On June 1, 2021, the Illinois General Assembly passed S.B. 2017, implementing the State of Illinois budget for the 2022 fiscal year, which Governor J.B. Pritzker is expected to sign. The bill includes several material changes to Illinois state taxes affecting many businesses.
First, the bill decouples Illinois from the federal 100 percent bonus depreciation deduction enacted by the 2017 tax reform act. For property on which the 100 percent bonus depreciation deduction was taken for federal income tax purposes in a taxable year ending on or after December 31, 2021, a taxpayer is allowed only the depreciation deduction that would have been allowed to it had it made an election out of the bonus depreciation deduction regime. The bill also modifies the Illinois additional depreciation deduction that is available to taxpayers once the federal bonus depreciation deduction begins phasing out in 2023.
Second, for taxable years ending on or after June 30, 2021, the bill decouples Illinois from the federal corporate deductions for global intangible low-taxed income (GILTI) included in the gross income of a corporation’s U.S. shareholders and for certain foreign-source dividends. Instead, Illinois will treat GILTI and foreign-source dividends in a manner closer to its treatment of domestic dividends.
Third, the bill caps corporate net operating loss deductions at $100,000 annually for taxable years ending on or after December 31, 2021, and prior to December 31, 2024.
Fourth, the bill extends the Illinois tax credit for affordable housing donations, the Illinois angel investment credit, certain River Edge Redevelopment Zone tax credits, and the Live Theater Production Tax Credit Act credits through at least the end of 2026.
Finally, the bill cancels the phase-out of the Illinois corporate franchise tax, which under earlier legislation was scheduled to be fully phased out by 2024. Instead, the franchise tax will remain in place indefinitely, with the first $1,000 in liability being exempt. All Illinois corporations and all non-Illinois corporations authorized to transact business in the state will need to be mindful of their obligation to ascertain on an annual basis whether they owe franchise tax to the State of Illinois. The extent of a corporation’s liability for franchise tax will depend on its paid-in capital (as computed for Illinois purposes, which might be different from its paid-in capital or stated capital used in other contexts) and the ratio of its assets and business in Illinois to its total assets and business.
If you have any questions about the above changes to Illinois state taxes, or if you have any other tax concerns, please reach out to your Schiff Hardin contact or to any member of the firm’s Tax practice group for further information.