On June 5, 2019, Illinois Governor J.B. Pritzker signed a $40 billion state budget bill into law. Among the various provisions included in the over 300 page budget is a provision providing for the phase-out of Illinois’ corporate franchise tax beginning on January 1, 2020.
Paid by both domestic and out-of-state entities “[f]or the privilege” of doing business in Illinois, the franchise tax is payable annually upon the filing of the entity’s annual report with the Illinois Secretary of State’s Office. The calculation of the amount of the franchise tax owed to the State of Illinois is generally based on the entity’s paid-in capital. An additional franchise tax amount is payable upon any of the following events which have occurred since the filing of the entity’s previous franchise tax filing: (i) the issuance of additional shares resulting in an increase in paid-in capital; (ii) an increase in paid-in capital without the issuance of shares; or (iii) cumulative changes in paid-in capital or an exchange or reclassification of shares, which shows an increase in its paid-in capital.
Pursuant to the recently approved budget act, the franchise tax will be phased-out over a four (4) year period. Beginning on January 1, 2020, the first $30 of franchise tax liability will be exempt from any amounts owed under the revised franchise tax provisions of the budget act, and for the three years thereafter, the exemption will increase to $1,000, $10,000, and $100,000, respectively. After January 1, 2024, the franchise tax will be eliminated. See the chart below for a specific breakdown of the phase-out.
|DATE||AMOUNT EXEMPTED FROM FRANCHISE TAX|
|On or after January 1, 2020||$30|
|On or after January 1, 2021||$1,000|
|On or after January 1, 2022||$10,000|
|On or after January 1, 2023||$100,000|
|On or after January 1, 2024||Franchise Tax Eliminated|
Often seen as a barrier to Illinois’ ability to attract out-of-state corporate investments in the State, and a hindrance on small businesses across the State, the business community has clamored for years to eliminate the franchise tax. With the phase-out of the franchise tax, the Illinois business community finally gets a win, albeit a small one.
To read the Illinois budget act and the revisions to the Illinois corporate franchise tax, click here.