Illinois Governor J.B. Pritzker recently signed House Bill 4951, and Senate Bill 3362 is currently on the Governor’s desk for signing/approval. Both of these bills will impact several, applicable Illinois taxpayers.
House Bill 4951 – Public Act 103-0592
Article 105 of HB 4951 imposes a $500,000 per year cap on net operating losses (NOL) available for use against corporate income taxes at $500,000 per year. With the passing of this bill, the cap will be in place for three years, beginning with tax years on or after December 31, 2024. The Bill originally had this as permanent freeze but Amendment No. 3 to HB 4951, changed it to a three three-year extension from tax years ending on or after December 31, 2024 and prior to December 31, 2027. It is more than likely that the permanent cap option comes up again in future legislation to circumvent the revenue ramifications of years of unexpressed losses.
Article 75 of HB 4951 changes the state’s sales tax on leases of tangible personal property from a tax paid by the lessor at the time the leased property is purchased to a tax on the rental charges paid by the lessee. This puts Illinois in line with the way other states tax leases and rentals. Titled property, such as cars, aircraft, watercraft, etc., is excluded from the tax on leased and rented property.
Retailers will be entitled to claim the so-called “86-54” credit for tax previously paid on leased equipment sold at retail in Illinois, although there is no “one time” credit in the proposed law to account for sales or use tax recently paid to Illinois on rental inventory. The “86-54” credit refers to Illinois Department of Revenue Information Bulletin, FY 86-54 (June 1986) that explains how lessors of property can claim a credit for the upfront tax paid upon the purchase of inventory for leasing in Illinois. FY 86-54 was codified in Ill. Admin. Code tit. 86, § 130.2013(h)(2).)
Article 75 also creates new exemptions for (1) property that is leased and subject to Chicago’s personal property lease transaction tax and (2) lessees of “software licenses”. These changes are effective January 1, 2025.
Article 115 of HB 4951 makes the first $10,000 in franchise tax liability exempt from taxation, effective for years beginning on or after January 1, 2025. Many taxpayers no longer have an annual franchise tax liability because the state’s exemptions have increased incrementally over the last four years from $30 in 2020 to $1,000 for tax years 2021, 2022, and 2023, $5,000 for 2024, and now $10,000 for 2025. Even without this annual liability, applicable taxpayers are still required to file annual reports, and to comply with the state’s requirements to report mergers and other changes to a corporation’s shares and paid-in capital.
Senate Bill 3362
Senate Bill 3362, sent to the Governor’s desk the end of June amends the Retailers’ Occupational Tax Act, amending Illinois’s sales and use tax laws to require retailers making sales that are shipped into Illinois to start collecting local sales tax based on the rate applicable where the goods are shipped or delivered to (i.e., destination-sourcing), effective January 1, 2025.
Under current law, only “remote retailers” (retailers that have “Wayfair” nexus but no physical nexus with Illinois), are required to collect and report local sales tax on sales shipped into Illinois. Other retailers (i.e., those having physical nexus with Illinois) use origin sourcing, and, for sales shipped into Illinois, are typically required to charge only the state use tax rate of 6.25%, and no local tax, on such sales.
Contact Us
These changes mean it is important for Chicago businesses to evaluate tax planning strategies. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Selden Fox can help. For additional information call 630.954.1400 or click here to contact us. We look forward to speaking with you soon.
