Illinois State Tax Updates

August 8, 2024

Authored by: Kiana McGowan, CPA, MBA and Penny Sweeting, CPA

On June 7, 2024, Illinois Gov. Pritzker signed SB 1963 into law, introducing significant changes to qualified investment partnerships (QIPs). These partnerships are exempt from the Illinois replacement tax, and the new law broadens the definitions of QIPs, thereby removing the replacement tax requirement for many partnerships.

Under the current Illinois law, a partnership must meet the following criteria to be considered QIP:

The new law revises the definition of “qualifying investment securities” to include a partnership interest that qualifies as a security under Illinois statute. A partnership interest, such as a holding partnership, can qualify as an investment. Additionally, for tax years ending on or after December 31, 2023, the gross income test now includes the distributive share of partnership income from lower-tier partnership interests that meet the definition of “qualifying investment security.”

The requirement that a partnership cannot be a dealer in qualifying investment securities has been eliminated under the new law, meaning that only the asset and gross income tests need to be met. Therefore, dealers can now be considered investment partnerships if they satisfy these two remaining requirements.

Furthermore, the new law mandates that QIPs withhold Illinois-sourced income for all taxable partners at a rate of 4.95%. There will be no waivers or exemptions for this nonresident withholding requirement. Although the QIPs will be subject to the new withholding requirement, they will not be liable for the state’s 1.5% replacement tax for partnerships.

For more details on the investment partner changes, please refer to Illinois’ webpage.

If you have questions about state pass-through withholding requirements, please reach out to a member of the Withum SALT Team.

July 8, 2024

Authored by: Brandon Mejia and Katie Nguyen, CPA

On June 7, 2024, Governor J.B. Pritzker signed HB 4951 into law, which revises the way financial organizations apportion income to Illinois. For tax years starting on or after December 31, 2024, financial organizations will apportion investment and trading income by the ratio of Illinois-specific receipts to total gross receipts from financial organization activities. This ratio excludes investment and trading income.

Additionally, HB 4951 increases the maximum Net Loss Deduction (NLD) from $100,000 to $500,000 per year for tax years ending between December 31, 2024, and December 31, 2027.

If you have questions about how the HB 4951 affects your business, please reach out to a member of the Withum SALT Team.

June 13, 2024

Authored by: Leroy Solis, MBA and Penny Sweeting, CPA

Governor J.B. Pritzker is expected to sign SB 3362, further complicating the state sales tax code for remote sellers.

Pursuant to SB 3362, out-of-state retailers will collect sales tax using destination-based sourcing rules. As such, out-of-state retailers without a physical presence in the state are required to collect applicable local taxes based on the shipping address. In Chicago, the total tax is 10.25% including local taxes. Meanwhile, in-state retailers making remote sales in Illinois only collect sales tax at the point of origin. As such, in-state businesses making remote sales may only have to collect the state’s 6.25% tax.

PetMeds Express is currently challenging the disparate treatment of in-state and out-of-state retailers when it comes to the collection of local sales taxes. SB 3362 does not address PedMed’s litigation winding its way through the Illinois Courts.

If you have questions about local sales tax collection obligations, please reach out to a member of the Withum SALT Team.

February 2, 2024

Authored by: Katerine Velasquez and Bonnie Susmano, JD, MBA

PetMeds, an online retailer of pet supplies and medications based in Florida, has challenged Illinois’ “leveling the playing field” statute on the following grounds:

Specifically, Illinois’s “leveling the playing field” statute requires out-of-state remote sellers to collect both state sales tax plus local Retailers Occupation Taxes (“ROT”) based on the ship to address. In contrast, in-state sellers making online sales are only required to collect ROT based on location. ROT rates vary in Illinois from 0% to 5.25%. As such, an instate seller located in a locality with a 0% ROT only has to collect the state’s 6.25% sales tax, even if the order is shipped to a locality where the ROT is 5.25%. In contrast, PetMeds is obligated to collect the 6.25% state sales tax plus the applicable local ROT. This gives in-state retailers as much as a 5.25% price advantage over PetMeds.

This case is presently being heard at the Illinois Independent Tax Tribunal. It seems likely that the Tribunal’s decision will be further appealed, and we will provide updates as they occur. For additional information, the case citation is PetMed Express, Inc. v. Illinois Department of Revenue, Case No. 23 TT 04, Illinois Independent Tax Tribunal (2023).

