Member of Russell Bedford International, a global network of independent professional service firms.
Member of Russell Bedford International, a global network of independent professional service firms.
CPA | Tax Manager
In June 2025, Illinois enacted major tax reforms as part of the 2026 Illinois Budget bill. The changes have a direct impact on how businesses, particularly multi-state and privately-held companies, calculate, report, and allocate taxes.
If your company is operating in Illinois or conducting business remotely within the state, it’s essential to understand these updates and adjust your tax strategy now. The new legislation includes the following key provisions:
Effective for tax years ending on or after December 31, 2025, Illinois will replace the Joyce apportionment rule with the Finnigan rule for unitary combined reporting.
What This Means:
Why It Matters:
This is a major shift from the old Joyce rule, which only included sales from group members with an Illinois nexus. The result? Many multi-state businesses will see a higher Illinois apportionment percentage and, consequently, potentially higher Illinois tax liability.
Starting with tax years ending on or after December 31, 2025, corporate taxpayers can only deduct 50% of the amount of global intangible low-taxed income (GILTI) under IRC Section 951A from taxable income.
Previously, businesses could deduct 100% of GILTI. This change effectively increases Illinois’ taxable income for corporations with foreign operations or subsidiaries.
Effective for tax years ending on or after June 16, 2025, Illinois will change how capital gains and losses from the sale or exchange of S corporation shares or partnership interests are sourced.
How It Works:
What Changed:
Previously, capital gains and losses from selling or exchanging an interest in a pass-through entity generally were sourced based on the taxpayer’s state of residence. Now, non-residents selling Illinois-based business interests may owe Illinois tax and should confirm whether their home state allows a credit for taxes paid to Illinois.
The new Advancing Innovative Manufacturing (AIM) for Illinois Tax Credit aims to encourage investment in domestic manufacturing facilities.
Key Details:
Remote Retailer Transaction Threshold Eliminated
Starting January 1, 2026, Illinois will remove the 200- transaction threshold used to determine nexus for sales and use tax.
From now on, remote retailers, marketplace facilitators, and marketplace sellers will need to collect and remit Illinois sales tax if their Illinois sales exceed $100,000 annually, regardless of transaction count.
Service Occupation and Service Use Tax Expansion
Also beginning January 1, 2026, the Leveling the Playing Field for Illinois Retail Act will expand to cover service providers. Service businesses with nexus in the state will be responsible for collecting both state and local sales taxes when a service is provided from outside the state to an Illinois customer. The applicable tax rate is calculated based on the customer’s location (destination basis). Prior to this change, out of state service businesses collected only the state 6.25% tax rate.
The 2026 Illinois Budget Bill introduces some of the most significant tax law changes in recent years. From combined apportionment rules to GILTI limitations and new manufacturing credits, these updates will reshape how businesses plan and report taxes in Illinois.
At Cray Kaiser, we specialize in helping business owners navigate these complex changes. Our team can help you update your strategy and ensure compliance while optimizing your Illinois tax position. Contact Cray Kaiser to discuss how the 2026 Illinois tax changes may affect your business and how to prepare effectively.
