The Illinois General Assembly passed the state’s spending plan yesterday, July 6, with an override of Governor Rauner’s veto. The legislation enacts quite a few changes, which are a mix of tax increases and tax credit extensions. Following are highlights from the legislation:
Corporate Tax Changes
- The legislation permanently increases the corporate tax rate to 7% (from 5.25%) effective July 1, 2017. This brings the total corporate tax rate in Illinois to 9.5% when the 2.5% personal property replacement tax is added.
- SB 9 retroactively extends the research and development credit to tax years ending prior to January 1, 2022. The general assembly’s intent is for the credit to be continuously in effect from 2004 to at least 2021, now allowing taxpayers to claim the credit for 2016.
- The qualified domestic production activities deduction taken on the federal tax return will now be required to be added back to income for Illinois beginning with tax years ending on or after December 31, 2017.
- As of July 1, 2017, graphic arts machinery and equipment is now included in the manufacturing and assembling machinery and equipment sales tax exemption. The graphic arts machinery sales and use tax exemption previously expired on August 30, 2014.
- The state enacted the Revised Uniform Unclaimed Property Act, which modifies the unclaimed property laws. The new act eliminates prior exemptions, including the business-to-business exemption.
Individual Tax Changes
- Increases the individual, trust, and estate tax rate to 4.95% (from 3.75%) effective July 1, 2017.
- Imposes income limitations to the education expense credit, real estate tax credit, and standard exemption. For taxable years beginning January 1, 2017, the credits listed above are no longer available for taxpayers with $500,000 or more of adjusted gross income if married filing jointly or $250,000 adjusted gross income if a different filing status.
- Increases the education expense credit limit for pupils in grades K-12 from $500 to $750 for tax years ending on or after December 31, 2017.
- Provides a new credit of up to $250 for instructional materials and supplies used for classroom-based instruction. Taxpayer must be a teacher, instructor, principal, aide, or counselor and have worked in the school for at least 900 hours during the school year. Unused credits may be carried forward five years.
- Increases the earned income credit. The current credit allows for an Illinois credit of 14% of the federal credit for tax years beginning on or after January 1, 2017, and beginning prior to January 1, 2018. For tax years beginning on or after January 1, 2018, the Illinois earned income credit is equal to 18% of the federal earned income credit.
If you have any questions regarding the information above and how it may impact your corporate or individual return, please contact Wipfli’s state and local tax experts, Greg Butler, Craig Cookle, Jessica Macklin, and Cathy Sanford, or your Wipfli relationship executive.