If you have questions about local sales taxes, please reach out to a member of the Withum SALT Team.

December 9, 2023

Authored by: Bonnie Susmano, JD, MBA and Breea Boylan, CPA

The Illinois Department of Revenue released revisions relating to pass-through entities, including PTET guidance. The revisions are specific to “investment partnerships” and include:

The revisions also noted that Form IL-1000-E, Certificate of Exemption for Pass-through Withholding, does not exempt an investment partnership from investment partnership withholding, and electing to pay PTE tax does not exempt an investment partnership from withholding for its nonresident partners.

If you have questions about the state tax treatment of pass-through entities, please reach out to a member of the Withum SALT Team.

October 25, 2023

Authored by: Bonnie Susmano, JD, MBA and Brandon Vance, CPA

Governor Pritzker introduced a tax relief initiative for individuals and businesses impacted by the Middle East conflict. Effective October 7, 2023, through October 7, 2024, those affected by the conflict may seek an exemption from penalties and interest on income, withholding, sales, specialty, and excise taxes if they encounter difficulties in filing returns or making timely payments. To be eligible for relief, individuals or businesses must meet one of the following criteria:

Those in need of this relief can submit waiver requests electronically or by mail using the provided address on the return. For mailed requests, taxpayers must clearly mark “Israeli-Palestinian Conflict 2023” in red at the top of the return and include an explanation for their penalty and interest abatement request. The written request should provide a brief account of the reasons for the taxpayer’s inability to file or pay on time, along with their full name, account number (last four digits of the social security number for individuals), mailing address, and an estimated timeline for filing or paying taxes.

If you have questions about state tax relief provisions, please reach out to a member of the Withum SALT Team.

February 24, 2023

Authored by: Brandon Spinella and Courtney Easterday, MS

On February 10, 2023, the Illinois Department of Revenue retroactively amended its Use Tax effective January 1, 2021, with the Leveling the Playing Field for Illinois Retail Act. The updates include, but are not limited to:

More information can be found in the Illinois Register Volume 47 Issue 6 dated February 10, 2023.

If you have any questions about whether your business is required to collect and remit Sales and Use Tax, please reach out to a member of the Withum SALT Team.

January 20, 2023

Authored by: Breea Boylan, CPA and George Gonzales, MST

Effective December 22, 2022, the Illinois Department of Commerce and Economic Opportunity has adopted regulations to implement the Data Center Investment Program. The program shall provide to “Qualifying Illinois Data Centers” certificates of exemption from Retailers’ Occupation Tax Act, Use Tax Act, Service Use Tax Act, Service Occupation Tax Act, all locally imposed Retailers’ Occupation Taxes administered and collected by the Department, Chicago Non-Titled Use Tax, and a credit certification against Income Taxes. “Qualifying Illinois data center” means a new or existing data center that:

If you have questions about whether your business is eligible for business tax credits, please contact a member of the Withum SALT Team.

December 2, 2022

Authored by: Brandon Spinella and Bonnie Susmano, JD, MBA

The Illinois Department of Revenue is soliciting comments related to proposed changes to its Sales and Use Tax regulations. Comments must be submitted on or before January 1, 2023. The Department’s proposed changes include:

If you have questions about what these proposed changes mean for your business, please contact a member of the Withum SALT Team.

June 28, 2022

Per Illinois Public Act (P.A.) 102-0700, there will be a grocery tax suspension from July 1, 2022, through June 30, 2023. Currently, the tax on groceries in Illinois is 1%. Pursuant to the suspension, the new tax rate is 0%. The suspension is for groceries intended for human consumption that are intended to be consumed in a different location other than where purchased. Items that are not included in the suspension and remain taxable include (but are not limited to), alcohol, food containing adult-use cannabis, candy, or food that has been prepared for immediate consumption. The statewide suspension of the grocery tax does not affect the Regional Transportation Authority and Metro-East Mass Transit District’s local tax on grocery items.

