United States

Illinois enacts broad tax changes

INSIGHT ARTICLE  | 

On June 5, 2019, Illinois Gov. Pritzker signed Senate Bill 689 into law providing new marketplace facilitator rules, additional credits and incentives and amending retailer occupation, sales and use and income tax laws. On June 28, 2019, the governor signed Senate Bill 690, expanding the states definition of “remote retailer” and providing additional assistance to remote retailers for the new sales tax compliance requirements. A summary of the highlight provisions from both bills follows below.

Retailer’s Occupation Tax changes

Remote seller provisions

Effective Jan. 1, 2020, Senate Bill 689 provides that a “marketplace facilitator” with gross receipts of $100,000 or more from Illinois sourced sales or 200 or more separate transactions for the sale of tangible personal property to customers in Illinois will be deemed as the retailer of sales made through the facilitator’s marketplace. However, sales made by a retailer through a marketplace facilitator do not count against the threshold when determining whether that retailer has economic nexus with Illinois. Illinois is the latest of almost three dozen states to adopt marketplace facilitator nexus provisions.

Senate Bill 690 authorizes certified service providers to perform use and occupation tax functions on behalf of remote retailers. The department is required to establish taxability databases by July 1, 2020. Remote retailers will be permitted to use certified automated systems to collect and remit state and local use and occupation taxes. For providing the services, the certified service providers will receive 1.75% of the tax dollars collected, while the retailer may not claim the 1.75% prompt filing retailer’s discount. Remote retailers using certified service providers and the providers themselves are relieved of liability for charging and collecting incorrect amounts in cases where the provider relied at the time of sale on erroneous information from the state on rates, boundaries, taxing jurisdictions, or taxability of products and services.

Senate Bill 690 also provides that remote retailers that meet the economic nexus threshold will be liable for all state and local Retailer’s Occupation Tax on retail sales to Illinois customers, effective July 1, 2020. This will require remote retailers to collect Illinois tax based on the destination of the customer. Accordingly, a remote seller that sells to Chicago customers will need to collect both the state and local city taxes.

Miscellaneous provisions

  • Under Senate Bill 689, effective July 1, 2019, the manufacturing machinery and equipment exemption is expanded to include “production related tangible personal property.” The definition of “production related tangible personal property” includes supplies and consumables used in a manufacturing facility including fuels, coolants, lubricants, solvents, oils, hand tools, productive apparel and fire and safety equipment used or consumed with the manufacturing facility
  • Under Senate Bill 690, beginning, Jan. 1, 2020, the trade-in credit for vehicles will be capped at $10,000 

Credits and incentives

Senate Bill 689 also creates a number of new Illinois credit and incentive provisions.

High Impact Businesses

A new nonrefundable credit is created for High Impact Business construction jobs credit for projects that meet certain criteria. The credit is equal to 50% of the amount of income tax attributable to the construction jobs created by a High Impact Business construction project. The credit is increased 75% of the amount of income tax attributable to the construction jobs for projects in distressed areas. Credits are claimed against Illinois income tax. Credits may be claimed beginning with taxable years beginning on or after Jan. 1, 2021.

Enterprise Zone construction jobs credit

The Enterprise Zone construction jobs credit allows a business entity that makes a capital investment of at least $10 million to claim a credit on the construction jobs created by the project. Credits are equal to 50% of the amount of income tax attributable to the construction jobs created at the project. The credit is increased to 75% of the amount of income tax attributable to the construction jobs for projects in distressed areas. Credits are claimed against Illinois income tax and are available for taxable years beginning on or after Jan. 1, 2021.

New Construction EDGE Credit

Beginning on Jan. 1, 2021, the state will offer new construction EDGE credits which can be claimed against Illinois income tax for projects with at least $10 million in capital investment. These credits are equal to 50% of the amount of income tax attributable to the construction jobs created at the EDGE project. If the project is in an underserved area, the credits are equal to 75% of the amount of income tax attributable to the construction jobs created at the EDGE project.

Income and franchise tax changes

Senate Bill 689 phases out the Illinois Corporate Franchise tax beginning in 2020. The franchise tax will be eliminated for any taxes due on or after Jan. 1, 2024, and is reduced on the following schedule:

  • Calendar year 2020 – Total franchise tax reduced by $30
  • Calendar year 2021 – Total franchise tax reduced by $1,000
  • Calendar year 2022 – Total franchise tax reduced by $10,000
  • Calendar year 2023 – Total franchise tax reduced by $100,000

Other miscellaneous income tax changes in Senate Bill 689 include:

  • An addition modification is required for corporations for any deduction allowed for foreign derived intangible income (FDII) under section 250(a)(1)(A), effective Jan. 1, 2019
  • A deduction is allowed for trusts and estates for certain excess business losses disallowed under section 461, effective Jan. 1, 2019

Tax amnesty

Senate Bill 689 establishes a new Tax Amnesty program to cover all taxes administered by the department. The amnesty period is Oct. 1, 2019 through Nov. 15, 2019 and is applicable for tax periods June 20, 2011 through July 1, 2018. The department will abate 100% of interest and penalties for qualifying applicants. Additional information about this program is anticipated in the coming months.  

Takeaways

The 2019 legislative changes to Illinois tax laws affect a wide variety of businesses from remote retailers to manufacturers. Taxpayers that are conducting business in Illinois, have questions about the tax implications or are interested in the tax amnesty program should speak with their state and local tax adviser. 

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