United States

Illinois enacts first state budget since 2015

TAX ALERT  | 

On July 6, 2017, the Illinois General Assembly overrode Gov. Bruce Rauner’s veto of the 2018 fiscal year budget and accompanying revenue bills. The tax bill, Senate Bill 9, provides numerous changes to the state tax code in order to increase revenue and help close revenue shortfalls. A summary of those changes is as follows:

Corporate and personal income tax changes

Senate Bill 9 makes corporate and personal income tax rate changes.

In the case of an individual, trust or estate, the income tax rate remains 3.75 percent for net income prior to July 1, 2017, and increases to 4.95 percent for net income  after June 30, 2017.

In the case of a corporation, the corporate income tax rate remains 5.25 percent for net income prior to July 1, 2017, and increases to 7 percent for net income  after June 30, 2017.

Miscellaneous income tax changes:

  • The earned income tax credit is increased to 14 percent of the federal tax credit, from 10 percent, for tax years beginning on or after Jan. 1, 2017, and 18 percent for tax years beginning on or after Jan. 1, 2018.
  • The research and development credit is again effective, previously sunsetting on Dec. 31, 2015. The credit is equal to 6.5 percent of qualifying expenditures for increasing research activities in the state. The credit is schedule to sunset for tax years ending prior to Jan. 1, 2022.
  • For taxable years ending on or after Dec. 31, 2017, section 199 is now a required addback for determining Illinois income.
  • For taxable years ending on or after Dec. 31, 2017, eliminates the prohibition on unitary business groups including members which are ordinarily required to apportion income under different subsections of section 304.

Sales and use tax changes

Senate Bill 9 restores the graphic arts machinery and equipment exemption that last sunset on Aug. 30, 2014. The exemption includes repair and replacement parts, both new and used, and certain chemicals. The graphic arts machinery and equipment exemption is now included under the manufacturing and assembling machinery and equipment exemption and becomes effective July 1, 2017.

Unclaimed property

Senate Bill 9 adopts the Revised Uniform Unclaimed Property Act (RUUPA) effective Jan. 1, 2018. Since finalization in November 2016, RUUPA adoption has been slow with Delaware and Utah becoming the first states to adopt some of the uniform provisions. RUUPA has also been the subject of recent controversy with the American Bar Association taking the lead on drafting a competing uniform law.

Takeaways

Gov. Rauner had vetoed Senate Bill 9 on July 4, which was overrode by the state senate on the same day. Two days later, the state house overrode the veto by a vote of 71 to 42, the minimum vote needed to effectuate the override. The new $35 billion budget is estimated to produce a $5 billion tax increase. Illinois taxpayers impacted by any of the new provisions or changes should speak to their tax advisors with questions.

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