Archive for the ‘Illinois’ Category

New York, California, and Illinois Lose AGI & Population Per IRS Data

Sunday, December 25th, 2022

The Tax Foundation produced a report showing the overall gain (and loss) of population and taxpayers’ Adjusted Gross Income (AGI) during the second half of 2019 through the first half of 2020.  For the most part, high tax states were the biggest losers while low tax states were the biggest winners.  While the data includes a portion of the pandemic, “These data, therefore, capture many of the interstate moves made early in the pandemic—between mid-March and mid-July 2020—but do not necessarily capture the bulk of pandemic-related moves, many of which occurred later in 2020 and even into 2021. As such, when interpreting these data, it is important to keep in mind that many of these moves happened before the even more pronounced shift away from large cities and high cost-of-living areas that occurred during the pandemic. [emphasis in original]”

Some of these losses are eye-popping.  New York (which is dead last on this list) lost $19.5 billion in AGI and 248,305 taxpayers.  California (ranking 46th) lost more in population (263,344) but “only” $17.8 billion in AGI.  Meanwhile, Florida gained $23.7 billion in AGI and 166,707 in taxpayers (ranking 4th).  Idaho topped the list with a gain of $2.1 billion in AGI and 36,655 in taxpayers.

This is one area where it’s a zero-sum game.  Every taxpayer who moves between states ends up somewhere else.  If a state loses enough population, the state is forced to make changes.  Indeed, that time is likely coming soon for New York and Illinois–their current trends are just not sustainable.  Meanwhile, the legislature in New York proposed tax increases.  (To her credit, Governor Hochul vetoed the legislation.)

For those who say it’s related to weather, sure, that’s a factor.  Yet Maine–not exactly the warmest state in the Union–ranks seventh.  Indeed, combine sound fiscal practices and great weather and you get Florida.  I’d advise politicians in California, New York, and Illinois to carefully read the study (but I doubt they will).

Here’s an image from the Tax Foundation:

Hopefully, It Won’t Take Ten More Years for a Resolution (The Trouble Fighting State and Local Tax Agencies)

Monday, September 14th, 2020

In 2008, taxpayers in Cook County, Illinois (Chicago) received property tax assessments and believed they were done improperly, including violating the Equal Protection Clause of the Fourteenth Amendment. They challenged it through the county appeals process, but got nowhere. They filed a lawsuit in state court, and the county argued that you can’t challenge the property tax based on the federal constitution in state court. So they filed suit in federal court in 2018, and that case was dismissed because of the Anti-Injunction Act (which prohibits most tax-related suits in federal court). They appealed the federal dismissal, and earlier this year the Seventh Circuit Court of Appeals reversed and remanded the case.

In that earlier decision, the Court held that not only didn’t Illinois have a “plain, speedy and efficient” method of appealing, they had no method of appealing. “Efficiency is no good to the taxpayers if it means that they cannot bring their equal protection claim in state court.”

And the defendants agree with the taxpayers that they cannot. In their brief, the defendants assert that the taxpayers err in presuming that they can raise their constitutional claims, sharply admonishing that “[t]hey are not free to do so.” Instead, the defendants argue, “the only matter at issue in a Section 23-15 action is whether the assessment of the real estate property was correct.” By the defendants’ own admission, then, the section 23-15 procedures provide no forum for the taxpayers to raise their constitutional claims. Nor have the defendants been able to point to any alternative channels in which these taxpayers can raise their federal constitutional claims in Illinois courts.

That case was decided on January 29th, with the case remanded to the District Court for further proceedings. One would expect that the District Court would then start the process of hearing the case. However, that wasn’t the case.

The District Court put a stay on proceedings, based on the County planning on filing a writ of certiorari (to have the Supreme Court review the case). “The taxpayers now petition for a writ of mandamus, asserting that the district court exceeded its authority when it entered the stay. A writ of mandamus is an extraordinary remedy, not lightly invoked, but it is available in an appropriate case for a litigant who can show that it has no other adequate means to attain relief to which it is clearly entitled.”

