In June 2025, Illinois passed a sweeping set of tax law changes that will directly affect how privately held, multi-state businesses calculate and report income, allocate sales, and assess state tax exposure. For companies headquartered or operating in Illinois or selling into the state remotely, these updates require immediate attention and strategic recalibration.
At DHJJ, we know these regulatory shifts aren’t just compliance issues; they’re strategic levers. If you’re a CEO or CFO navigating financial complexity, now is the time to engage with your advisory team to ensure your business is positioned to avoid risk and optimize your tax position before these rules take effect.
Here’s what’s changing, why it matters, and how DHJJ can help you prepare.
Key Changes to Know
Illinois updated tax legislation touches on corporate income, partnership taxation, sales and use tax, and enforcement. These are not minor tweaks; they represent structural shifts that affect tax planning, audit exposure, and potential liabilities for growing companies. Below are the highlights:
1. Apportionment for S Corporation and Partnership Sales
Beginning with tax year 2025, Illinois will apportion income from the sale or exchange of S corporation shares and partnership interests based on a three-year average Illinois apportionment factor, specifically, the year of sale and the two prior years.
What it means:
If your company anticipates ownership changes, recapitalizations, or succession events, this new rule could significantly affect your Illinois tax liability. The change increases the importance of historical state-level apportionment tracking and strategic pre-sale planning.
2. GILTI Deduction Limited to 50%
Corporate taxpayers will now only be allowed to deduct 50% of Global Intangible Low-Taxed Income (GILTI) under IRC Section 951A, aligning more closely with federal tax treatment.
What it means:
For companies with foreign subsidiaries or international components, this limits planning flexibility and may increase state tax exposure. Structuring decisions, such as whether to maintain CFCs or alter foreign entity classifications, should be reviewed under the new framework.
3. Illinois Replaces Joyce Rule with Finnigan Rul
Starting in 2025, Illinois will shift from the Joyce rule to the Finnigan rule for unitary combined reporting. Under Finnigan, the sales of all members of a unitary group (even those not taxable in Illinois) are included in the numerator of the Illinois sales factor if the group is taxable in Illinois.
What it means:
This change will increase the Illinois apportionment percentage for many multi-state companies, potentially raising tax liabilities for businesses with a significant out-of-state presence. Accurate unitary group analysis and proactive apportionment planning will be essential.
4. Simplified Nexus Threshold for Sales & Use Tax
As of January 1, 2026, Illinois will eliminate the 200-transaction threshold for economic nexus of an out of state company. Moving forward, nexus will be determined solely based on $100,000 in annual gross receipts from Illinois customers.
What it means:
Businesses that previously avoided registration due to low transaction volumes but high-value sales will now be required to collect and remit Illinois sales tax. This is especially important for remote sellers and marketplace facilitators.
5. 15% Sales Tax Assessment for Missing Documentation
Rather than imposing penalties, Illinois will now apply a 15% tax assessment on transactions where the taxpayer fails to provide sufficient sourcing documentation.
What it means:
Maintaining strong documentation for product delivery or service location is now more critical than ever. Without it, businesses risk a flat assessment rate that could far exceed their actual liability.
6. Amnesty Programs for Past Tax Periods
From October 1 to November 15, 2025, Illinois will offer two amnesty programs:
- General Tax Amnesty for liabilities incurred from July 1, 2018, through June 30, 2024
- Franchise Tax Amnesty for periods from July 1, 2019, through June 30, 2025
What it means:
Suppose your business has unresolved tax liabilities, late filings, or uncertain exposure from earlier periods, especially related to nexus. In that case, it may be possible to settle those without penalty or interest during this window.
Strategic Implications for Growth-Oriented Companies
If your business operates across state lines, is experiencing ownership changes, or is scaling rapidly, these changes demand a closer look. According to one DHJJ client, “We needed a firm that could handle our growing complexity, working in 38 states and having a Canadian branch. DHJJ gave us confidence that they had the capacity and expertise to support us.” That confidence is built on insight and preparation.
Let’s break down what proactive companies should be doing now.
1. Revisit Your State Apportionment Strategy
With new rules on the horizon for apportionment and combined reporting, now is the time to review your state tax footprint. Our DHJJ SALT team can help model the three-year average impact for upcoming business sales or reorganizations and simulate how the Finnigan rule will affect your sales factor going forward.
2. Evaluate International Structures
If your company reports GILTI, it’s time to reassess how your foreign entities are structured and how Illinois’ new limitation affects your overall tax efficiency. We can help coordinate with international tax advisors to explore mitigation strategies.
3. Ensure Nexus Compliance
With simplified thresholds, many remote businesses may unexpectedly trigger nexus in Illinois. DHJJ offers full nexus studies and sales tax system reviews to help you stay compliant without overpaying.
4. Prepare for Documentation Requirements
Illinois is making it more expensive to be disorganized. Now’s the time to tighten up sourcing records, especially if you sell tangible goods, drop ship, or provide services with unclear location attribution.
5. Consider Amnesty Participation
If your business has legacy exposure, don’t wait until the October amnesty deadline approaches. DHJJ can help assess your eligibility and maximize the benefits of settling past liabilities on favorable terms.
What You Should Do Next
With these Illinois tax changes taking effect in 2025 and 2026, now is the time to take a closer look at your state tax exposure, compliance protocols, and planning strategies. Whether you’re preparing for a liquidity event, expanding into new states, or simply want to avoid costly surprises, these developments deserve your attention.
Start with a few key questions:
- Are your historical apportionment factors accurate and well-documented?
- Will your current structure be impacted by the Finnigan or GILTI changes?
- Do you have the documentation needed to defend sourcing under audit?
- Should you consider tax amnesty to address any past liabilities?
The answers to these questions will vary based on your operations, entity structure, and sales strategy. But getting clarity now, before these changes take effect, can help you make informed, timely decisions.
Taking proactive steps in the next few months can save significant time, cost, and risk later. Talk with your internal finance team, your CPA firm, or a trusted tax advisor to assess how this legislation affects your business.
