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March 19, 2014

Report Analyzes Illinois Corporate Income Tax Payments

In February 2014, the Taxpayers' Federation of Illinois (TFI) and the Illinois Chamber of Commerce released a report examining why nearly two-thirds of Illinois corporations (75,517 in total) have no income tax liability, as well as the role that tax deductions and credits play in reducing tax liability. "Probing Beneath the Surface: Understanding Why so Many Corporations Do Not Pay Illinois Corporate Income Tax" includes three major findings:

  • Federal taxable income, not the Illinois tax code, is the primary driver in determining tax liability.
  • Tax deductions play a limited role in eliminating Corporate Income Tax (CIT) liability.
  • Tax credits have almost no role in eliminating CIT liability.

These findings run counter to many assumptions surrounding reform of the Illinois CIT. Illinois is one of 43 states to base its CIT on federal income tax liability;  if a corporation shows zero federal income tax liability, it also has no Illinois CIT liability. This analysis suggests that Illinois would benefit most if the U.S. Congress reforms federal corporate tax code by expanding the base to include more corporations and lowering CIT rates.