Illinois State Tax Rulings

I'm a U.S. citizen living in Illinois with retirement savings from a former Swedish employer -- can I subtract those distributions from my Illinois income once I start taking them?

Likely not under the specific subtraction described. A private Swedish employer pension doesn't fit within the U.S. Internal Revenue Code sections (402-408) that Illinois's retirement-income subtracti…

I'm a dual US/UK citizen living in Illinois receiving a private UK employer pension -- can I subtract it from my Illinois income like an earlier Department letter suggested might be possible?

Not under the specific subtraction the taxpayer asked about. Illinois's retirement-income subtraction under 35 ILCS 5/203(a)(2)(F) only covers amounts tied to particular U.S. Internal Revenue Code sec…

I receive Canada Pension Plan and Old Age Security payments, plus a private Canadian employer pension -- which of these can I subtract from my Illinois income as retirement income?

It depends on how each payment is federally categorized, which Illinois doesn't independently decide. Canada Pension Plan and Old Age Security payments appear analogous to U.S. Social Security under t…

Our multistate unitary group thinks Illinois's standard single-sales-factor throwback formula grossly overstates our Illinois income -- can we petition to use an equally weighted three-factor formula, or drop throwback sales, instead?

Not on this showing. Illinois lets a taxpayer petition for an alternative apportionment method under IITA § 304(f), but only by proving the standard formula produces a genuinely distorted result -- no…

My out-of-state company has no offices or employees in Illinois, but we own inventory that sits in an Illinois contract packager's warehouse before being shipped to customers nationwide -- does that create Illinois income tax nexus?

The Department won't give a binding yes/no on nexus outside of an audit -- it's too fact-specific for a letter ruling. But it did flag that owning a stock of merchandise sitting in an Illinois warehou…

Our LLC currently files as a partnership and has a large Illinois net loss carryforward -- if we make an S-corp election next year while keeping the same LLC, does that carryforward transfer to the new S corporation?

No. Even though the same LLC continues to exist as a legal matter, converting from a partnership to an S corporation is treated federally as a liquidation of the partnership followed by formation of a…

Can a donor make their Illinois Gives Tax Credit contribution as a qualified charitable distribution (QCD) directly from their IRA?

Yes. A qualified charitable distribution sent directly from an IRA to a qualified community foundation's endowment fund satisfies the Illinois Gives Tax Credit Act's requirement that the contribution …

Our investment partnership has an Illinois-resident majority partner and a nonresident minority partner -- for the pass-through entity tax, is only the resident partner's share of our portfolio income allocable to Illinois?

Not quite the test the Department applied. Rather than confirming a partner-by-partner residency split, the Department pointed to a partnership-level rule: for an investment partnership's PTE tax, non…

Illinois decoupled from federal bonus depreciation, so we get an offsetting state subtraction each year instead -- but if we can't use the full subtraction amount in one year, can we carry the unused part forward?

Not as its own item -- Illinois's bonus-depreciation subtraction under 35 ILCS 5/203(b)(2)(T) has no standalone carryforward provision, so an amount you can't absorb in the year it arises is simply lo…

As successor trustee, I want to move our family trust's situs out of Illinois since all its assets and most beneficiaries are now elsewhere -- will that end the trust's Illinois residency and stop the double taxation with our other state?

Not necessarily, at least not yet. Illinois taxes a trust as a resident if it's a testamentary trust of a decedent domiciled in Illinois, or an irrevocable trust whose grantor was domiciled in Illinoi…

My out-of-state company licenses highly customized software and provides equipment to an Illinois customer, but we keep ownership of both and have no employees or offices in Illinois -- is this revenue Illinois-source income for corporate tax purposes?

The Department wouldn't give a final yes or no -- nexus and income-sourcing questions like this are considered too fact-specific for a letter ruling and are resolved only in an audit. It did lay out t…

My reinsurance company wants to switch how it sources Illinois reinsurance premiums for apportionment -- from tracking each ceding company's own ratio of Illinois-located risk to simply counting premiums from ceding companies domiciled in Illinois -- can I get permission to make that change?

