Revenue Raisers Trending in 2021 Illinois Legislation

Thoughtware Alert Published: Jul 07, 2021
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On June 17, 2021, with high hopes to move Illinois toward becoming fiscally stable, Illinois Gov. J.B. Pritzker signed Senate Bill (S.B.) 2017, the FY22 Budget Implementation Act. The fiscal year 2022 budget mirrors the governor’s state of the state address by closing corporate “tax loopholes,” which increase state revenues by an estimated $655 million. Below are some major tax provisions in the legislation.

Net Operating Loss Deduction Limitation

The net operating loss (NOL) carryover deduction will be limited to $100,000 for tax years ending on or after December 31, 2021, through December 31, 2024, for corporations (other than S corporations) and combined filing groups. For the years in which the NOL exceeds the $100,000 cap, additional carryforward years are added (if needed).

Decouple from Federal Bonus Depreciation

Illinois previously decoupled from 30 percent and 50 percent bonus depreciation. Effective on or after December 31, 2021, Illinois also decouples from 100 percent federal bonus depreciation. This will require an addition modification for the bonus depreciation along with a subtraction modification resulting in depreciation expense as if the taxpayer had elected out of bonus depreciation under Internal Revenue Code (IRC) Section 168(k). Furthermore, additional language was added to ensure all future federally accelerated depreciation mechanisms, regardless of percentage, are decoupled for Illinois tax purposes. This change applies to all categories of taxpayers, including individual and corporate taxpayers.

Foreign Source Income

For tax years ending after June 30, 2021, corporations will be required to add back an amount equal to the global intangible low-taxed income (GILTI) deduction allowed under IRC §250(a)(1)(B)(i). In addition, an addback modification will be required for the foreign dividend deduction under IRC §243(e) and §245A(a). IRC §243(e) permits a federal deduction for dividends from a foreign corporation related to earnings and profits accumulated when it was a domestic corporation. IRC §245A(a) provides a federal deduction for the foreign source portion of a dividend received from a specified 10 percent owned foreign corporation. Further, in computing the foreign dividends received deduction for tax years ending on or after June 30, 2021, the term “dividend” will not include any amount treated as a dividend under IRC §1248, which treats gains on sales or exchanges of stock in certain foreign corporations as a dividend.

Illinois Franchise Tax Reinstated

Prior Illinois legislation (S.B. 689, Laws 2019) provided for a phaseout of the Illinois franchise tax, ultimately sunsetting this tax by 2024. However, the enacted budget legislation reinstates the franchise tax in perpetuity, but it retains the exemption for the taxpayer’s first $1,000 of franchise tax liability.

Other Noteworthy Provisions

  • The sunset date for the New Markets Development Credit is extended from the end of the 2021 fiscal year to the end of the 2024 fiscal year.
  • The sunset date for the Invest in Kids Credit is extended from January 1, 2023, to January 1, 2024, and modified to include donations to technical academies.
  • The sunset date for the Affordable Housing Donation, River Edge Historic Preservation, Redevelopment Zone Construction Jobs, Live Theater Productions, and Angel Investment credits is extended to December 31, 2026.
  • An insurance assessment is created to fund the new State Police Training and Academy Fund and the Law Enforcement Training Fund. Insurers are required to collect and remit up to $4 per covered automobile in Illinois. 
  • In other legislation (S.B. 2279), the statute of limitations was modified with respect to refund claims. If a taxpayer makes a claim for refund within six months of the end of a statute of limitation, there will be an automatic six-month extension of the statute of limitations for assessment of tax.

Taxpayers should evaluate whether the above listed changes affect their future tax liabilities in Illinois. For more information or assistance, contact a BKD state and local tax professional or submit the Contact Us form below.

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