Illinois Budget Expands NOL Limitation, Modifies Franchise and Lease Taxation

On June 5, Illinois Gov. J.B. Pritzker signed into law the $53.1 billion fiscal 2025 budget. The revenue package’s more important tax provisions address net operating losses (NOLs), franchise taxes, and the sales taxation of lease streams. Several changes take effect as soon as January 1, 2025.

NOLs

The budget increases and extends the NOL limitation for corporations. The $100,000 limitation for tax years ending on or after December 31, 2021, and before December 31, 2024, has been increased to $500,000 for tax years ending on or after December 31, 2024, and before December 31, 2027. 

The three years during which NOLs are suspended will not count against the carry-forward period, so taxpayers will not lose their NOLs, but their ability to claim them will be delayed.

Franchise Taxes

Effective January 1, 2025, the budget increases the corporate franchise tax credit from $5,000 to $10,000.

Sales and Use Taxes

Leases

The budget changes the sales tax treatment of lease streams. Effective January 1, 2025, lessors can claim a resale exemption when purchasing equipment for re-lease to customers and then must collect tax on the lease stream. Before this change, lessors paid tax when purchasing equipment for re-lease to customers and did not collect tax on the lease stream.

The budget carves out two exceptions from the leasing tax: property subject to the Chicago personal property lease transaction tax and software licenses meeting the state’s five-part test for licensed software.

Local Taxes

In 2019, Illinois passed the Level the Playing Field for Illinois Retail Act, which requires remote retailers (i.e., out-of-state retailers with no physical presence in Illinois) to collect local tax based on destination. The budget package levels the playing field even further by requiring remote sellers (i.e., out-of-state retailers with a physical presence in Illinois that are currently required to collect Illinois use tax at a rate of only 6.25%) to collect local taxes based on destination rates. This change goes into effect January 1, 2025, and will bring remote sellers in line with remote retailers so that both types of out-of-state retailers will have to collect Illinois Retailers’ Occupation Tax based on destination rates. 

Vendors Discount

Illinois vendors receive a discounted rate on retail sales, and there is currently no cap on that discount when filing sales and use tax returns. Under the budget, the retailers’ discount will be capped at $1,000 per month beginning January 1, 2025.