Yes -- the Department granted the requested election change under IITA Section 304(b)(2) and 86 Ill. Adm. Code 100.3420(e)(2), letting the taxpayer switch from 'Method B' (tracking each ceding company…

My inherited IRA payments pass from my father's estate, through a trust, and finally to me -- and the 1099-R was issued to the estate, not to me directly. Do I still get Illinois's retirement-income subtraction?

Yes. Illinois's retirement-income subtraction follows the IRA distribution through the estate-to-trust-to-beneficiary chain: whichever entity or person actually retains a given dollar gets the subtrac…

Our family partnership holds Illinois farmland as its only asset -- can the one-time capital gain from selling that farmland be excluded from the Illinois Personal Property Replacement Tax as nonbusiness income and reported on my personal return instead of the partnership's?

No. Because the property sold is located in Illinois, Illinois gets to tax the gain on the partnership's own return regardless of whether it's classified as business or nonbusiness income -- the real-…

We claimed the Employee Retention Credit years ago without reducing our wage deduction, and the IRS is only now letting us recognize the overstated wages as income in the year we actually receive the credit -- can we take Illinois's offsetting subtraction in that same later year instead of the original wage year?

Yes, in this specific situation. Illinois normally ties its ERC-related wage-expense subtraction to the same year the wages were originally paid and the deduction should have been disallowed, and Illi…

My out-of-state S-corp's only Illinois connection is a minority interest in a Chicago hotel partnership -- can I petition to allocate 100% of that partnership's K-1 income to Illinois instead of using the standard apportionment formula?

Not as an alternative-apportionment petition -- the taxpayer's petition didn't provide the evidence Illinois requires (proof the standard formula produces a genuinely distorted, out-of-proportion resu…

My partnership owns rental real estate, a lending business, and oil and gas ventures across several states, and Illinois's single-sales-factor formula makes our Illinois apportionment badly out of proportion to our actual Illinois activity -- can we use separate accounting instead?

The Department denied this specific petition because the taxpayer didn't submit enough evidence to meet the demanding 'clear and cogent evidence' standard for alternative apportionment (and even left …

My manufacturing company's Illinois throwback sales are inflating our single-sales-factor apportionment -- can we add property and payroll factors, or alternatively drop throwback sales, to more fairly reflect our actual Illinois activity?

No -- the Department denied the petition because merely showing that a three-factor (property/payroll/sales) formula produces a smaller, different apportionment percentage isn't enough; the taxpayer n…

My Illinois trust's only income is interest from a nonqualified annuity, distributed entirely to a nonresident beneficiary -- does the trust have to withhold Illinois pass-through tax on that distribution?

No -- because the annuity income is nonbusiness income that Illinois allocates away from the state for a nonresident beneficiary, the trust has no IITA Section 709.5(a) withholding obligation on it; i…

My client, a farmer, died in the same year they claimed 100% federal bonus depreciation on a farm building -- can the estate take Illinois's offsetting Line 18 subtraction on Form IL-4562 to reverse that addition?

No -- the Department concluded that a taxpayer's death does not count as a 'transfer or disposition' of the property under IITA Section 203(a)(2)(AA), so the Line 18 subtraction that would otherwise r…

I placed a $100,000 passenger automobile in service in 2023 and claimed 80% federal bonus depreciation, which exceeded the IRC Section 280F annual limit -- did I calculate the Illinois addition and subtraction modifications correctly?

The Department confirmed the core mechanics: because the taxpayer's 80% bonus depreciation exceeded the IRC Section 280F dollar cap ($20,200) for the auto's first year, no Illinois subtraction modific…

I petitioned Illinois to use separate accounting instead of the standard apportionment formula, but I didn't file the petition until after my return was due -- can the Department still consider it?

