The Illinois Senate overrode the Governor’s veto and passed new legislation, Senate Bill 9, that will increase the income tax rate for individuals and corporations, reinstate the research and development (R&D) tax credit as well as adding a tax addback for IRC 199 and provisions for unitary business groups. Other provisions related to individual taxation, sales and use tax and unclaimed property were also included in the bill. This bill is effective as of July 1, 2017.
Senate Bill 9 will increase the corporate tax rate from 7.75% to 9.5% and the individual income tax rate from 3.75% to 4.95%. Illinois will allow corporations and individuals to make an election to calculate income that is subject to these different tax rates.
The R&D credit will be reinstated retroactively beginning on January 1, 2016 and extend to tax years ending January 1, 2022. The non-refundable credit is equal to 6.5% of the qualifying research expenditures, which exceed the base amount. The amount of qualifying expenditures is the sum of R&D expenditures incurred for the current taxable year, minus the sum of the average expenses for the 3 preceding taxable years.
For tax years ending on or after December 31, 2017, Illinois will require a corporate tax addback equal to the deduction allowed under IRC 199.
Prior to Senate Bill 9, Illinois did not allow members of a unitary group with different apportionment methods to be a part of an Illinois unitary return. The passing of this bill has reversed this approach. This bill does not provide guidance on how members of a unitary group with different apportionment methods are to calculate income on a combined basis. Until the Illinois Department of Revenue issues guidance through regulations or letter rulings, we advise discussing such decisions with your tax advisor.
Please contact one of RubinBrown’s State and Local Tax professionals to assist you in understanding the impact these tax law changes may have on you and your business.
Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.
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