Both the state of Illinois and the city of Chicago enacted significant tax legislation in the waning weeks of 2025, much of which will be effective for the 2026 tax year and beyond. Illinois Governor J.B. Pritzker signed several bills addressing important income tax provisions contained in the One Big Beautiful Bill Act (OBBBA),1 adopting several credit and incentive provisions, and imposing several indirect tax increases.2 The city of Chicago also adopted several revenue enhancement measures to resolve the city’s fiscal year 2026 budget.3
Decoupling from IRC Sec. 168(n)
The enactment of the OBBBA on July 4, 2025, included the adoption of a full deduction for qualified production property under IRC Sec. 168(n). As a rolling conformity state, Illinois would have automatically conformed to this provision without further action.
Given the budgetary effect of conformity in this area and consistent with its historic decoupling from federal bonus depreciation under IRC Sec. 168(k), Illinois decoupled from Sec. 168(n) in S.B. 1911 as well. This will require taxpayers (including individuals, corporations, trusts and estates, and partnerships) to apply slower depreciation methods to property that is purchased than for federal income tax purposes.4
Shifting from GILTI to NCTI tax base inclusions
In June 2025, Illinois shifted its historic policy excluding global intangible low-taxed income (GILTI) from the corporate income tax base by reducing the full deduction for this amount to 50%.5 Soon thereafter, the OBBBA changed the international inclusion measure from GILTI to net CFC tested income (NCTI).
In response, under S.B. 1911, Illinois is allowing for a 50% deduction of NCTI received or deemed received or paid or deemed paid under IRC Secs. 951 through 965.6 Importantly, Illinois has chosen not to allow any sales factor representation for the NCTI that is included in the tax base and presumably would have been sourced primarily to foreign jurisdictions.
Extension of PTE tax regime
Many states that adopted their pass-through entity tax regimes in response to the enactment of the $10,000 SALT deduction cap expressly provided for their regimes to terminate when the federal cap ended. The OBBBA extended the cap for several years, though the amount of the cap increased substantially. Illinois reacted to the impending sunset of its PTE tax regime in S.B. 1911 by permanently extending its application.7
Illinois credit and incentive programs
As a means to finance economic development through specific dedication of property tax revenue, S.B. 642 extends several existing tax increment financing (TIF) districts, covering Chicago redevelopment project areas in Roseland/Michigan, Chicago/Central Park, Avalon Park/South Shore, and Commercial Avenue, the Millstadt TIF District #1, a redevelopment project area in Midtown Mattoon, and the Rock River Redevelopment.8
In addition to S.B. 642’s extension of TIF districts, S.B. 1911 includes the Statewide Innovation Development and Economy Act, which allows for the creation of new sales tax and revenue (STAR) Bond districts in Illinois.9 This program is designed to help the state’s economy by authorizing municipalities and counties to issue STAR bonds to finance STAR bond projects in primarily underserved areas. The STAR bond program covers eligible areas, which are contiguous real property parcels that meet several locational requirements and conditions.
Several credits extended by the recently adopted legislation include:
- The Film Production Services Tax Credit, which provides tax credits for certain accredited film production costs in Illinois. This credit was extended by S.B. 1911 through 2039, with modifications.10
- The River Edge Tax Credit, which provides for tax credits for certain expenditures incurred by qualified taxpayers in restoring and preserving historic structures located in a River Edge Redevelopment Zone pursuant to a qualified rehabilitation plan, was extended by H.B. 1437 through the end of 2028.11
- The Apprenticeship Education Tax Expense Credit, which provides employers with tax credits for education expenses associated with employed qualified apprentices. This credit was only extended one year by H.B. 1437 to the end of 2026.12
Property tax provisions
The low-income senior citizens assessment freeze homestead exemption has been updated in S.B. 642 to increase the maximum income qualification limit from $65,000 to $75,000 in the 2026 tax year, with gradual increases to the limit over the following two years.13 Further, the senior citizens real estate tax deferral has been updated to permanently allow for up to a $7,500 per year deferral amount, with increased maximum household qualification limits consistent with the homestead exemption.14
Traditionally, the estimated first installment of Cook County property tax has been due on March 1. However, as a result of a delay in issuing property tax bills, the due date for 2025 has been statutorily pushed back to April 1, with interest of 0.75% per month due if such payment is delinquent.15
Illinois sales tax and toll increases
As a means to more adequately fund public transportation, H.B. 2111 provides for the creation of a new entity, the Northern Illinois Transit Authority, replacing the state’s Regional Transit Authority. Under the new transportation authority regime, sales a tax rates in Cook County and several adjoining suburban counties are allowed to be increased by 0.25%, with such tax rate increase going into effect in June or July 2026.16 In addition to the sales tax increases, toll increases for the use of the Illinois Tollway will go into effect in 2027.17
Chicago indirect tax increases
