New Tax Laws in Illinois: Consequences for Businesses and Individuals

On June 5, Governor J.B. Pritzker signed several bills, including the state budget bill, with significant tax consequences for Illinois business. Highlights include franchise tax repeal, tax amnesties, use tax collection by marketplace facilitators, and changes to Illinois non-resident wage withholding—plus a dramatic revision of the state’s income tax structure with significant rate increases that will require a constitutional amendment to take effect.


Some highlights from the budget bill, P.A. 101-0009, include:

Franchise Tax Repeal

The Illinois Franchise Tax, a nationally anomalous tax (with many traps for the unwary) long past its sell date and currently imposed on corporations for the privilege of doing business in the state, is finally being repealed in culmination of a decades-long effort by the business community. Starting in 2020, the tax will be phased out by exempting the first dollar amounts that would be due under the existing law as follows:

2020: $30
2021: $1,000
2022: $10,000
2023: $100,000
Beginning in 2024, no franchise tax will be due.

Tax Amnesty: Franchise Tax and License Fees

Taxpayers with delinquent franchise taxes or license fees due to the Secretary of State under the Business Corporation Act are eligible for a tax amnesty program running from October 1 through November 15, 2019. The program applies to taxes due for tax periods ending after March 15, 2008 and on or before June 30, 2019. The Secretary of State will waive any interest and penalties for taxpayers who pay eligible liabilities.

Tax Amnesty: Department of Revenue

For taxpayers with any unpaid taxes due to the Department of Revenue for any taxable period ending after June 30, 2011 and before July 1, 2018, the state is implementing an amnesty program running from October 1 through November 15, 2019. Taxpayers who take advantage of the program to pay the balance of their overdue taxes will have any interest and penalties owed on those taxes waived. This is the third such general tax amnesty program since 2000, and unlike on those previous occasions, the Department will not impose any additional penalties on eligible taxpayers who fail to participate in this upcoming program. The Department will not notify taxpayers who are eligible for tax amnesty.

Marketplace Facilitator Use Tax Collection Changes

Starting January 1, 2020, “marketplace facilitators”—companies that provide online retail platforms for third-party sellers—will be responsible for collecting use tax on all items sold via their online platforms to Illinois purchasers. Under current law, sellers are required to collect use tax if they have nexus with the state. Under the new law, the responsibility to collect use tax from online sales on these platforms to Illinois purchasers will fall to marketplace facilitators regardless of whether the third-party sellers have nexus with Illinois.


In addition to the budget bill, the General Assembly passed several other bills with potential tax consequences for businesses and individuals, including:

SB 1515 – Non-resident State Income Taxes

Under Senate Bill 1515, with respect to taxable years ending on or after December 31, 2020, Illinois non-resident employees will only be subject to state income tax if they spend more than 30 working days in Illinois, a change from current law that imposes tax on non-residents only if their base of operations is in Illinois. This new 30-day rule is consistent with recent federal legislative proposals to standardize state income tax withholding for non-residents traveling and working in multiple states. Importantly, Illinois residents who pay tax to other states on income earned in other states (without regard to the 30-day rule) will now be able to claim a corresponding credit against their Illinois income tax liability. The new bill also provides that employers will be required to maintain reasonable records of non-resident employee working days spent in Illinois to determine whether tax withholding is necessary. SB 1515 has passed both houses and is expected to be signed into law by the governor.

P.A. 101-0008 – Graduated Income Tax

P.A. 101-0008 will, as of January 1, 2021, increase the corporate income tax from 7% to 7.99% and replace the current flat-rate individual income tax of 4.95% with a graduated tax plan—if Illinois voters approve Senate Joint Resolution Constitutional Amendment No. 1, which will be placed on the November 2020 ballot to authorize the change. Under the graduated structure, the state income tax rates for non-joint filers would be:
     

     
The rates for joint filers would be: