The Illinois legislature recently completed its 2019 session and a significant number of tax law changes were enacted. Below is a summary of the tax bills that passed. Please contact a member of your Miller Cooper & Co., Ltd. team if you would like to discuss how any of these Illinois law changes may impact you or your business going forward.
Potential New Graduated Income Tax Rates One of Governor Pritzker’s primary campaign goals has been to implement a “Fair Tax for Illinois,” which would change Illinois’ tax structure from a flat income tax to a graduated income tax rate based on a taxpayer’s filing status and income. But, in addition to passing legislation amending the income tax rates, an amendment to the Illinois constitution is also required before this change can take effect.
During this legislative session, the following graduated income tax rates were passed and will be effective for taxable years beginning on or after January 1, 2021, only if Illinois voters pass the constitutional amendment that will be on the November 2020 election ballot.
The corporate income tax rate will also increase from 7% to 7.99% for a total corporate income tax rate (including personal property replacement tax) of 10.49%.
Income Taxation on Non-residents Working in Illinois Starting in 2020, non-residents who spend more than 30 days working in Illinois are deemed to have Illinois earned compensation and will be subject to Illinois income tax based on the total number of days worked in state.
In addition, employers with nonresident employees performing services in Illinois are required to maintain records of days worked by each nonresident employee or obtain a written statement from its nonresident employee with an estimate of the number of days reasonably expected to be performing services in state during the tax year.
Finally, Illinois residents may be allowed a credit for taxes paid to other states if they pay income taxes for days spent working in another state.
Modifications to Tax Cuts & Jobs Act (“TCJA”) Conformity Trusts and estates will be allowed a deduction equal to the amount of ‘excess business loss’ disallowed by IRC Sec. 461(l)(1)(B) for taxable years beginning after December 31, 2018 and before January 1, 2026.
Illinois enacted legislation to decouple from the federal deduction for 37.5% of foreign derived intangible income (“FDII”) from IRC Sec. 250.
Sales and Use Taxes
- Marketplace Seller and Facilitator Nexus, effective January 1, 2020
- Local Sales Tax Sourcing for Remote Retailers, which changes Illinois from origin-based sourcing to destination-based sourcing for remote retailers that exceed the economic nexus threshold; effective July 1, 2020.
- New “Leveling the Playing Field for Illinois Retail Act”, which requires the Department of Revenue (DOR) to create databases of taxability and tax rates. The DOR may enter into contracts with Certified Service Providers (CSPs), who are authorized to perform use and occupation functions on behalf of remote sellers and compensated the 1.75% vendors’ discount of sales tax collected and remitted by the CSPs on behalf of the remote sellers.
- Trade-in Credit capped at $10,000 beginning January 1, 2020; any trade-in value in excess of $10,000 will be included in the selling price of the replacement property and subject to sales or use tax.
- Expanded Manufacturing Machinery & Equipment Sales Tax Exemption, which adds an exemption for production-related tangible personal property including supplies and consumables used in a manufacturing facility and purchased on or after July 1, 2019.
Other Miscellaneous Taxes and Updates
- Franchise Tax to be phased out from 2020 to 2024
- Tax Amnesty from October 1, 2019 – November 15, 2019 for all taxes administered by the DOR and franchise and license fees. Penalties and interest are waived.
- Blue Collar Jobs Act; four new or expanded income tax credits, beginning January 1, 2021 targeted at different existing economic development programs and administered by the Department of Commerce and Economic Opportunity.
- Data Center Tax Benefits creates new tax benefits for qualifying Illinois data centers, where owner and tenant collectively make a capital investment of $250 million over a five-year-period, create 20 new jobs and are either carbon neutral or achieve a green building certification.
- Recreational Cannabis, which legalizes cannabis and creates comprehensive regulatory oversight and tax structure
- Parking Excise Tax based on 6% of hourly, daily or weekly parking fees and 9% of monthly or annual parking fees, effective January 1, 2020
- Cigarette Tax (including floor tax) and Electronic Cigarettes, increases cigarette taxes by $1/pack and 15% tax on wholesale price of e-cigarettes, effective July 1, 2019
- Sports Wagering Act imposes a new income tax surcharge for 2019 – 2027 on income from sale or exchange of assets used in gaming and provides that any winnings from Illinois gaming facilities are sourced to Illinois
- Motor Fuel Tax increased tax per gallon for regular and diesel fuel and new local level motor fuel taxes and rates are also authorized
- New Managed Care Organization Provider Assessment