The spirit of our mandate in this case was clear. After concluding that the taxpayers lacked a plain, speedy, and efficient remedy in the state courts, we remanded the case to the district court for it to resolve the taxpayers’ claims. Then, mindful that the taxpayers had already spent a decade trying to litigate these claims in state court, and judging the Supreme Court unlikely to grant certiorari, much less to reverse our judgment, we expressly denied the defendants’ request that we stay our remand pending their petition for a writ of certiorari. The district court was powerless to reconsider our decision on this matter and grant what we had withheld.

You may have read about “Writ of Mandamus” in regards to the Michael Flynn case. Luckily, this case is apolitical, and we can see a case where it’s inarguable that mandamus is needed. Basically, lower courts are required to follow orders of higher courts. If a Court of Appeals denies a stay, the District Court can’t substitute its own judgment.

Why am I writing about this case? Because I wanted to illustrate the costs involved and time-frames in fighting local tax agencies. This case began in 2008. It is now 2020. This case will almost certainly not be resolved until 2021, thirteen years after it began. The legal fees are almost certainly in the many thousands of dollars, and there are more to come. At least a resolution shouldn’t take another ten years.

A few years ago, I had a client audited by New York State. New York assessed roughly $10,000 in tax to the client. We believed that New York was wrong on their interpretation of the tax law in question. The client spoke with an attorney in regards to fighting the case, and found it would cost somewhere more than $20,000 to move forward. Spend $20,000 to save $10,000 doesn’t make sense, and we ended up settling with New York State for a somewhat lesser amount (with all penalties being removed).

Still, that case and the Gilbert Hyatt/California Franchise Tax Board case (which began in the early 1990s and is still ongoing) have disillusioned me in regards to most state and local tax agencies. Unfortunately, the decision I’m highlighting today just reinforces my beliefs.

April 15th Deadlines

Tuesday, April 14th, 2020

Yes, the tax deadline for the IRS (and federal estimated payments for the first two quarters) is July 15th. However, not all states conformed to this–especially for estimated payments. The following states all have first quarter estimated payments for individuals that are due tomorrow, April 15th:

  • Arkansas
  • District of Columbia
  • Hawaii (due April 20th)
  • Illinois
  • Iowa (due April 30th)
  • Kentucky
  • Michigan
  • Minnesota
  • New Hampshire
  • New Jersey
  • North Carolina
  • Oregon

So if you need to make estimated payments for 2020 for one of these states, do so. If you are mailing your payment, use certified mail (but not return receipt requested–there’s a possiblity no one is there to pick up the mail).

The 2017 Tax Offender of the Year

Sunday, December 31st, 2017

It’s once again time for that most prestigious of prestigious awards, the Tax Offender of the Year. To win this award you need to do more than cheat on your taxes; it has to be a Bozo-like action or actions. As usual, we had plenty of nominees.

President Trump received a nomination. Now, I realize many do not like the President’s politics, and the tax reform bill that was signed into law isn’t tax simplification. However, it is tax reform, and it will lower taxes for most Americans. As for Democrats’ charges that it will kill millions and cause the world to end, please. President Trump may deserve criticism over other political issues, but not on taxes (today).

Finishing in third place was Joseph Cervone, CPA, of White Plains, New York. Mr. Cervone saw the tax credits available for energy and coal and thought, “I can get free money for my clients! Let’s just submit $23 million of phony credits!” Mr. Cervone is enjoying 22 months at ClubFed.

Finishing in second place was the California legislature. The Bronze Golden State had a flirting with single-payer health care; luckily for California taxpayers the projected $400 Billion cost caused even the ultra-liberals to get cold feet. California continues to waste money on the train to nowhere. The project originally had a cost of $33 billion; it’s now up to $68 billion. It’s probable, though, that the project will die as further funding from the federal government is unlikely. It would be nice for Sacramento to stop spending money on it; the $3 billion spent could be used for far better things.

I grew up just outside of Chicago. I’m a fan of Chicago sports teams (save the White Sox), and many of my relatives live in or near Chicago. Yet Illinois in general and Chicago in particular is now known for high and increasing taxes and out-migration. A search on Chicago taxes finds stories like, “Chicago Property Tax Bills Going up 10 Percent This Year,” “Increased taxes, fees on phones, ride-hailing and concert tickets approved in 2018 Chicago budget,” and “Chicago’s soda tax is repealed.” You can read an article about fed-up Illinois homeowners debating moving from Chicago.

