Following up on our first Alert that we sent you this afternoon, we are pleased to report that the Secretary of State’s office has verbally informed the IBA that it is reversing its position on the franchise tax issue. Moreover, it is our understanding that representatives of the Secretary of State’s office are reaching out to affected banking organizations this afternoon to inform them of this decision. 

We wish to thank the Secretary of State’s office for listening to our concerns on this important matter, and we will continue to keep you posted if there are any further developments.

First Alert

Recently, many bank holding companies in Illinois have been receiving letters and “interrogatories” from the Illinois Secretary of State leading to allegations that these organizations owe substantial sums of unpaid franchise taxes from previous years. The IBA has been working behind the scenes with the Secretary of State’s office for several weeks now in the hope of reversing the office’s position, but unfortunately, we have nothing positive to report to date. 

Due to the quickly closing window for the state’s amnesty tax program, which ends November 15, we now have formally expressed our concerns and arguments in a letter that we sent today to the Secretary of State’s office. We urge you to read this letter here

We will keep you posted if we learn of any developments.


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