The city of Chicago responded to its continuing fiscal concerns by increasing a slew of indirect taxes and fees, including the city’s personal property lease transaction tax. This tax is imposed on the lease or rental of personal property, including non-possessory computer leases such as software as a service, in the city (or property leased or rented outside the city but used in the city). The tax, which is paid by the lessee of the personal property, has been raised from 11% of the lease or rental price to 15%, effective Jan. 1, 2026.18
In addition, the city has adopted a social media amusement tax effective Jan. 1, 2026, intended to tax social media amusement activity based on the monetization of consumer engagement and data collected about Chicago users when using social media.19 The tax is imposed on social media businesses that collect consumer data on more than 100,000 Chicago consumers in a calendar year (based on monthly consumer statistics), at a rate of $0.50 for each Chicago consumer per calendar month that exceeds 100,000.20
The definition of social media includes “websites, applications, products, and internet platforms that allows consumers to view, share, and otherwise engage with images, videos, and audio presented in types and formats,” but does not include a “bona fide news website, application, or platform.”21 A “social media business,” in turn, is defined as “a for-profit entity that (a) provides individuals with access to social media and (b) collects, maintains, uses, processes, sells, or shares consumer data, other than consumer contact information, in support of the entity's business activities.”22
Other indirect tax increases and enhancements that have been placed into effect as of Jan. 1, 2026, include the following:
- An increase in the tax on the retail sale or use of checkout bags in Chicago paid by the user, from $0.10 to $0.15, with $0.14 of this tax remitted by the retailer to the city.23
- An increase in the tax on the fees charged for mooring or docking of watercraft within the city’s limits from 7% to 23.25% of the fees.24
- An expansion of the sports wagering tax to include internet and mobile device wagers, along with an increase in the sports wagering tax rate from 2% to 10.25%.25
- An adoption of a 1.5% tax on the sale price of alcohol sold for offsite consumption.26
- A change in the imposition of the ground transportation tax, via modification of the surcharge zone from the downtown Chicago area to two separate “congestion zones.”27
In one departure from the general theme of revenue generation, the motor vehicle lessor tax will be reduced from $2.75 to $0.50 per vehicle.28
Commentary
Businesses should not be surprised that Illinois has decided to decouple from many of the OBBBA provisions adopted last year by the federal government and will need to consider this treatment as they evaluate the overall tax effect of their purchases of property eligible for special federal tax treatment. Interestingly, the decision to provide a 50% deduction for NCTI may be consistent with the 50% federal deduction provided for GILTI, but is not consistent with the provision in OBBBA, which only allows for a 40% federal deduction from the new NCTI regime.
On the indirect tax front, while it may be understandable for Illinois to invest in its public transportation system, the additional sales taxes expected to be enacted this summer, along with toll increases, will increase the burden on individual taxpayers located in Chicago and the suburbs who already face very high transactional state and local tax rates.
With respect to the tax rate increases enacted by the city of Chicago, one potential revenue enhancement that did not make it to the final ordinance was the proposed head tax, under which Chicago businesses would have been subject to a monthly tax imposed on the number of employees working in the city. This provision faced tremendous pressure from businesses and ultimately lawmakers, which refused to use the head tax as a way to balance the city’s budget.
1 P.L. 119-21 (2025).
2 Ill. S.B. 1911 (Pub. Act 104-0453), adopted Dec. 12, 2025; IL S.B. 642 (Pub. Act 104-0452), adopted Dec. 12, 2025; Ill. H.B. 1437 (Pub. Act 104-0434), adopted Nov. 21, 2025; Ill. S.B. 2111 (Pub. Act 104-0457), adopted Dec. 16, 2025.
3 Chicago FY26 Revenue Ordinance, adopted without Mayor’s signature, Dec. 19, 2025.
4 35 Ill. Comp. Stat. 203(a)(2)(D-15), (Z); (b)(2)(E-10), (T); (c)(2)(G-10), (R); (d)(2)(D-5), (O).
5 35 Ill. Comp. Stat. 203(b)(2)(O).
6 Id.
7 35 Ill. Comp. Stat. 5/201 (p)(1).
8 65 Ill. Comp. Stat. 5/11-74.4-3.5(c)(284)-(290). As described by the Illinois Department of Commerce and Economic Development, TIF districts “dedicate sales tax revenues and additional property tax revenues generated within the TIF for improvements within the district to encourage new economic development and job creation.” See the Illinois Department of Commerce and Economic Development web site, “Tax Increment Financing,” accessed at https://dceo.illinois.gov/expandrelocate/incentives/taxincrementfinancing.html.
9 Ill. S.B. 1911 (Pub. Act 104-0453), Art. 5.
10 35 Ill. Comp. Stat. 16/10; 35 Ill. Comp. Stat. 16/42.
11 35 Ill. Comp. Stat. 5/221.
12 35 Ill. Comp. Stat. 5/231.
13 35 Ill. Comp. Stat. 200/15-172.
14 320 Ill. Comp. Stat. 30/2; 320 Ill. Comp. Stat. 30/3.
15 35 Ill. Comp. Stat. 200/21-25.
16 Pub. Act 104-6, § 4.03(e).
17 605 Ill. Comp. Stat. 10/11(c).
18 Chicago Mun. Code § 3-32-030.
19 Chicago Mun. Code § 4-56-1000 et seq.
20 Chicago Mun. Code § 4-56-1020.
21 Chicago Mun. Code § 4-56-1010.
22 Note that there are a number of exceptions to the definition of “social media business.” Chicago Mun. Code Sec. 4-56-1040.
23 Chicago Mun. Code §§ 3-50-030, 3-50-050.
24 Chicago Mun. Code § 3-16-030.
25 Chicago Mun. Code § 4-156-960 et seq.
26 Chicago Mun. Code § 3-44-031.
27 Chicago Mun. Code §§ 3-46-020; 3-46-030.
28 Chicago Mun. Code § 3-48-030.
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