The question, though, is why are taxes increasing in Illinois and Chicago? Is it just the politicians, or is there an underlying cause? There is an answer: Public Employee Pension Funds. These funds (generally on the state level) are the cause of the problem in Illinois, and are this year’s Tax Offender of the Year.

The Tax Foundation has a map showing the funding in various states. Here are the top ten (best) funded states as of 2015 (latest year that statistics are available):

1. South Dakota, 107%
2. Oregon, 104%
3. Wisconsin, 103%
4. North Carolina, 99%
4 (tie). Tennessee, 99%
6. New York, 98%
7. Idaho, 95%
8. Nebraska, 93%
9. Delaware, 92%
10. Florida, 91%

And here are the ten worst:

40. Arizona, 64%
40 (tie). Colorado, 64%
42. Hawaii, 61%
42 (tie). Rhode Island, 61%
42 (tie). South Carolina, 61%
45. Alaska, 60%
45 (tie) Pennsylvania, 60%
47. Connecticut, 51%
48. New Jersey, 48%
49. Illinois, 41%
49 (tie) Kentucky, 41%

The Tax Foundation’s closing paragraph explains the problem:

Pension obligations must be fulfilled eventually. Policymakers should consider that reform now may be less costly and less painful than coping with a larger crisis later.

As of 2015, both California and Nevada are about average (at 74% funded). Unfortunately, California is now at 64% and falling. So why has this happened and what can be done about it?

Pew has a report on the 2015 analysis, and the problems began in the early 2000s: Liabilities increased at the same basic rate while assets in pension funds didn’t. In many states the pension fund crisis hasn’t come (yet). In a few, it won’t come (pensions are properly funded). In at least one state, Illinois, the crisis exists today; in another, California, it’s coming very soon. Consider that California pensions aren’t well funded yet we’ve had a huge boon in the stock market over the last two years!

Some cities and counties are in even worse shape. A Hoover Institution report shows that both Chicago and Cook County (the county that Chicago is in) have massively underfunded pensions. So Chicago residents have a triple whammy: underfunded state, county, and city pensions.

As for the reasons why this crisis exists, there are a couple.

1. When rates of return increased in the late 1990s, that increase was built into new public employee contracts. The late 1990s featured the dot-com boom in the stock market. Those rates of returns, in the 7% range, aren’t seen today (they’re about 2% to 3%).

2. Politicians ignoring the issue. It’s always easiest to pass the buck to the next mayor, or the next governor, or the next state legislature. That’s what’s been done in Illinois, and the state is in severe crisis. The Democrats who control the state legislature are beholden to the public employee unions who, shockingly, don’t want to see pensions cut. Last time I looked, Illinois is nearly a year behind in paying its bills–all because of the pension crisis. So Democrats are only proposing tax increases rather. Residents who can move are doing so, and they can escape the pension crisis.

So what’s the answer to this crisis? There are a couple:

1. Pension reform is needed nearly everywhere in the US. Yes, pension benefits are going to decrease. That’s going to happen, either through negotiation or when the systems run out of money. It’s a certainty.

2. Reform for civil service/public employee unions. I am reminded of what President Franklin Roosevelt said:

All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations when applied to public personnel management. The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations. The employer is the whole people, who speak by means of laws enacted by their representatives in Congress. Accordingly, administrative officials and employees alike are governed and guided, and in many instances restricted, by laws which establish policies, procedures, or rules in personnel matters.

Meaningful reform means that public employee unions won’t have collective bargaining or massive reform of civil service (or both). Governor Scott Walker of Wisconsin noted this in a speech and implemented reforms. You will note that Wisconsin pensions are fully funded (one of only three such states).

Pain is coming in the world of pensions. Public employee unions can either recognize it, and live with change, or it will be forced upon them. Taxpayers stuck in bad states (e.g. Illinois) and bad cities (e.g. Chicago) will vote with their feet. Chicago politicians can’t tax John and Mary Smith who leave Chicago for places like Florida. Politicians also need to recognize reform is mandatory. Yes, it will be painful but the cost of kicking this can further down the road is even greater.

That’s a wrap on 2017. While I hope that 2018 will not provide me a lengthy list of candidates for Tax Offender of the Year, I suspect (as usual) that I’ll have plenty of choices.