May 6, 2022

Effective July 1, 2022, local jurisdictions in Illinois will either impose or amend their Municipal or County Cannabis Retailers’ Occupation Tax rates on the gross receipts of adult-use cannabis (65ILCS 5/8-11-23, 55 ILCS 5/5-1006.8). These taxes are in addition to the Illinois Retailer’s Occupation Tax on general merchandise (6.25%) and any locally imposed retailer’s occupation tax on general merchandise, including sales of adult-use cannabis. Taxpayers must collect and remit at the amended rate as of July 1, 2022. Municipalities will be imposing the tax in increments of 0.25% but not to exceed 3%. Similarly, counties may also charge the tax in increments of 0.25%. The Municipal or County Cannabis Retailers’ Occupation Tax rates in unincorporated areas within a county may not exceed 3.75%, while the rate for a municipality within a county may not exceed 3%. Sales of medical cannabis are not subject to these taxes.

January 31, 2022

The Illinois Department of Revenue released a bulletin detailing changes to IL business income tax returns and schedules for tax year 2021. The following changes are outlined in the release: (1) The IL net loss deduction for corporations, excluding S Corps, is limited to $100,000 for tax years ending on or after December 31, 2021 and before December 31, 2021. (2) For any net loss that has not expired as of November 16, 2021, the carryover period is extended from 12 to 20 years, and the carryover period for tax years ending on or after December 31, 2021 has now become 20 years. (3) IL decouples from federal 100% bonus depreciation, thus on Form IL-4562, the taxpayer should include the amount of federal depreciation they would have claimed on their federal return without any regard to bonus depreciation.

January 17, 2022

The Illinois Department of Revenue and Governor Pritzker extended the December 10, 2021, deadline to May 16, 2022, for filing several individuals and business tax returns for those who were victims of severe storms and tornadoes. Tax filing relief is also available for late payment penalties beginning on December 10, 2021. Affected taxpayers who live or have a business in certain counties have until May 16, 2022, to file and pay personal income taxes that are due during this period and file 2021 business returns typically due on March 15, 2022, and April 18, 2022.

December 12, 2021

The Illinois Department of Revenue updated its “Questions and Answers” webpage to include Illinois PTE Tax information. General information including election and payment is detailed on the website. In addition, the web page includes information on penalty relief related to PTE tax payments for tax years ending before December 31, 2022.

June 18, 2021

The Illinois Department of Revenue issued revised frequently asked questions (FAQs) for marketplace facilitators, marketplace sellers, and remote retailers. The FAQs address out-of-state retailers making sales on their own and through a marketplace. These out-of-state retailers also remit tax to the Department and maintain inventory in Illinois. The FAQs advise these out-of-state retailers on how to determine tax owed in this situation. For specific information, please visit the Illinois Revenue website.

May 13, 2021

The Illinois Department of Revenue has provided guidance on the newly adopted data center investment credit (86 Ill. Adm. Code § 100.2164, effective 04/15/2021). The credit is available for taxable years beginning on or after January 1, 2019 and is awarded by the Department of Commerce and Economic Opportunity. The credit will be 20% of the wages paid during the taxable year to a full-time or part-time employee of a construction contractor employed by a certified data center, if those wages are paid for the construction of a new data center in a geographic area that meets specific criteria. The credit is not refundable but may be carried forward up to five taxable years.

May 5, 2021

Effective July 1, 2021, Illinois municipalities may impose a tax on retail sales of cannabis—other than medical cannabis—at a rate that may not exceed 3%, imposed in one-quarter percent (0.25%) increments. Counties may impose a tax (also in one-quarter percent increments) on retail sales of cannabis, other than medical cannabis, at the following rates: in unincorporated areas of the county, the rate may not exceed 3.75%; in a municipality located in the county, the rate may not exceed 3%. These are new taxes exclusively on sales of adult-use cannabis, and are in addition to Illinois Retailers’ Occupation Tax on general merchandise (6.25%) and any locally imposed retailers’ occupation tax on general merchandise, which also apply to sales of adult-use cannabis.

March 23, 2021

Governor Pritzker announced that Illinois is extending the individual income tax filing and payment deadline for tax year 2020 from April 15, 2021 to May 17, 2021. The filing extension takes effect automatically, so no further action is required by taxpayers. The Illinois Department of Revenue will continue to process tax refunds for those filing ahead of the deadline. The filing extension does not apply to estimated tax payments that are due on April 15, 2021: those payments are still due on April 15 and can be based on either 100% of estimated or 90% of actual liability for 2021, or 100% of actual liabilities for 2019 or 2020. ( Gov. Pritzker Announces Income Tax Filing Extension, 03/18/2021 .)

