Current through Register Vol. 48, No. 38, September 20, 2024
a) In
general. For each taxable year beginning or ending during the Compassionate Use
of Medical Cannabis Pilot Program, a surcharge is imposed on all taxpayers on
income arising from the sale or exchange of capital assets, depreciable
business property, real property used in the trade or business, and Section 197
intangibles of an organization registrant under the Compassionate Use of
Medical Cannabis Pilot Program Act [410 ILCS 130 ]. (IITA Section
201(o))
b) Definitions. For
purposes of this Section:
"Act" means the Compassionate Use of Medical Cannabis Pilot
Program Act [410 ILCS 130].
"Organization Registrant" means a corporation, partnership,
trust, limited liability company, or other organization, but not an individual,
that holds either a medical cannabis cultivation center registration issued by
the Department of Agriculture under Section 85 of the Act or a medical cannabis
dispensary registration issued by the Department of Financial and Professional
Regulation under Section 115 of the Act.
"Transactions Subject to the Surcharge" means sales and
exchanges of capital assets, depreciable business property, real property used
in the trade or business, and Section 197 intangibles of an organization
registrant. (IITA Section 201(o)) Although a unitary business group filing
combined Illinois returns under IITA Section 502(f) is treated as a single
taxpayer and its members are jointly and severally liable for any surcharge
imposed on the group, the group itself is not an organization registrant and
transactions of any member that is not itself an organization registrant are
not subject to the surcharge.
c) Imposition of the Surcharge. The surcharge
is imposed on any taxpayer who incurs a federal income tax liability on the
income realized on a transaction subject to the surcharge, including
individuals and other taxpayers who are not themselves the organization
registrant that engaged in the transaction. An entity that is exempt from
federal income tax and therefore incurs no liability with respect to a
transaction otherwise subject to the surcharge will incur no surcharge. For
example:
1) A disregarded entity, whose
existence separate from that of its owner is disregarded under
26 CFR
301.7701-3, and a grantor trust will incur no
federal income tax liability because income of these entities is taxed to the
owner or the grantor. The disregarded entity or grantor trust will therefore
incur no surcharge. Rather, the surcharge is imposed on the owner of the
entity, or the grantor of the trust, who is taxable on the income from a
transaction subject to the surcharge.
2) A partnership incurs no federal income tax
liability because its income is taxed to its partners, and so will incur no
surcharge. In the case of an organization registrant that is a partnership, the
surcharge is imposed on each partner who is taxable on the income from a
transaction of the partnership that is subject to the surcharge.
3) A Subchapter S corporation will generally
incur no federal income tax liability because its income is taxed to its
shareholders, and so will generally incur no surcharge. However, a Subchapter S
corporation subject to federal income tax on built-in gains or passive income
from transactions subject to the surcharge is subject to the surcharge. The
surcharge is imposed on a shareholder for income from transactions of the
Subchapter S corporation that are subject to the surcharge, including
transactions on which the surcharge is also imposed on the Subchapter S
corporation.
4) A trust will incur
no federal income tax liability for transactions subject to the surcharge if
the income from a transaction subject to the surcharge is distributed or deemed
distributed to its beneficiaries, who are then taxed on the income. In those
situations, the trust will incur no surcharge, but the beneficiary to whom the
income is taxable will incur the surcharge.
d) Amount of the Surcharge. The amount of the
surcharge is equal to the amount of federal income tax liability of the
taxpayer for the taxable year attributable to transactions subject to the
surcharge. (IITA Section 201(o))
1) The
federal income tax liability attributable to transactions subject to the
surcharge means the federal income tax liability of the taxpayer for the
taxable year, minus the federal income tax liability of the taxpayer for the
taxable year computed as if the transactions subject to the surcharge made in
that year had not been made by the organization registrant.
2) If taxpayer is a member of an affiliated
group of corporations that files a federal consolidated income tax return, the
federal income tax liability attributable to transactions subject to the
surcharge means the consolidated federal income tax liability of the affiliated
group for the taxable year, minus the federal income tax liability of the
affiliated group for the taxable year computed as if the transactions subject
to the surcharge for which taxable income or gain was recognized in that
taxable year had not been made, multiplied by a fraction equal to the amount of
the separate taxable income of that member that is attributable to transactions
subject to surcharge divided by the sum of the separate taxable incomes
attributable to transactions subject to surcharge of all members of the
affiliated group.
e)
Transactions Exempt from the Surcharge. Under IITA Section 201(o)(1) and (2),
the surcharge does not apply to a transaction if:
1) the transaction occurs in connection with
the transfer of the medical cannabis cultivation center registration, medical
cannabis dispensary registration, or the property of the organization
registrant as a result of any of the following:
A) a bankruptcy, receivership or debt
adjustment initiated by or against the organization registrant;
B) the cancellation, revocation or
termination of the organization registrant's registration by the Illinois
Department of Public Health;
C) a
determination by the Illinois Department of Public Health that transfer of the
organization registrant's registration is in the best interests of Illinois
qualifying patients;
D) the death
of an owner of the equity interest in a organization registrant;
E) the acquisition of a controlling interest
in the stock or substantially all of the assets of an organization registrant
that is a publicly traded company;
F) a transfer by a parent company to a wholly
owned subsidiary; or
G) the
transfer or sale to or by one person to another person where both persons were
initial owners of the registration when the registration was issued;
or
2) the cannabis
cultivation center registration, medical cannabis dispensary registration, or
the controlling interest in a registrant's property is transferred in a
transaction to lineal descendants or because of a transaction under
26 USC
351, so long as no gain or loss is
recognized.
f) Special
Rules and Provisions
1) Because the surcharge
is imposed under Article 2 of the IITA, the taxpayer's surcharge liability for
a taxable year is included in the tax liability for which estimated payments
must be made for that taxable year. (See IITA Section 804(f).)
2) Because the surcharge is imposed under
IITA Section 201, refunds of overpayments of the surcharge may be made from
funds in the Income Tax Refund Fund. (See IITA Section 901(d)(1).)
