Illinois Gov. Jay Prtizker signed into law income tax, franchise tax, and sales and use tax changes this year. This alert summarizes the major tax law changes. The Illinois Department of Revenue will be releasing updated regulations addressing these changes.
Illinois tax amnesty program
Illinois approved an amnesty program for taxpayers who are delinquent with taxes owed between June 30, 2011 and July 1, 2018. If you file delinquent returns between Oct. 1 and Nov. 15, 2019, the state will waive penalties and interest, and will not impose any civil or criminal penalties.
Franchise tax phase out and amnesty
The annual Illinois franchise tax requirement will be phased out by January 2021. There will be additional exemptions to this filing beginning in 2020. The state also will waive penalties and interest on franchise taxes that were due March 15, 2008 through June 30, 2019 if franchise owners file and pay taxes under the amnesty program between Oct. 1-Nov. 15, 2019.
Expanded manufacturing exemption
Illinois expanded the definition of tangible personal property to include supplies and consumables used in a manufacturing process or in a manufacturing facility. The exemption extends to fuels, coolants, solvents, oils, lubricants, protective gear, hand tools, and fire and safety equipment primarily used or consumed within a manufacturing process or facility. Manufacturers should provide the Manufacturing Machinery & Equipment tax exemption certificate, form ST-587, when making qualifying purchases on or after July 1, 2019.
Marketplace facilitator Nexus
Illinois will require marketplace facilitators to register to collect use tax as of January 1, 2020 if a marketplace facilitates $100,000 or more in sales to customers in Illinois or if 200 or more transactions are facilitated with customers in the state of Illinois over a 12-month period.
Local sales tax sourcing
Illinois will require remote sellers to source sales based on destination, or customer location, as of January 1, 2020. Illinois currently follows an origin-based sourcing method, which requires that remote sellers only charge the state sales tax rate of 6.25%. This change will require out of state retailers to collect both the state and local tax beginning in January 2020. For example, currently a remote seller shipping to a customer in Chicago would collect sales tax at a rate of 6.25%. After the law change, that same remote seller will be required to collect sales tax at a rate of 10.25%. Illinois will remain an origin-based state for in-state sellers.
Trade-in credit on like-kind purchases
Illinois enacted a cap on the amount of trade-in credit on motor vehicles. Previously, the value of the trade-in reduced the selling price and the remaining amount was subject to sales tax. Under the new law, the trade-in credit will be capped at $10,000 when calculating the sales tax base. For example, if you purchase a vehicle and the price is $50,000 and you trade in a vehicle worth $20,000, the sales tax base under the new law will be $40,000. Under previous law, the sales tax base would have been $30,000. This limitation only applies to motor vehicles designed to carry not more than 10 people. This law takes effect January 1, 2020.
Potential graduated tax rate
Illinois currently has a flat income tax rate. Graduated tax rates are not allowed within the Illinois Constitution. A graduated tax rate system has been proposed and will be on the ballot in November 2020. Taxpayers will need to vote to authorize this change. The tax brackets would range from 4.75%-7.99%. The current Illinois tax rate is 4.95%.
Non-resident state income tax
As of January 1, 2020, Illinois non-resident employees will be required to file Illinois income tax returns if they work more than 30 days within the state of Illinois. Currently, Illinois only taxes non-residents if their base of operations is within the state. Under the new law, Illinois residents that earn wages both within Illinois and outside Illinois, will now be allowed a credit for taxes paid to other states on wages. Currently, Illinois residents are not allowed a credit for taxes paid to other states on wage income.
Illinois decouples from tax reform changes
Beginning with tax years starting after December 31, 2018, an addback will be required for certain foreign derived intangible income deducted on the federal income tax return. Further, the state will allow a deduction for trusts and estates for the excess business loss limitation calculated at the federal level. These changes are to decouple from these provisions of the Federal Tax Cuts and Jobs Act.
Beginning January 1, 2020, Illinois will impose a 6% parking tax on hourly, daily, or weekly parking fees and a 9% parking tax on monthly or annual parking fees.
Credits and incentives
Beginning January 1, 2021 there are four new or expanded income tax credits targeted at economic development. The credits have varying levels of investment and pre-approval requirements. Credits include High Impact Businesses, Enterprise Zones, EDGE Agreements and River Edge Redevelopment Zones.
Data center benefits
Illinois data centers may qualify for new tax benefits if owners and tenants make a combined capital investment of $250 million over five years and create 20 new jobs and are either carbon neutral or receive a green building certification. The new jobs must pay over 120% of that county’s median full-time wage to qualify. Benefits include a credit equal to 20% of the wages paid to construction contractor employees (if in a disadvantaged area) and a complete sales/use tax exemption for property used in the construction or operation of a certified data center.
Beginning July 1, 2019, Illinois imposes an additional $1/pack floor tax on cigarettes. The state also imposes a 15% tax on the wholesale price of electronic cigarettes.
If you have any questions regarding any of the above information, please contact one of our state and local tax professionals:
Jessica Macklin, Senior Manager, firstname.lastname@example.org, Lincolnshire office Ph: 815.269.4271
Mandy Riles, Manager, email@example.com, Chicago office Ph: 224.543.1258
Jim Ott, Staff accountant, firstname.lastname@example.org, Chicago office Ph: 847.715.2532
Andrea Hey, Staff accountant, email@example.com, Sterling office Ph: 815.265.6932