The State of Illinois is Repealing its Corporate Franchise Tax – eventually!
Frank J. Portera • March 3, 2020
Each corporation that does business in the State of Illinois, whether it was organized in Illinois or organized in another state around the country, is subject to an annual Corporate Franchise Tax. The Corporate Franchise Tax is essentially a fee that businesses must pay to the Illinois Secretary of State for the privilege of doing business in the State of Illinois and it is calculated based upon either the value of the corporation’s property or based upon the corporation’s total Paid-in Capital. Paid-in Capital is the amount of money that a corporation receives from its shareholders in exchange for the issuance of stock in the company.
Currently, Illinois is one of 8 states that assesses a franchise tax on corporations. Those states include Alabama, Arkansas, North Carolina, Oklahoma, Tennessee, Texas, and West Virginia. Most states are moving towards eliminating their Corporate Franchise Taxes all together with the goal of attracting more business owners to incorporate and do business in their states.
The Illinois Corporate Franchise Tax is currently calculated and due along with the filing of every business’ Corporate Annual Report with the Illinois Secretary of State. However, in June of 2019, Governor J.B. Pritzker signed into law Senate Bill 689 (now Illinois Public Act 101-0009) which provided for the eventual phase-out of Illinois’ Corporate Franchise Tax on both domestic and foreign corporations.
As of January 1, 2020, the Illinois Corporate Franchise Tax has begun its process of being completely phased out. By 2024, the Illinois Corporate Franchise Tax will be a thing of the past. The actual timing of the phase-out and the tax amount that each corporation will be relieved of is as follows:
“On or after January 1, 2020 and prior to January 1, 2021, the first $30 in liability is exempt from the tax imposed under this Section.”
“On or after January 1, 2021 and prior to January 1, 2022, the first $1,000 in liability is exempt from the tax imposed under this Section.”
“On or after January 1, 2022 and prior to January 1, 2023, the first $10,000 in liability is exempt from the tax imposed under this Section.”
“On or after January 1, 2023 and prior to January 1, 2024, the first $100,000 in liability is exempt from the tax imposed under this Section.”
“The provisions of this Section shall not require the payment of any franchise tax that would otherwise have been due and payable on or after January 1, 2024.”
805 ILCS 5/15.35(e)
The new law not only affects corporations organized in Illinois but also those foreign (out-of-state) corporations that do business in the State of Illinois. 805 ILCS 5/15.65(e) also reads as follows:
“On or after January 1, 2020 and prior to January 1, 2021, the first $30 in liability is exempt from the tax imposed under this Section.”
“On or after January 1, 2021 and prior to January 1, 2022, the first $1,000 in liability is exempt from the tax imposed under this Section.”
“On or after January 1, 2022 and prior to January 1, 2023, the first $10,000 in liability is exempt from the tax imposed by under this Section.”
On or after January 1, 2023 and prior to January 1, 2024, the first $100,000 in liability is exempt from the tax imposed under this Section.”
“The provisions of this Section shall not require the payment of any franchise tax that would otherwise have been due and payable on or after January 1, 2024.”
If you have an Illinois Corporate Annual Report due in 2020, expect to have your usual franchise tax amount be lowered by the new law. These lower tax assessments will likely benefit larger corporations and those corporations that have high amounts of Paid-In Capital.
If you would like to discuss this topic further or would like to discuss preparing your Illinois Corporate Annual Report, you may contact attorney Frank Portera at (847) 705-7555 or fportera@lavellelaw.com.
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