Illinois enacts income, franchise, and sales/use tax changes
On June 7, 2024, Illinois Governor J.B. Pritzker signed the fiscal year 2025 revenue omnibus legislation, House Bill 4951, which includes modifications of the state's income, franchise, and sales/use tax laws.
The following summary highlights certain enacted changes.
Financial organization apportionment
The changes modify the apportionment rules for sourcing receipts specific to financial organizations. Effective for tax years ending on or after Dec. 31, 2024, receipts from investment assets and activities as well as trading assets and activities are generally sourced to Illinois if earned in Illinois or otherwise attributable to Illinois’ marketplace. Historically, such receipts were generally sourced to the taxpayer’s fixed place of business.
Limitation on net operating loss deductions (NOLs)
The enacted changes place a $500,000 annual cap on the NOLs available for use against corporate income tax for each tax year ending on or after December 31, 2024, and before December 31, 2027. For purposes of the NOL carryover period, taxpayers will not count any year in which the NOLs to be used would have exceeded $500,000. This temporary cap is the same in length to prior caps on NOLs but allows more utilization due to the higher $500,000 cap (i.e., a $100,000 cap on NOLs applies to tax years ending on or after December 31, 2021, and before December 31, 2024).
Franchise tax exemption increased
The franchise tax of the Business Corporation Act administered by the Secretary of State exempts specific tax amounts based on the year the annual report is due. The current $5,000 exemption is being increased to $10,000 for annual reports due on or after January 1, 2025. The current $5,000 exemption remains in place for any annual reports due for the remainder of 2024.
Sales and use tax
Leases: Concerning the retail lease of tangible personal property (other than motor vehicles, watercraft, aircraft, etc.), the enacted changes provide that instead of a sales or use tax being paid by the lessor at the time the leased property is purchased, the tax will be on the rental charges paid by the lessee. Effective January 1, 2025, lessors can claim a resale exemption when purchasing equipment for re-lease to customers and then must collect tax on the lease stream. This aligns Illinois with the way other states tax leases and rentals. The two exceptions from the sales and use tax on leasing are: property subject to the Chicago personal property lease transaction tax and certain software licenses.
Retailers’ discount capped: Illinois offers retailers a 1.75% discount on sales tax timely remitted to partially reimburse retailers for the costs of collecting the tax on behalf of the state. The enacted change imposes a $1,000 per month cap on the discount for tax returns due on or after Jan. 1, 2025.
Herbein’s highly experienced professionals are ready to help with your questions concerning these newly enacted Illinois changes, as well as any other State and Local Tax needs.
Article contributed by Lou Palladino