February 25, 2021

The State’s 2022 fiscal year budget proposal included a number of items aimed at reducing an anticipated three-billion-dollar deficit for the upcoming year. Certain income tax changes would include limiting corporate NOLs to $100,000 per year, decoupling from 100% additional bonus depreciation for federal income tax purposes, and sourcing foreign dividends based on the same principles as those pertaining to domestic dividends. Vendors and manufacturers may be faced with sales-tax-related changes as well. If you are doing business in Illinois, please reach out to Withum to determine if any such amendments will impact your business.

November 16, 2020

The Illinois Department of Revenue issued general information in November on ST 20-0017-GIL in response to the annual survey. In the letter, the Department notes that nexus in Illinois includes marketplace facilitators who have met the thresholds of $100,000 in sales or cumulatively reaching 200 or more separate transactions through the marketplace for sales of tangible personal property. The thresholds are determined by examining gross receipts and number of transactions excluding sales for reseal, sales of tangible personal property that are required to be registered with an Illinois agency such as vehicles or watercrafts, and sales made through the marketplace on behalf of a marketplace seller or marketplace facilitator subject to Retailers’ occupation Tax.

The General Letter provides a definition for marketplace sellers as a person or business that sells or offers tangible personal property through a marketplace operated by an unrelated third-party marketplace facilitator. A marketplace seller is only responsible for Illinois Use Tax liability on sales to Illinois customers and will not be held responsible for the collection and remittance of Illinois Use Tax when a marketplace facilitator fails to correctly collect and remit tax. If the marketplace facilitator can demonstrate the incorrect calculations is due to the marketplace sellers incorrect or insufficient information, the marketplace seller is held liable for any Illinois Use Tax due.

The Department clarified that viewing and downloading of videos, text, and other data over the interest is not considered to be tangible personal property subject to Retailers’ Occupation Tax and Use tax liability. The transfer of canned software, or updates to canned software is considered transfer of tangible personal property and therefore subject to Retailers’ Occupation Tax and Use tax liability. This would include sales of canned software downloaded electronically which would be taxable.

March 21, 2020

In an effort to assist eating and drinking establishments impacted by the COVID-19 outbreak, effective immediately, the Illinois Department of Revenue (IDOR) is waiving any penalty and interest that would have been imposed on late Sales Tax payments from qualified taxpayers.

Taxpayers who are eligible for relief from penalties and interest on late Sales Tax payments are those operating eating and drinking establishments that incurred a total Sales Tax liability of less than $75,000 in calendar year 2019.

Qualified taxpayers will not be charged penalties or interest on late payments for Sales Tax liabilities reported on Form ST-1, Sales and Use Tax and E911 Surcharge Return, which are due for the February, March, and April 2020 reporting periods.

For most qualified taxpayers, IDOR will automatically waive penalties and interest. If a taxpayer receives a notice from IDOR that imposes penalties and interest that should have qualified for a waiver, the taxpayer can respond to the notice indicating as such. IDOR will review the response and grant relief, if appropriate. Qualified taxpayers are required to file Form ST-1 for each reporting period by their original due dates, even if they are unable to make a payment. To qualify for relief, taxpayers must pay their liabilities due in March, April, and May 2020 on four dates starting on May 20, 2020.

The required payment schedule for liabilities reported on Form ST-1 is as follows:

This includes quarterly filers reporting liabilities on Form ST-1 for January, February, and March. Taxpayers must begin making full payment on the scheduled due date for liabilities beginning with the May 2020 reporting period, which is due June 22, 2020, and all reporting periods following. Learn more here.

July 2019

Beginning January 1, 2020, marketplace facilitators are now required to collect and remit sales tax if sales total $100,000 or more or have more than 200 sales in the state.

Effective January 1, 2021 a plan to implement a graduated income tax rate system is in place. Individuals, trusts and estates will now follow a tiered tax rate structure.

Illinois has proposed two new state-wide taxes, the “Video Service Tax Modernization Act” and the “Entertainment Tax Fairness Act”. Both targeted at web streaming subscription services such as Netflix, Hulu, etc… Withum has a full writeup with details here (require link to article).

Illinois will be offering a Tax Amnesty program from October 1 through November 15, 2019 for all tax types. Periods covered under the program includes periods ending after June 30, 2011 through prior to July 1, 2018. The Department will abate all interest and penalties related to the delinquent periods.

Disclaimer: Please note this is the information that is readily available at this time, it is subject to change so please consult your Withum tax advisor.