Illinois Enacts Major Tax Changes

On June 16, Illinois Gov. J.B. Pritzker signed the state’s fiscal year 2027 budget and revenue package, which consists of H.B. 111, H.B. 2949, and S.B. 3019. The legislation includes significant changes affecting corporate income taxes, pass-through entities, digital businesses, sports wagering, and several Illinois tax incentive programs. Most provisions are effective July 1, 2026, or Jan. 1, 2027.

Income tax

S.B. 3019 extends Illinois' existing $500,000 limitation on the use of net operating losses (NOLs) through tax years ending before Dec. 31, 2027, while providing a phased restoration of larger allowable deductions in subsequent years. Rather than allowing the limitation to expire, the legislation adopts a longer transition intended to balance revenue stability with increased NOL usage over time.

For multistate businesses, the extended limitation could affect deferred tax assets, estimated tax payments, and cash tax forecasting.

Crowe observation

Companies with significant Illinois NOL carryforwards should revisit existing projections and determine whether updates are appropriate.

The legislation also modifies the Illinois PTET election for tax years ending on or after Dec. 31, 2026. Electing partnerships can choose annually between a full distributive share methodology and an Illinois-sourced income methodology. The election applies to all partners, must be made annually in the manner prescribed by the Illinois Department of Revenue, and is irrevocable for the taxable year once made.

Crowe observation

Partnerships currently making the Illinois PTET election should compare both available methods before filing 2026 returns, as the optimal approach could vary based on anticipated income levels, apportionment factors, and owner residency, noting that the full distributive share method is likely beneficial for partners who are Illinois residents.

Targeted advertising services tax

Beginning Jan. 1, 2027, Illinois will impose a new 10% targeted advertising services tax on gross receipts derived from targeted advertising services provided in the state.

The tax applies to providers with more than $1 million of Illinois gross receipts from targeted advertising services during the preceding 12-month period.

Targeted advertising services are broadly defined to include digital advertising delivered through banner ads, search engine advertising, interstitial advertising, and similar methods that use personal information to target advertisements. Advertising on digital interfaces owned or operated by news media entities is excluded.

Social media platform fee

Effective Jan. 1, 2027, Illinois will impose a monthly fee on social media platforms based on the number of Illinois users from whom the platform collects data. Platforms must report Illinois user counts and remit the applicable fee to the secretary of state by the 14th day of the following month.

The fee increases as the number of Illinois users grows, beginning with platforms exceeding 100,000 Illinois users and reaching the highest tier for platforms with more than 1 million Illinois users. Failure to pay results in an additional assessment equal to 100% of the unpaid fee, plus applicable penalties.

As currently written, the new fee does not clearly define “Illinois users.” The number of users could be defined by a billing address or could include simply accessing a platform from within Illinois during the month. Additional clarifying guidance is expected before the effective date.

Digital asset tax

Beginning Jan. 1, 2027, Illinois will impose a 0.2% tax on digital asset business activity received by customers in the state. The service provider facilitating the transaction is responsible for collecting and remitting the tax.

For electronic transactions, Illinois presumes a customer is located in the state if account information indicates an Illinois address, Illinois internet protocol address, or other evidence showing Illinois as the customer’s place of primary use. Digital asset brokers bear the burden of proving otherwise and must register with the state before Jan. 1, 2027.

Sports wagering

The Illinois Sports Wagering Act now covers prediction market wagers tied to sporting events. Beginning with the effective date of the legislation, June 16, 2026, exchange wagers are subject to a transaction tax of 1.75%. After the first five million exchange wagers conducted by a licensee during a fiscal year, the tax increases to 3.5% on each additional exchange wager.

The legislation does not explicitly state whether the tax can be passed on to the customer. Although transaction taxes such as this often are passed along to the customer, licensees might be tempted to absorb the tax as a competitive advantage.

Tax credits and economic development

Although much of the fiscal year 2027 legislation raises revenue, the package also extends several economic development incentives:

• The Illinois research and development credit is extended through Jan. 1, 2037.
• The Live Theater Production Tax Credit Program is extended through Jan. 1, 2039.
• Authority to enter into new Reimagining Energy and Vehicles in Illinois (REV Illinois) agreements is extended through Dec. 31, 2028.

These extensions provide additional certainty for businesses making long-term investment decisions and could allow taxpayers to incorporate the incentives into future capital investment and expansion planning.

Looking ahead

The Illinois fiscal year 2027 tax changes not only increase income taxes but address emerging issues by increasing or adding taxes for targeted advertising, social media platforms, prediction market sports wagering, and digital assets. The legislation also provides more certainty by extending a number of tax credits. Some of these provisions are effective now, while others will be effective beginning in 2027. Given the immediacy of these changes, taxpayers should consult their tax advisers to evaluate how these changes could affect them and plan accordingly.