On June 7, 2024, Illinois Governor J.B. Pritzker signed the fiscal year 2025 state budget bill, HB 4951. This bill enacts and amends the Illinois tax law, including the corporate net operating loss (NOL) carryover limitation, franchise tax exemption, and sourcing of investment assets receipts of financial organizations.
Corporate NOL Carryover Limitation Increased
Under prior law, the utilization of NOL carryover corporations other than S corporations was limited to $100,000. The new bill increases the NOL carryover deduction limitation to $500,000 for any taxable year ending on or after December 31, 2024 and prior to December 31, 2027.
Franchise Tax Exemption Increased, but Extended
Corporations that conduct business in the state of Illinois are required to pay an annual corporate franchise tax that is calculated on the value of the corporation’s property or on its total paid-in capital. For tax year 2024, the first $5,000 in liability is exempt from the franchise tax. On and after January 1, 2025, the first $10,000 in liability is exempt from the franchise tax.
Change to Investment Assets & Trading Receipts Sourcing
Effective for tax years beginning after December 31, 2024, the new law changes the method for sourcing receipts from investment assets and trading activities of financial organizations. These types of receipts will now be sourced to Illinois based on a fraction, the numerator of which is all other receipts of the financial organization sourced to Illinois, excluding investment and trading receipts. The denominator is the financial organization’s everywhere receipts, excluding investment and trading receipts.
Forvis Mazars Insights
- HB 4951 also makes a number of other changes, including applying Illinois sales and use taxes to the sourcing of revenue from certain leases of tangible personal property other than motor vehicles, watercraft, and aircraft.
- When applying the new method for sourcing receipts of a financial organization from investment assets and trading activities, consideration also should be given to Illinois’ use of the Joyce method to source receipts of unitary groups filing Illinois combined reports.
- The effect of the extension of the Illinois NOL carryover limitation to Illinois corporate taxpayers may be offset by maximizing the use of Illinois tax credit during the extended limitation period.