Illinois tax bill impacts a variety of state taxes

Executive summary

Recently enacted by Illinois Gov. J.B. Pritzker, Senate Bill 3019 makes numerous amendments across a broad range of Illinois state taxes. The legislation extends the net operating loss (NOL) deduction limitation on C corporations, modifies the pass-through entity tax (PTET), extends several tax credits and decouples from IRC section 1202. The bill also introduces new taxes and fees targeting digital advertising, digital asset activity, social media platforms and certain sports wagering activities.

Fiscal year 2027 budget covers significant ground

NOLs

Senate Bill 3019 extends and modifies the limitation of NOL deductions for C corporations. For taxable years ending on and after Dec. 31, 2027, NOL deductions are limited to the greater of $500,000 or a percentage of net income. The percentage limitation increases annually until reaching 80% in tax years ending on or after Dec. 31, 2031. The revised limitation is summarized as follows:

• 2026: $500,000
• 2027: Greater of $500,000 or 15% of net income
• 2028: Greater of $500,000 or 30% of net income
• 2029: Greater of $500,000 or 50% of net income
• 2030: Greater of $500,000 or 65% of net income
• 2031 and after: Greater of $500,000 or 80% of net income

The allowable NOL carryover period is extended by one year for each year that the limitation applies.

The amended limitations on NOL deductions apply to C corporations and do not impact the treatment of NOL deductions for S corporations or partnerships.

Pass-through entity tax

The bill amends the PTET calculation for taxable years ending on or after Dec. 31, 2026. Partnerships may elect between two alternative calculation methods on an annual basis:

• Full distributive share: The PTET base includes residents’ full distributive share of income and nonresidents’ Illinois apportioned or allocated income.
• Illinois-sourced income: The PTET base includes Illinois apportioned or allocated income for both resident and nonresident owners.

Section 1202 - Qualified small business stock

For tax years ending on or after Dec. 31, 2026, Illinois decouples from the federal tax exclusion for qualified small business stock (QSBS) under section 1202. Taxpayers must add back to Illinois taxable income any federally excluded gain in computing Illinois taxable income. This means that while taxpayers may exclude up to 100% of these gains federally, the gains will remain subject to Illinois income tax.

Targeted advertising services tax

Beginning on Jan. 1, 2027, Illinois imposes a 10% tax on gross receipts from targeted advertising services provided in the state. These services generally include digital advertising (e.g., banner, search engine, interstitial) that leverages personal data to target content, while excluding advertising on news media platforms.

The tax applies to providers with more than $1 million of Illinois-sourced receipts during the preceding 12 months. Sourcing is based on user-level data, including user contact information such as email address, phone number, mailing address or payment data. The tax must be reported monthly and requires a separate tax registration and filing from the Illinois Retailers’ Occupation Tax and Use Tax.

Sports wagering expansion

The bill expands the Sports Wagering Act to include taxation of ‘exchange wagers,’ such as prediction markets and fantasy sports.

• Prediction markets: A tax of 1.75% per wager applies initially, increasing to 3.5% after a licensee exceeds five million wagers in a fiscal year.
• Fantasy contests: Effective July 1, 2026, fantasy contest operators are subject to a 15% annual privilege tax on adjusted gross receipts (entry fees less prizes paid).

A ‘fantasy contest’ is defined as a paid, skill-based competition in which outcomes depend on participants’ knowledge and the performance of real athletes, subject to pre-established rules and objective scoring criteria.

Social media platform fee

Effective Jan. 1, 2027, Illinois imposes a monthly fee on social media platforms based on Illinois users. The fee is structured as a tiered rate, beginning at $0.10 per user for platforms with more than 100,000 Illinois users, with higher rates applying at additional thresholds. Rates are subject to inflation adjustments.

Platforms must report average Illinois users monthly. A ‘social media platform’ is defined as a website or app that allows users to create profiles, generate and share content and interact with others’ content. The fee is administered by the Illinois Secretary of State, with penalties of up to 100% of unpaid fees. Platforms are prohibited from adjusting pricing or features based on a user’s geographic location to offset the fee.

Digital asset tax

Effective Jan. 1, 2027, the bill imposes a 0.2% tax on the value of digital assets involved in ‘digital asset business activity,’ including the exchange, transfer or storage of assets conducted for Illinois customers.

The tax applies to digital asset brokers with either:

• A physical presence in Illinois, or
• More than $100,000 in Illinois-sourced receipts

Sourcing is based on customer location, determined by physical location or customer information such as IP address. This is the first state tax to be imposed on the exchange of digital asset activity.

Tax credit extensions

The bill extends a variety of popular tax credits, including:

• Illinois Research and Development Tax Credit through 2036
• Angel Investment Tax Credit through 2032
• River Edge Redevelopment Historic Tax Credit through 2033