Illinois Enacts H.B. 4951: Key Corporate Income Tax Changes

We would like to bring to your attention significant changes enacted by Illinois through H.B. 4951, impacting corporate income tax regulations effective June 7, 2024. This legislation introduces crucial amendments affecting Net Operating Losses (NOLs), and sales tax guidelines.

Corporate Income Tax Adjustments:

NOL Limitations: Illinois continues its approach of limiting NOL deductions, extending the cap to $500,000 per year for tax years ending on or after Dec. 31, 2024, and before Dec. 31, 2027. This marks an increase from the previous $100,000 limit applicable from 2021 to 2023. Notably, suspended NOL years do not count towards the carryforward period.

Impact on 2024 Estimated Taxes: H.B. 4951 currently does not clarify adjustments to estimated taxes for 2024. We await guidance from the Illinois Department of Revenue regarding this matter.

Sales Tax Discount Modification:

Previous Policy: Prior to H.B. 4951, retailers could claim a discount equivalent to 1.75% of ROT and use tax collected and remitted.

Effective Jan. 1, 2025: The discount is capped at $1,000 per month for returns due on or after this date. This change aims to streamline tax administration while adjusting discount benefits for retailers.

Expansion of Sales Tax to Lease Payments:

Historical Context: Operating leases and rentals of tangible personal property were generally exempt from sales and use taxes, with lessors assuming responsibility for sales tax upon property purchase.

H.B. 4951 Implementation: Effective Jan. 1, 2025, lease payments related to operating leases entered into, in effect, or renewed will be subject to sales tax. Certain exemptions apply, including specific software licenses and property covered by Chicago’s personal lease transaction tax.

Planning Ahead:

These revisions in Illinois tax law introduce complexities that may impact residents and businesses within the state. While uncertainties persist pending additional guidance, proactive engagement with state and local tax professionals is recommended. They can provide clarity on application specifics, potential tax benefits, and strategies for compliance.