Illinois’s fiscal 2027 omnibus budget bill enacts major tax changes
- Beginning in 2027, corporations will benefit from a higher net loss deduction (NLD) cap tied to a percentage of net income.
- Starting in 2026, partnerships can elect to calculate Illinois PTE tax using resident partners’ full distributive share of income, potentially increasing the federal tax deduction available to Illinois resident owners.
- Illinois will no longer conform to the federal Section 1202 exclusion beginning with tax years ending on or after December 31, 2026, making qualified small business stock gains taxable at the state level.
- Technology, advertising, social media and digital asset companies face significant new taxes in the state.
On June 16, 2026, Illinois Gov. JB Pritzker signed the state’s fiscal 2027 omnibus budget bill (S.B. 3019) into law.
The bill makes significant tax changes, including:
- Raising the net loss deduction (NLD) cap under the corporate income tax starting in 2027.
- Creating an optional pass-through entity tax calculation for Illinois resident partners and decouples from the Sec. 1202 qualified small business stock gain exemption, both starting in 2026.
- Imposing new taxes on targeted advertising services, social media platforms and certain digital asset transactions, effective January 1, 2027.
Gov. Pritzker also directed the Illinois Department of Commerce and Economic Opportunity to pause processing of agreements under its Data Center Investment Program, effective July 1, 2026.
Corporate net loss deduction cap increase
Since 2021, Illinois has imposed a cap on the amount of NLD that corporate income taxpayers may claim each year. From 2021 to 2023, they were capped at $100,000 per year, and from 2024 to 2026, they are capped at $500,000 per year.
Beginning with tax years ending on or after December 31, 2027, the cap will be the greater of $500,000 per tax year, or a certain percentage of the corporation’s net income for the year:
| Tax year | Flat-dollar deduction | Percentage of net income |
|---|---|---|
| 2027 | $500,000 | 15% |
| 2028 | $500,000 | 30% |
| 2029 | $500,000 | 50% |
| 2030 | $500,000 | 65% |
| 2031 | $500,000 | 80% |
Pass-through entity (PTE) tax expansion
For tax years ending on or after January 31, 2026, partnerships may elect to compute their resident partners’ portion of the elective PTE tax using those partners’ share of the entity’s unapportioned income (the “full distributive share” method), or their share of the entity’s income apportioned to Illinois (the “Illinois-sourced income” method). This election will be made annually and applies to all partners for the taxable year.
Because the purpose of a PTE tax is to create a federal income tax deduction for the pass-through entity that it would not otherwise be entitled to, many Illinois residents may welcome the opportunity to increase their Illinois PTE tax by electing to use the “full distributive share” method for 2026 and beyond.
For Illinois nonresident partners and for Illinois resident and nonresident S corporation shareholders, the PTE Tax will continue to be imposed on the entity’s income apportioned to Illinois.
Section 1202 decoupling
Under IRS Code Sec. 1202, individuals may avoid paying federal income tax for up to 100% of the otherwise taxable gain recognized on the sale of qualified small business corporation stock (QSBS).
Even though Illinois has historically conformed to Sec. 1202, effective for tax years ending on or after December 31, 2026, Illinois will fully decouple from Code Sec. 1202 and include the gain on the sale of QSBS stock in the state income tax base.
Targeted advertising services tax (digital ad tax)
Effective January 1, 2027, SB 3019 imposes a 10% tax on the gross receipts of companies that provide targeted advertising services (TAS) in the state.
The tax first applies to a company if, at the end of any calendar quarter, its cumulative gross TAS receipts in Illinois exceeded $1M during the prior 12 months. Once a company meets that threshold, it must pay the tax monthly for the following 12 months.
“Targeted advertising services” are any programmatic written, oral or graphic statements conveyed via digital interfaces or other means that use personal information about the people to whom the ads are being served. Examples are banner ads and search engine ads.
The TAS tax does not apply to ads provided on digital interfaces that are owned and/or operated by news media entities. Illinois localities are prohibited from implementing their own TAS taxes.
Social media platform fee
Effective January 1, 2027, Illinois will impose a monthly fee on for-profit “social media platforms.” The tax uses a graduated rate based on the number of monthly Illinois users the platform collects data from:
| Monthly Illinois users | Fee per user | Monthly tax calculation |
|---|---|---|
| Under 100,000 | N/A | N/A |
| 100,001–500,000 | $0.10 per user | Imposed on IL users over 100,000 but not over 500,000 |
| 500,001–1,000,000 | $0.25 per user | $40,000 plus $0.25 per Illinois user over 500,000 |
| Over 1,000,000 | $0.50 per user | $165,000 plus $0.50 per Illinois user over 1,000,000 |
Even though Gov. Pritzker clarified that the fee will be levied on social media platforms, not users, the law’s prohibition against providers passing the tax to their consumers is similar to a prohibition in Maryland that was struck down in 2025 on First Amendment grounds.
The state’s new social media platform fee is similar to Chicago’s Social Media Amusement Tax (SMAT), which took effect January 1, 2026. Chicago’s tax applies to for-profit “social media businesses” that collect consumer data from more than 100,000 Chicago consumers in a calendar year. The SMAT rate is 50 cents for each consumer over 100,000, computed monthly.
Digital asset transfer tax (DAT)
Effective January 1, 2027, Illinois will impose a tax on digital asset brokers that engage in digital asset business activity with an Illinois customer. It appears that this may be the first tax in the nation to target cryptocurrency.
“Digital asset business activity” is defined to mean any single occurrence of exchanging, transferring or storing a “digital asset” (e.g., cryptocurrency, tokens, stablecoins) as part of a business or on behalf of a customer who has entered into an agreement with a business for those services.
The DAT applies to any digital asset broker with a physical presence in Illinois or economic nexus with the state (i.e., at least $100,000 in gross receipts from digital asset business activity sales to Illinois customers).
The tax rate is 0.2% on the value of digital assets exchanged, transferred or stored in the state.
Pause in approving new data center tax incentives
In mid-2019, Gov. Pritzker signed bipartisan legislation (P./A. 101-31) that established the Data Center Investment Program (DCIP) to attract technology infrastructure to Illinois.
Under the DCIP, data center owners and operators could qualify for sales/use tax exemptions on center-related purchases, as well as a credit equal to 20% of wages paid to construction workers for projects in underserved areas.
On June 5, 2026, Gov. Pritzker ordered the Illinois Department of Commerce and Economic Opportunity (DCEO) to pause processing of agreements under the DCIP effective July 1, 2026.
Under this order, Gov. Pritzker confirmed that “existing incentive agreements under the Data Center Investment Program, including those entered into with DCEO before July 1, 2026, will be honored.”
How Wipfli can help
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