Illinois Corporate Income Tax

According to the Illinois Tax Code, every corporation receiving income in Illinois is subject to tax on net income. The tax rate is 7.3%, 4.8% of which is the income tax and 2.5% of which is the property replacement tax (there is no tax on personal property in Illinois).

Further information:

• Illinois Corporate Income Tax
• Illinois Corporate Income Tax Statute

Illinois Franchise Tax

Illinois corporations are also subject to a franchise tax. The tax is based on the share of a corporation’s paid-in capital in the state of Illinois. The initial franchise tax is imposed at the beginning of the corporation’s first year doing business in the state. The initial franchise tax rate is 0.15% of the share of paid-in capital in Illinois. The franchise tax must be no less than $25.00 and no more than $2 million. After a corporation’s first year, the franchise tax is due annually at a rate of .10%, again with a minimum of $25.00 and a maximum of $2 million.

Workers’ Compensation & Unemployment Insurance

Source: Illinois Department of Revenue

Individual Income Tax

The Illinois Income Tax is imposed on every individual, corporation, trust, and estate earning or receiving income in Illinois. The tax is calculated by multiplying net income by a flat rate. The Illinois Income Tax is based, to a large extent, on the federal Internal Revenue Code (IRC).

Tax Rate

The rate is 3% of net income.

Tax Base

The starting point for the Illinois Individual Income Tax is federal adjusted gross income. Federal adjusted gross income is “income” minus various deductions (not including itemized deductions, the standard deduction, or any exemptions). Next, the federal adjusted gross income is changed by adding back certain items ( e.g., federally tax-exempt interest income) and subtracting others ( e.g., federally taxed retirement and Social Security income). The result is “base income.” The base income earned in Illinois or while a resident of Illinois is then reduced by the number of federally claimed exemptions plus any additional exemptions. The amount of each exemption is $2,000. Additional exemptions are provided for any taxpayer or spouse who was either 65 years of age or older, legally blind, or both ($1,000 each). The total exemption amount is deducted from base income to arrive at “net income.” The tax rate is then applied against net income.

Local Income Tax

There are no local income taxes in Illinois.

Further Information

• Individual Income Tax Information
• Illinois Individual Income Tax Act

Property Taxes

The State of Illinois does not have a statewide property tax. Property taxes are assessed at the local level.

Source: City of Kewanee, 2008

Further Information

• Illinois State Property Tax System

Sales Taxes

The state sales tax in Illinois is assessed on three categories: 1) food and prescription and non-prescription drugs, 2) vehicles, and 3) other general merchandise. Vehicles, or items that require a title and registration are taxed at a base rate of 6.25%. Other general merchandise is taxed at 6.25% and includes sales of most tangible personal property including sales of soft drinks, prepared food including food purchased at restaurants, photo processing, prewritten or “canned” computer software, prepaid telephone calling cards and other prepaid telephone arrangements, and repair parts and other items transferred or sold in conjunction with providing a service.

Communities can apply additional sales taxes:

Source: “Illinois Tax Rate Finder”, Illinois Department of Revenue.

State Sales Tax Exemptions

• Manufacturing machinery, as well as replacement parts and computers, used to control manufacturing machinery are exempt. Purchases of manufacturing machinery receive a credit equal to 50% of what the taxes would have been if the manufacturing machinery was taxable making it possible for manufacturers to use this credit to offset any other sales tax liability they incur.
• Purchase of farm machinery is exempt.
• Pollution control facilities; any system, device, or appliance sold to prevent or reduce air and water pollution or pre-treat a potential pollutant are exempt.
• Food (food sales for consumption off the premises) and prescriptions are taxed at the special rate of 1.00%. Alcoholic beverages, soft drinks, and food prepared for immediate consumption are subject to the 6.25%.

Utility Taxes

Source: “Illinois Tax Rate Finder”, Illinois Department of Revenue; City of Kewanee.

Taxes