Illinois General Assembly Enacts Budget Bill Providing Several Tax Law Updates

On July 6, 2017, the Illinois General Assembly enacted Senate Bill 9 (SB9) after the Senate and House voted to override the Governor’s veto of the bill. SB9 contains several significant tax law changes, raising rates on nearly all taxes statewide. Major highlights from the new law include:

• Individual and Business income tax rates, effective July 1, 2017.
  • Increasing the individual, trusts and estate income tax rates from 3.75% to 4.95%.
  • Increasing the corporate (excluding S corporations) tax rate from 5.25% to 7.00%. The increase, combined with the Illinois personal property replacement tax rate of 2.5%, subjects corporations to a 9.5% total tax rate on their Illinois apportioned or allocated income.
  • Note, additional guidance will be issued by the Department regarding calculating your income tax when two different tax rates may apply.
     
• Nonconformity with IRC Section 199. For tax years ending on or after December 31, 2017, entities are required, for purposes of calculating Illinois taxable income, to add back the amounts deducted for federal income tax purposes under IRC Section 199 (Domestic Production Activities Deduction)
   
• Reinstating the Research and Development Credit through 2021, retroactive to the 2016 tax year.
   
• Extending the manufacturing and assembling manufacturing and equipment sales and use tax exemption to include graphic arts machinery and equipment, which begins July 1, 2017.
   
• Elimination of the non-combination rule. For taxable years beginning on or after December 31, 2017, the definition of “unitary business group” was amended to eliminate the non-combination rule for group members that use different apportionment methods. There is no exception for insurance companies. In other words, unitary business groups will no longer exclude members who are ordinarily required to apportion business income under different rules. 
   
• A change to the definition of “United States” will now require unitary businesses to include members operating in any area over which the U.S. has asserted jurisdiction or claimed exclusive rights with respect to the exploration for or exploitation of natural resources (i.e., the outer-continental shelf). Note: this does not include members operating in any territory or possession of the United States.

For questions about these law changes or other state and local tax matters, please contact us.