The Illinois legislature recently passed several tax related bills along with a budget. The tax changes are primarily reflected in Senate Bills 689 and 690. Governor Pritzker signed S.B. 689 on June 5, 2019 and is expected to sign S.B. 690 shortly. The following is a summary of some of the more significant tax changes applicable to businesses.
- Phase-out and Repeal of the Illinois Franchise Tax – Often described as the most hated (or at least most annoying) tax in the State, Illinois taxpayers scored a much needed victory with the phase-out and ultimate repeal of the franchise tax. The new law exempts the following amounts in franchise tax liability each year and implements a repeal in 2024:
2024+: Full Repeal
S.B. 689 (enacted as Public Act 101-0009).
- Franchise Tax Amnesty Program – S.B. 689 also provides that the Illinois Secretary of State will administer a franchise tax amnesty program between October 1, 2019 and November 15, 2019. The amnesty period will apply to all franchise taxes and license fees for any tax period ending after March 15, 2008 and on or before June 30, 2019. All interest and penalties will be waived. S.B. 689 (enacted as Public Act 101-0009).
- Department of Revenue Tax Amnesty Program – Illinois taxpayers may also participate in an amnesty program between October 1, 2019 and November 15, 2019 covering all taxes administered by the Illinois Department of Revenue. Taxes due for any taxable period ending after June 30, 2011 and prior to July 1, 2018 are eligible. All interest and penalties will be waived. S.B. 689 (enacted as Public Act 101-0009).
- Decoupling from the Federal Deduction for Foreign Derived Intangible Income – Illinois will decouple from the federal deduction for 37.5% of Foreign Derived Intangible Income (“FDII”) provided in IRC § 250. The federal deduction serves to effectively lower the tax rate on FDII. However, Illinois does not follow the federal rates, thus, the deduction will not be followed. S.B. 689 (enacted as Public Act 101-0009).
- Marketplace Sellers and Facilitators – Marketplace facilitators, instead of marketplace sellers, must begin collecting and remitting Illinois tax on sales consummated through a marketplace beginning on January 1, 2020. S.B. 689 (enacted as Public Act 101-0009).
- Expanded Manufacturing Machinery & Equipment Sales Tax Exemption – Exempt manufacturing machinery and equipment includes production related tangible personal property purchased on or after July 1, 2019. This provision is intended to ameliorate the effects of the prior repeal of the Illinois Manufacturer’s Purchase Credit. S.B. 689 (enacted as Public Act 101-0009).
- Sales Tax Sourcing for Remote Retailers – Effective July 1, 2020, remote retailers that meet collection threshold amounts of $100,000 in annual Illinois sales or 200 Illinois transactions must start collecting state and local retailer occupation taxes (e.g., 10.25% rate for sales to most Chicago customers), instead of the use tax (e.g., 6.25% rate for sales to most Chicago customers). S.B. 690 (awaiting Governor’s signature).
- Trade-in Credit Capped at $10,000 – The trade-in credit for purposes of reducing the tax base when an item of like kind and character is traded in as part of a taxable sale is limited to $10,000 beginning on January 1, 2020. S.B. 690 (awaiting Governor’s signature).
- Non-Resident Income Taxes – SB1515 passed both houses and is expected to be signed into law by the Governor. If enacted, the bill will impose Illinois personal income tax on non-residents who spend more than thirty days working in Illinois starting in 2020. In exchange, Illinois residents will receive a credit for taxes paid to other states if they are based in Illinois but pay income taxes on days worked in other states. Employers should examine and adjust their Illinois withholding obligations if this bill is enacted. S.B. 1515 (awaiting Governor’s signature).
If you have any questions about either the upcoming Illinois amnesty programs or one of the recent changes in Illinois tax law, please reach out to Baker McKenzie’s state and local tax team.