I wish you and yours a happy, healthy, and prosperous New Year!

Illinois and California Race for the Bottom

Saturday, May 27th, 2017

It appears that Illinois and California are in a race to see which can impose the worst tax policies. The Illinois legislature is debating a “Privilege Tax;” California is debating single-payer health care. Neighboring states to each are likely envisioning plenty of businesses relocating if these measures pass.

The Illinois Privilege Tax is a proposed 20% tax on investment advisors. Let’s say I’m a hedge fund manager in Chicago and I have the Russ Fox Fund. I charge a fee for running this fund; under this proposal, 20% of the fee would be taxable to Illinois. What would prevent me from moving to Des Moines (Iowa), Indianapolis (Indiana), or Nashville (Tennessee) and running the same fund? Absolutely nothing. If this proposal passes, the financial services sector will join lots of others in fleeing the Land of Lincoln.

Meanwhile, the Bronze Golden State is debating single-payer health care. It passed a Senate Committee, but there’s a major issue: The plan would cost $400 billion (that’s “billion” with a b, not million), far more than the state’s current budget. While $200 billion of it could come from repurposing current expenditures, $200 billion would need to be raised. How about a 15% payroll tax and self-employment tax on the state level? That would make California’s tax rate 28.3% on the highest earners! The proposal would cover anyone and everyone living in California, including those here illegally.

If this passes, there’s no doubt in my mind that businesses that could would relocate to neighboring states while any freeloaders who could would move to California. The self-employed who could move would do so immediately: Live in California, pay an additional 28% in tax, or live in Las Vegas and pay 0%? Or Arizona and pay 4%? Or, well, I think you get the picture.

There aren’t many good answers on healthcare, but there are plenty of bad ones. California appears to have chosen one of those. (Yes, single-payer can work but it would have to be implemented nationally to work, not in one state.)

State Financial Health: Alaska, Dakotas on Top, Illinois, New Jersey, Massachusetts and Connecticut on the Bottom

Tuesday, July 7th, 2015

The Mercatus Center at George Mason University released a study today ranking the 50 states on their financial health. Here are the top six states:

1. Alaska (8.26)
2. North Dakota (2.97)
3. South Dakota (2.84)
4. Nebraska (2.75)
5. Florida (2.74)
6. Wyoming (2.67)

These six states have “Fiscal Condition Index” scores that are significantly higher than all the other states. Of course, where there’s good there’s also bad; here are the bottom seven states:

50. Illinois (-1.86)
49. New Jersey (-1.86)
48. Massachusetts (-1.84)
47. Connecticut (-1.83)
46. New York (-1.49)
45. Kentucky (-1.42)
44. California (-1.41)

Why are states ranked low?

High deficits and debt obligations in the forms of unfunded pensions and health care benefits continue to drive each state into fiscal peril. Each holds tens, if not hundreds, of billions of dollars in unfunded liabilities—constituting a significant risk to taxpayers in both the short and the long term.

Think unfunded pensions and you have one of the huge issues facing states. Illinois leads the way (which isn’t a good thing for the Land of Lincoln). There’s a reality: Whatever you make, spend less. Some states follow that creed; others give it lip service. California may have a “surplus,” but when you look at unfunded pensions things don’t look so good. Sooner or later, that bill will come due.

It’s an interesting analysis, and well worth your perusal.

I’m Shocked, Shocked! That a Chicago Attorney may have Committed Tax Evasion Related to Corruption

Sunday, May 31st, 2015

There’s one thing about Illinois politics: Both Democrats and Republicans tend toward corruption. After all, which of the past few governors haven’t gone to prison?

The DOJ news release on the indictment of Daniel Soso makes for interesting reading. Sure, he’s accused of not paying approximately $779,615.86 in income tax (I’m not sure how approximate that is when there are pennies in the press release, but whatever). But it’s the preceding paragraph that makes for intrigue:

The indictment alleges that in 1996, the Illinois Attorney General entered into a written contract with several law firms who represented the State of Illinois in its lawsuit against certain tobacco companies to recover, among other things, money damages incurred by the State of Illinois as a result of the sale of tobacco products to residents of the State of Illinois. In addition, the contract provided that the law firms representing the State of Illinois, including Law Firm B, would share a “contingent fee” equal to ten percent of the total monetary recovery realized by the State of Illinois in its planned lawsuit. The indictment further alleges that Soso, Individual A (an individual formerly licensed to practice in Illinois) and Individual B (a partner of Law Firm B) entered into agreements to pay Soso and Individual A a portion of the attorney fees awarded in the tobacco lawsuit and concealed these agreements from the State of Illinois, the Illinois Attorney General and others.

