Moreover, five of those states — Nevada, South Dakota, Texas, Washington, and Wyoming — as well as Alaska and Florida currently have no personal income tax. Individuals in New Hampshire and Tennessee are only taxed on interest and dividend income.
Apart from taxing business income through a corporate income tax or a personal income tax, many states impose a separate tax on at least some businesses, sometimes called a franchise tax or privilege tax. This is frequently justified as a tax simply for the privilege of doing business in the state. As with state taxes on business income, the specifics of a state's franchise tax often depend in part on the legal form of the business. Franchise taxes are generally either a flat fee or an amount based on a business's net worth.
Illinois has a corporate income tax, a personal property replacement tax, and a corporation franchise tax. With the exception of sole proprietorships, most businesses will be subject to at least one of these three business-related taxes.
Additionally, if income from your business passes through to you personally, that income will be subject to taxation on your personal Illinois tax return. Returns are due on the 15th day of the 4th month after the end of the corporation's tax year if the corporation tax year end on June 30 then returns are due on the 15th day of the 3rd month after the end of the tax year.
For corporations with tax years following the calendar year, this means April 15th. For the sake of comparison, the Illinois personal income tax rate is a flat 3. Illinois also requires traditional corporations, S corporations, LLCs, and partnerships to pay a personal property replacement tax.
This tax is based on a business's net income. For traditional corporations, the tax is 2. Due dates vary depending on the legal form of your business.
Finally, Illinois corporations are required to pay an annual franchise tax, which is a tax on the privilege of having an Illinois corporation. The tax is due each year on the anniversary of the formation of the corporation and essentially is based on the corporation's net worth.
For the first year, the tax is. For subsequent years, the tax is. New York requires the election for to be made by October 15 and requires estimated payments to be made by both the pass-through entity and the partners or shareholders in Alternatively, the Department of Revenue could require the election to be made with the tax return. Partners and S corporation shareholders are allowed a refundable credit for the PTE Tax paid by the pass-through entity.
Partners and S corporation shareholders must addback their distributive share of the PTE Tax to their Illinois income so that the tax liability at the partner level equals the PTE Tax paid at the entity level. As noted above, 18 other states have adopted pass-through entity taxes. For example, nine states allow a credit for PTE Tax paid in a manner similar to Illinois while the other nine states allow a deduction or exclusion of the income taxed at the entity level rather than a credit.
Although it is expected that Illinois will allow its residents a credit for PTE Taxes paid in all of these states, multistate partnerships and S corporations should consult their tax advisors to avoid unexpected adverse results that could occur if Illinois or possibly other states do not allow a credit for PTE Taxes paid in some other states.
In particular, states that have not enacted a similar PTE Tax may or may not allow their residents to claim a credit for PTE taxes paid to states that have enacted PTE Taxes since the tax is imposed on the entity rather than the individual partner or shareholder that seeks the credit.
Taxpayers deciding whether to make a PTE Tax election in one or more states or establish a partnership or S corporation to qualify for the federal tax deduction should consult their tax advisors generally and with respect to several issues. For example, multistate partnerships and S corporations and entities with owners in multiple states should consider whether all partners or shareholders will receive a tax credit in their state of residence, which may be a significant issue in states that have not enacted a PTE Tax.
Pritzker signed Public Act the Act and formerly, Senate Bill , establishing an elective income tax regime for pass-through entities PTEs , including partnerships, S corporations and LLCs treated as either.
Unlike many other states that have recently enacted these elective PTE tax regimes, Illinois already subjects the income of PTEs to the state's personal property replacement tax Replacement Tax. This new PTE tax regime is an additional, elective entity-level income tax. Publicly traded partnerships are not eligible for this new PTE tax. This benefit is accomplished by treating PTE tax paid at the entity level as an "above the line" deduction by the trade or business rather than as an itemized deduction at the individual PTE owner level that would otherwise be subject to the SALT deduction limitation.
The Illinois elective PTE tax applies beginning with tax years ending on or after December 31, , and beginning before January 1, Key features of the new PTE tax law are summarized below. The election must be made for each tax year; once made for a given tax year, it cannot be revoked. Brady, U. North Dakota, U. However, the fact that Article 3 of the IITA requires a non-resident taxpayer to allocate or apportion income to this State does not create a presumption that the taxpayer has nexus.
In , Congress enacted PL 15 USC , which prohibits states and their political subdivisions from imposing a net income tax on nonresident taxpayers who operate primarily in interstate commerce and whose activity within a state is limited. PL provides in pertinent part:. A No state or political subdivision thereof shall have the power to impose. B The provisions of subsection c 1 A of this Section shall not apply to the imposition of a net income tax by any State or political subdivision thereof, with respect to —.
C For the purposes of subsection c 1 A of this Section, a person shall not be considered to have engaged in business activities within a state during any taxable year merely by reason of sales in such state, or the solicitation of orders for sales in such state, of tangible personal property on behalf of such person by one or more independent contractors whose activities on behalf of such person in such state consist solely of making sales, or soliciting orders for sales, of tangible personal property.
D For purposes of this subsection c 1 —. A If a nonresident taxpayer's activities exceed "mere solicitation", as set forth in subsection a of PL subsection c 1 A of this Section , it obtains no immunity under that federal statute. The taxpayer is subject to Illinois income tax and personal property tax replacement income tax for the entire taxable year and its business income is apportioned under IITA Section Whether a nonresident taxpayer's conduct exceeds "mere solicitation" depends upon the facts in each particular case.
B Nature of Property Being Sold. Efforts to sell intangibles, such as services, franchises, patents, copyrights, trademarks and service marks, are not protected, nor is solicitation for the leasing, renting or licensing of tangible personal property. C Solicitation of Orders.
Solicitation of orders means speech or conduct that explicitly or implicitly invites an order and activity ancillary to invitations for an order.
PL only protects ancillary activity that facilitates the invitation of an order. D De minimus activities are those that, when taken together, establish only a trivial additional connection with this State. An activity regularly conducted within this State on a regular or systematic basis or pursuant to a company policy whether such policy is in writing or not shall normally not be considered trivial. Whether an activity consists of a trivial or non-trivial additional connection with this State is to be measured on both a qualitative and quantitative basis.
If the activity either qualitatively or quantitatively creates a non-trivial connection with this State, then the activity exceeds the protection of PL The amount of unprotected activities conducted within this State relative to the amount of protected activities conducted within this State is not determinative of the issue of whether the unprotected activities are de minimus. The determination of whether an unprotected activity creates a non-trivial connection with this State is made on the basis of the taxpayer's entire business activity, not merely its activities conducted within this State.
An unprotected activity that would not be de minimus if it were the only business activity of the taxpayer conducted in this State will not be de minimus merely because the taxpayer also conducts a substantial amount of protected activities within this State, nor will an unprotected activity that would be de minimus if conducted in conjunction with a substantial amount of protected activities fail to be de minimus merely because no protected activities are conducted in this State.
A Subsection c 4 lists specific activities that are considered to be beyond "mere solicitation" and, therefore, unprotected by PL B Subsection c 5 lists specific activities that are considered by this State to be "protected activities". Included on the list of "protected activities" are those specific activities that are protected by PL and those specific activities that this State, in its discretion, deems worthy of protection.
Inclusion of an activity on the listing of "protected activities" is neither a declaration nor an admission by this State that the activity must be afforded protection under PL
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