On June 7, Illinois enacted H.B. 4951, significant legislation that addresses NOL limitations, apportionment for financial organizations, and sales tax.
Corporate income tax changes
Illinois has a history of suspending or limiting NOLs. Most recently, the NOL deduction was capped at $100,000 for the 2021-2023 tax years. H.B. 4951 continues the corporate income tax NOL limitation for tax years ending on or after Dec. 31, 2024, and before Dec. 31, 2027, although the limit is raised from $100,000 to $500,000 per year. For purposes of determining the number of taxable years that NOLs may be carried forward, years under which NOLs are suspended do not count toward the number of carryforward years.
Taxpayers expecting to use their full NOL carryforward in 2024 now will be subject to the $500,000 cap. H.B. 4951 is silent regarding how the new law affects 2024 estimated taxes. Guidance from the Illinois Department of Revenue is expected.
H.B. 4951 also modifies financial organization apportionment of certain investment activity revenue. Prior to H.B. 4951, financial organizations generally included in their Illinois sales factor numerator revenue from investment assets and activities as well as trading assets and activities that were properly assigned to a fixed place of business.
H.B. 4951 amends the law to provide that for tax years ending on or after Dec. 31, 2024, revenue from investment and trading assets and activities generally is sourced based on a taxpayer’s Illinois factor relating to other certain noninvestment and trading revenue as calculated under 35 ILCS 5/304(c)(3)(i) to (vii).
Crowe observation
Moving away from a fixed place of business sourcing standard should provide a benefit to Illinois-based financial organizations while potentially increasing Illinois-sourced revenue for out-of-state financial organizations. Because this change is applicable to the 2024 tax year, financial organizations filing in Illinois should evaluate the impact of this change on their 2024 estimated taxes.
Sales tax
Prior to H.B. 4951, retailers could claim a discount of 1.75% of retailers’ and occupation tax (ROT, or sales tax) and use tax collected and remitted.
Beginning with returns due on or after Jan. 1, 2025, H.B. 4951 limits the discount to $1,000 per month.
H.B. 4951 also makes lease stream payments subject to sales tax. Prior to H.B. 4951, operating leases and rentals of tangible personal property generally were not subject to sales and use taxes. Lessors were responsible for paying sales tax on leased property when purchased.
H.B. 4951 imposes sales tax on lease payments related to operating leases in effect, entered into, or renewed on or after Jan. 1, 2025. Exemptions apply to this new sales tax treatment for certain software licenses and property subject to Chicago’s personal lease transaction tax.
Looking ahead
The changes in Illinois tax law can affect taxpayers that are residents or doing business in the state in various ways, and uncertainties will exist until more guidance is provided. Taxpayers should consult with a state and local tax professional to understand how these rules might apply to them, what tax benefits they might be eligible for, and how to comply.