No -- the Department denied this petition purely on timeliness grounds and never reached the merits of whether separate accounting was actually a fairer apportionment method. The taxpayer's petition f…

My company ships products to third-party distributor warehouses that then reship them elsewhere -- for Illinois sales-factor purposes, do I source the sale to where I deliver the goods, or to wherever the distributor eventually sends them?

You source the sale to where delivery to the distributor's warehouse terminates, not to any later destination the distributor chooses. If the third-party distributor warehouse (or a new hub-style ware…

If our out-of-state manufactured products are already sold to customers outside Illinois but pass through a third-party distribution center in Illinois for a few days to be consolidated onto other trucks, do those sales count as Illinois sales for our sales-factor apportionment?

No -- the Department ruled that a brief, functional stop at a third-party-operated Illinois distribution center, used only to consolidate and reroute already-sold shipments to their predetermined out-…

A commercial tax-guide publisher's annual survey request shows up in Illinois's letter-rulings archive under a normal ruling number -- does it actually contain any Illinois tax guidance?

No -- this isn't guidance to a taxpayer at all. It's the Department's brief GIL-format reply to a commercial publisher's (the Multistate Corporate Tax Guide's) annual survey of state tax law, and the …

My company's foreign brand-licensing royalties are excluded from my Illinois sales factor because they're under 50% of gross receipts -- can I get alternative apportionment to include them anyway, since they're a big, high-margin chunk of our income?

No -- the Department denied the petition. Illinois's rule excluding intangible-property royalties from the sales factor unless they exceed 50% of gross receipts is not inherently distortive just becau…

I'm an Illinois resident claiming the credit for taxes paid to other states on guaranteed payments allocated out of state -- do I really have to allocate my whole HSA deduction to those other states too, shrinking my credit?

My client's irrevocable trust was formed in Illinois, but the trustees and beneficiary have since moved out of state, and now both Illinois and the other state claim the trust as a resident -- can the trust still claim Illinois's credit for taxes paid to other states even though it's a dual resident?

Yes -- the Department confirmed that an Electing Small Business Trust (ESBT) that qualifies as an Illinois resident trust (because its grantor was domiciled in Illinois when the trust became irrevocab…

My client took a Bright Start 529 distribution to pay for his other daughter's private secondary school tuition -- does he have to add that back as income on his Illinois return?

Yes. The Department concluded that private secondary school tuition is not a 'qualified expense' under the Illinois 529 rules (which cover higher-education-related costs, not K-12 tuition), so any amo…

My partnership does most of its business outside Illinois but co-owns another partnership that operates entirely inside Illinois, and using the standard single-sales-factor formula makes our Illinois apportionment look much bigger than our actual Illinois activity -- can we use separate accounting instead?

No -- the Department denied this petition because the taxpayer never submitted evidence about the market for its goods or services, or any evidence showing the standard single-sales-factor formula fai…

My out-of-state SaaS company is going to start having customers headquartered in Illinois -- does that create nexus requiring us to file an Illinois corporate income tax return, and if so, what sales threshold triggers it?

The Department would not say definitively whether selling SaaS to Illinois customers creates Illinois corporate income tax nexus -- nexus determinations are considered too fact-specific for a letter r…

Our sales factor excludes our foreign licensing royalties because they're under Illinois's 50%-of-gross-receipts threshold -- can we get alternative apportionment to include them anyway since they're a big, high-margin chunk of our income?

No -- the Department denied the petition because the taxpayer only showed that the statutory 50%-of-gross-receipts test excludes its foreign royalties from the sales factor and that a different formul…

We sold a discrete segment of our multi-state business, and the small Illinois piece of that segment was only a sliver of the deal's value -- can we get Illinois to apportion the gain using just that entity's actual share instead of the standard sales-factor formula?

One of our employees was granted non-qualified stock options while working in Illinois, but relocated to another state before all the options vested and were exercised -- do we need to withhold Illinois income tax when those options are later exercised?

No withholding is required. Illinois GIL IT 23-0016-GIL concludes that even though non-qualified stock option income exercised after an employee relocates out of Illinois may still count as Illinois-s…

I'm a permanent U.S. resident living in Illinois and I just started receiving my UK State Pension -- does Illinois tax that pension income?