The Chicago Sun-Times let’s us know who they think Individual A is.

[Edward] Vrdolyak isn’t identified by name in the Soso indictment and hasn’t been charged with any wrongdoing in the case. But the indictment cites an unnamed “Individual A.” Vrdolyak is Individual A, two sources with knowledge of the case told the Chicago Sun-Times.

Mr. Vrdolyak is a former Chicago Alderman who was convicted back in 2008 in a kickback scheme and received ten months at ClubFed.

Chicago is a beautiful city–one of my favorite places in the world–but you can have both its weather and its politics.

Taxes Impacting the Giants

Tuesday, February 24th, 2015

The San Francisco Giants have been one of baseball’s more successful teams; they’re the current world champions. But they haven’t been as freewheeling in spending money as other teams. Their General Manager blames California taxes.

The top tax rate for California is 13.3%, and it kicks in at $1 million of income. As you can imagine, most major league baseball players earn far more than that. In an interview with Hank Schulman of the San Francisco Chronicle, GM Brian Sabean stated:

“To entice a free agent to come to San Francisco, we’re almost in an overpay situation, so why get involved in all those battles where you’re not going to be able to go up the totem pole money-wise?” Sabean said.

When asked to elaborate on why the Giants have to overpay, Sabean said, “You’ve got the state of California taxes.” …Asked if the high California income tax has been a problem for a while, Sabean said, “To a certain extent. Things now are getting more and more about the signing bonus, more and more about your take-home. Exponentially, when you get involved in some of those numbers, it makes a sizable difference to some.”

There’s an obvious implication here: the big spending Los Angeles Dodgers and New York Yankees have inflated their salaries to cover high state taxes. Jon Lester, this year’s biggest free agent signee, ended up with the Chicago Cubs. Illinois’ income tax is now down to 3.75%; that’s a lot lower than California. This may be good news for Cubs fans like me.

Mundane Tax Fraud Downs Friend of Cicero Town President

Monday, December 1st, 2014

George Hunter will likely be going to ClubFed. He pleaded guilty today to two counts of tax evasion. Mr. Hunter’s company received $1.8 million in two years from Cicero…without a contract. Mr. Hunter is friends with Larry Dominick, the Ton President of Cicero. Cicero is a suburb of Chicago. The Chicago Sun-Times article notes that Mr. Hunter has refused to cooperate with federal prosecutors.

As for the tax evasion, it’s pretty mundane. Mr. Hunter paid his employees in cash and told his employees not to report their income to the IRS. He didn’t, and not paying payroll taxes is a major issue with the IRS. He also failed to file a 2008 tax return when he allegedly made $655,000. Mr. Hunter originally said the charges were brought because he refused to cooperate with authorities. No matter, the charges apparently were true. He’ll be sentenced in March.

Corruption in Chicago? Who would’ve thunk it!

Since the Dead Vote, Why Can’t They Get Tax Exemptions?

Sunday, November 9th, 2014

I grew up in Chicago. It’s legendary in Chicago that the dead vote. My father told me that during the 1960 presidential election that Democrats waited to see how many of the dead they needed to vote to ensure that John F. Kennedy won Illinois over Republican Richard Nixon (I can’t vouch for the veracity of that story).

It seems that the voting dead in Chicago also want senior property tax exemptions. In Cook County if you are over 65 and have a limited income (under $55,000), you qualify for a senior exemption. Well, since the dead can’t take it with them (or so I’ve been told) they’re apparently being generous to the living.

Cook County has begun to make sure that seniors are truly alive when taking the exemption. They’re combing the Social Security death list (this is a very legitimate use of that list) and have a contract with LexisNexis to find the living dead. Zombies aren’t eligible for that tax exemption. To date, they’ve discovered 3,809 cases representing $6.2 million of improper exemptions.

It looks like the living dead are on borrowed time in Cook County for this exemption.