Illinois 2021 Tax Code Changes

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With a new year come new tax changes. These are the changes to the Illinois tax code that went into effect on January 1st, 2021:

Minimal Changes for the Average Taxpayer

  • Remote retailers above a certain threshold must now collect local sales tax.
  • The phase-out of the corporate franchise tax continues.
  • New income tax credits targeted toward businesses in the construction industry.

Remote sellers will now be required to collect the local portion of the state’s sales tax.

Under the Illinois Senate Bill 119, resulting in higher taxes for online purchases. Previously, remote retailers who did not have a physical presence in Illinois did not collect sales taxes on sales delivered to Illinois customers. The changes were supposed to go into effect last July but were delayed until January of this year.

This year, Illinois is continuing to phase out the franchise tax.  
 (Also known as a capital stock tax). Contrary to what its name implies, this is not a tax imposed on a franchise. A franchise tax is a tax levied on individual businesses for the right to exist as a legal entity and do business within a particular jurisdiction. The franchise tax exemption has increased from $30 to $1,000. The exemption will continue to grow until 2024 when Illinois plans to repeal the tax.

Finally, four new income tax credits for construction projects took effect on January 1st.

The credits are equal to up to 75% of the incremental income tax attributable to eligible construction jobs, as defined under each program. Businesses can use the credits to offset the recipient’s state corporate tax liability. While the credit value cannot exceed the taxpayer’s liability, unused credits may be carried forward for up to five years. The total aggregate amount of credits awarded cannot exceed $20 million in any given fiscal year. These tax credits will entice companies and developers to undergo capital improvement and rehabilitation projects, which play an essential role in driving economic development.

The 2021 tax code changes will have a limited effect on taxes paid for most Illinois residents. However, consumers may see higher sales tax charges when purchasing from online retailers. On the credit side, there is an additional incentive for new construction projects.

Please feel free to reach out to Sebold Capital Management if you would like to discuss how these tax changes affect your situation.