It depends on exactly what kind of foreign pension you receive, and the Department couldn't determine that from the taxpayer's letter. If the foreign pension is treated like Social Security or railroa…

I moved out of Illinois partway through the year and kept working remotely for my Illinois employer, but my W-2 shows 100% Illinois wages -- how do I get Illinois to only tax the part of my income earned while I was still a resident, and get credit for tax I paid to my new state?

It depends on documentation, not just where you physically live -- Illinois sources compensation based on where the employee's service is performed or, if that's split, on the employee's 'base of oper…

I'm an Illinois resident who works part-time in another state and deduct student loan interest -- why does Illinois make me subtract that deduction from my out-of-state income when figuring my credit for taxes paid to that state?

Yes, the Department confirmed that Schedule CR is correct: when an Illinois resident computes the credit for taxes paid to another state, the student loan interest deduction must be subtracted from (a…

I'm an Illinois resident who pays tax to other states -- why does my whole HSA deduction get subtracted from my out-of-state income on Schedule CR instead of just a proportional share?

It depends on the deduction, not on proportional apportionment -- and for the HSA deduction, Illinois requires the full amount to be allocated against out-of-state income when figuring the Schedule CR…

I took a lump-sum retirement distribution and claimed Net Unrealized Appreciation (NUA) treatment, but I also have a federal net loss carryforward that offset the NUA gain on my federal return -- does that net loss carryforward stop me from subtracting the NUA on my Illinois return?

No -- according to the Department, a federal net loss carryforward does not affect your eligibility for the Section 203(a)(2)(F) subtraction for net unrealized appreciation (NUA) on employer securitie…

I have an Illinois resident employee who works full-time in Tennessee, which has no state income tax withholding -- do I report their wages as Illinois wages in Box 16 of their W-2, or report zero?

Report the wages as Illinois wages in Box 16 -- Publication 130 is correct and controls, not the older GIL. Because the employee is an Illinois resident performing all services in Tennessee (which has…

My Illinois-resident employee splits work time between an out-of-state office and an Illinois office each pay period -- can I use my own proration method (or must I use a time and attendance system or Form IL-W-6) to figure out how much of the wages are taxable to Illinois?

The Department didn't approve or reject the taxpayer's specific proration method -- instead it explained the governing rule: under IITA Section 304(a)(2)(B)(iii), compensation is paid in Illinois if t…

What does Illinois General Information Letter IT 23-0007-GIL conclude about Base Income — Elimination Of?

YES, confirmed -- because the >90%-owned partnership is treated as a full member of the Illinois unitary business group, the intercompany royalty, service-fee, and interest items (and the IP-transfer …

Does an accelerated lump-sum pension payment stay exempt from Illinois income tax after a company sale triggers plan termination?

The Department did not confirm the lump sum would be exempt. It first corrected the taxpayer's own citation -- Section 1402 of the Illinois Income Tax Act governs the Department's notice requirements,…

Does a lump-sum payment that replaces years of scheduled retirement benefits stay exempt from Illinois income tax when a company sale forces early plan termination?

The Department did NOT confirm the lump sum would be exempt. It corrected the taxpayer's citation -- Section 1402 of the Illinois Income Tax Act governs the Department's own notice requirements, not t…

What does Illinois General Information Letter IT 23-0004-GIL conclude about Nexus?

The Department explicitly declined to answer. IDOR does not issue letter rulings resolving specific nexus questions because nexus determinations are inherently fact specific, so it never decided wheth…

What does Illinois General Information Letter IT 23-0003-GIL conclude about Credits?

The Department answered two of the employer's three questions: tips themselves are NOT counted as compensation when computing the minimum wage credit, but any amount the employer pays to make up a sho…

What does Illinois General Information Letter IT 23-0002-GIL conclude about Alternative Apportionment?

