Overriding the governor’s veto, the Illinois legislature adopted the first state budget in two years. The budget includes many tax changes that both individual and business taxpayers should know. The changes are effective July 1, 2017.
As widely reported in the general press, the most notable changes are with respect to income tax rates. The personal income tax rate increased from 3.75 percent to 4.95 percent. The corporate income tax rate increased from 5.25 percent to 7 percent. The income tax increases make up the bulk of the $5 billion tax hike in the budget.
But there were several other significant tax changes that came out of the budget deal that are worth noting. The new budget eliminates the domestic production deduction (by decoupling from section 199 of the Internal Revenue Code). The budget compromise also eliminates the separate combined reporting requirements for insurance companies and financial institutions. The state will no longer recognize an exemption for income earned in the outer continental shelf. The legislature also speeded up the end of tax credits for gasohol (from December 31, 2018 to July 1, 2017).
There is good news for some taxpayers. The budget compromise reinstated the research and development credits. Those credits are now available through 2021. The new law also reinstates the exemption for machinery used for graphic arts and extended the sales tax exemption for blended ethanol.