The Illinois Department of Revenue DENIED the taxpayer's petition for alternative apportionment, at least for now, because the taxpayer did not meet its burden of proving the standard single-sales-fac…

What does Illinois General Information Letter IT 23-0001-GIL conclude about Base Income; Modifications?

NO, this Medicare premium income is NOT exempt from Illinois income tax (the federal premium-tax preemption doesn't reach Illinois's general net-income tax), so no add-back question arises since the i…

Must an irrevocable trust file an Illinois Form IL-1041 if its trustee and beneficiaries have all moved out of Illinois?

Yes, the trust must file. Under IITA Section 1501(a)(20)(D), a trust is an Illinois resident trust if its grantor was domiciled in Illinois at the time the trust became irrevocable -- that fact alone …

When a company sells its entire business division, is the goodwill gain apportioned to Illinois, or can the company get alternative apportionment instead?

Neither. The Illinois Department of Revenue held that gain from selling an entire business segment, including the goodwill portion, must be excluded ENTIRELY from the sales factor (both numerator and …

Can a taxpayer keep using an alternative apportionment method the Department approved in an earlier ruling when it later sells the rights to its remaining contingent payments?

Yes. Illinois renewed the taxpayer's 2019 alternative apportionment ruling, permitting it to source interest income and proceeds from selling the rights to future 'Earn-Out' payments using the apporti…

What did Illinois tell a nationwide state-tax survey about its corporate income tax rules on bonus depreciation and net-operating-loss carryforwards?

This is not a ruling on one taxpayer's facts. It's the Illinois Department of Revenue's answers to an outside publisher's annual, roughly 90-question survey of every state's corporate income tax rules…

Does Illinois's $100,000 economic-nexus threshold for sales tax also apply to corporate income tax, and does leasing a warehouse forfeit PL 86-272 protection?

IDOR would not determine whether any of the three specific companies had Illinois nexus, calling that question 'extremely fact specific.' But it confirmed two general rules: Illinois's $100,000/200-tr…

Is the gain from selling a non-unitary limited-partnership interest taxed by Illinois, or allocated to the seller's home state?

Conditionally, yes: IDOR concluded the gain would be allocated to the taxpayer's out-of-state commercial domicile, not apportioned to Illinois, but only because it took the taxpayer's own representati…

Can annualizing income let a taxpayer avoid Illinois's $250,000 standard-exemption cutoff, and are Form IL-2210's annualization percentages correct?

No to both. The standard exemption is disallowed once a taxpayer's full-year federal adjusted gross income exceeds $250,000 (or $500,000 for joint filers) under IITA Section 204(g) — that threshold is…

Does Illinois tax a resident partner's full guaranteed payment even if it was earned from real estate sales in other states?

Yes. Illinois taxes the entire guaranteed payment because the partner is an Illinois resident; where the underlying real-estate sales activity happened does not matter. A credit for tax paid to other …

Do nonresident beneficiaries owe Illinois income tax on annuity proceeds distributed to them through an Illinois estate?

No, for the nonresident beneficiaries: annuity proceeds paid to an Illinois estate (because the annuity had no named beneficiary) and then distributed to nonresident children are unspecified income un…

When a corporation spins off a subsidiary in a tax-free IRC Section 368(a)(1)(D) reorganization, must it make the bonus-depreciation addition and subtraction modifications on the transferred assets for that tax year?

Yes. Illinois follows the federal treatment of the reorganization, so in the tax year the transfer and spin-off occur, the corporation must add back the aggregate bonus-depreciation subtraction modifi…

Can a trust beneficiary assign his share of trust income to his own single-member LLC for Illinois tax reporting purposes?

IDOR did not decide this. Whether a trust beneficiary can assign his beneficial interest to his single-member LLC is a threshold question of trust law (does the trust instrument permit it), which the …

Can an insurance company that changed its mind get Illinois's permission to switch how it sources reinsurance premiums for apportionment purposes?

Yes. The Illinois Department of Revenue granted the taxpayer's request to change its IITA Section 304(b)(2) election for sourcing reinsurance premiums, moving from Method B (each ceding company's in-s…