Illinois Personal Property Replacement Tax (PPRT)

Illinois Personal Property Replacement Tax under 35 ILCS 5/201(c) and (d): 2.5% on C-corporations (and S-corps for the corporate-level PPRT shell) and 1.5% on partnerships, trusts, and S-corporations, computed on net income allocated and apportioned to Illinois using a single sales factor with market-based sourcing. Sole proprietorships are exempt; LLCs follow their federal classification. Owners of pass-through entities can claim a partial credit against Illinois personal income tax. Interacts with the optional Illinois Pass-Through Entity (PTE) tax election at 4.95%. Tax year 2025.

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1. Scope and history

1.1 Why PPRT exists

The Illinois Personal Property Replacement Tax (PPRT) is the direct successor to Illinois' personal property tax, which was abolished by Article IX, Section 5(c) of the 1970 Illinois Constitution. The constitutional provision required the General Assembly to abolish all ad valorem personal property taxes by January 1, 1979, and to replace the revenue lost to local taxing districts (counties, municipalities, school districts, park districts, library districts, and other units of local government) with a replacement tax.

The General Assembly enacted PPRT effective for tax years ending on or after July 1, 1979. The tax is imposed by 35 ILCS 5/201(c) (on corporations) and 35 ILCS 5/201(d) (on partnerships, trusts, and S-corporations). Although PPRT is administered by the Illinois Department of Revenue (IDOR) and computed on the same returns as the Illinois Corporate Income Tax (CIT), the revenue does not go to the State General Revenue Fund — it is distributed to local taxing districts in proportion to the personal property tax each district levied in the 1976 base year (1977 for Cook County). This distribution formula is set by 30 ILCS 115/12.

1.2 What this skill covers

This skill is a Tier 2 content skill covering:

• Identification of entities subject to PPRT.
• Computation of the PPRT base, including the differences from the Illinois Corporate Income Tax base.
• Apportionment (single sales factor, market-based sourcing).
• Combined reporting rules for unitary groups.
• Forms, filing, and payment mechanics (IL-1120, IL-1120-ST, IL-1065).
• Estimated tax requirements.
• The owner-level credit for PPRT paid by pass-through entities.
• Interaction with the Illinois PTE tax election (4.95%) under Public Act 102-0658.
• Worked examples comparing C-corporation and S-corporation total Illinois tax burdens.

1.3 What this skill does NOT cover

• Federal taxation of corporations, partnerships, or S-corporations (defer to federal skills).
• Illinois Corporate Income Tax in isolation — PPRT is presented here in the context of joint computation with CIT on the same return, but CIT mechanics beyond what is necessary to set up the PPRT base are out of scope.
• Illinois individual income tax (PIT) computation in detail (defer to il-income-tax).
• Illinois estimated tax mechanics for individuals (defer to il-estimated-tax).
• Insurance company premium taxes, financial institutions special apportionment, or transportation company apportionment — these have special rules outside the scope of a general PPRT skill.
• Illinois replacement tax investment credit under 35 ILCS 5/201(e), which is a niche credit for manufacturing investment.
• Withholding on nonresident partners under 35 ILCS 5/709.5 — flagged but not computed.

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2. Who pays PPRT and at what rate

2.1 Statutory rate table

Entity type	Statutory basis	PPRT rate	Filed on
C-corporation	35 ILCS 5/201(c)	2.5%	IL-1120
S-corporation	35 ILCS 5/201(d)	1.5%	IL-1120-ST
Partnership (general, LP, LLP)	35 ILCS 5/201(d)	1.5%	IL-1065
Trust (non-grantor)	35 ILCS 5/201(d)	1.5%	IL-1041
LLC — single-member, disregarded	Follows federal classification	Exempt (treated as sole prop, see §2.3)	None (reported on owner's return)
LLC — multi-member, default classification	Follows federal classification	1.5% (treated as partnership)	IL-1065
LLC — elected C-corp (Form 8832)	Follows federal classification	2.5%	IL-1120
LLC — elected S-corp (Form 2553 + 8832)	Follows federal classification	1.5% (S-corp PPRT)	IL-1120-ST
Sole proprietorship (Schedule C)	Not subject under 35 ILCS 5/201	Exempt	None
Single-member LLC (federally disregarded)	Follows federal classification — treated as sole prop	Exempt	None
Real estate investment trust (REIT)	35 ILCS 5/201(c) special rule	2.5% on undistributed net income	IL-1120
Regulated investment company (RIC)	35 ILCS 5/201(c) special rule	2.5% on undistributed net income	IL-1120

2.2 Why the rates differ (C-corp 2.5% vs pass-through 1.5%)

The General Assembly set higher PPRT on C-corporations to roughly match the original personal property tax burden borne by corporations under the pre-1979 regime, and lower PPRT on partnerships and trusts because the historical personal property tax on those entities was smaller and because their owners would also bear an income tax burden directly. S-corporations were swept into the 1.5% bracket alongside partnerships when 35 ILCS 5/201(d) was amended after S-corp recognition for Illinois income tax purposes.

2.3 Sole proprietorships are exempt

Sole proprietorships filing federal Schedule C are not subject to PPRT. The statutory text of 35 ILCS 5/201(d) imposes the tax on "every partnership, trust, and Subchapter S corporation" — sole proprietorships are not enumerated. A single-member LLC that is federally disregarded inherits sole-proprietor treatment for Illinois purposes and is likewise outside PPRT.

This is an important asymmetry: a freelance software developer operating as a Schedule C sole proprietor pays only Illinois Individual Income Tax (PIT) at 4.95% on net business income. The same developer operating through a single-member LLC (disregarded) pays the same — 4.95% PIT and no PPRT. But if the same developer elects S-corporation treatment, the S-corp now owes 1.5% PPRT at the entity level on Illinois-allocated net income, in addition to the developer-shareholder paying 4.95% PIT on the pass-through income.

This shifts the federal S-corp election break-even analysis (see us-s-corp-election-decision) for Illinois residents: the S-corp election saves federal self-employment tax but adds 1.5% Illinois PPRT (partly recovered by the owner-level credit, see §8). The Illinois PPRT does not have a small-business exemption, no de minimis threshold, and no first-year waiver — it applies to dollar one of Illinois-allocated net income.

2.4 Entity classification rules

For PPRT purposes, Illinois follows the federal "check the box" classification under Treasury Regulations §301.7701-1 through §301.7701-3:

• A single-member LLC that has not elected corporate status is disregarded and the activity flows to its owner. If the owner is an individual, no PPRT. If the owner is a C-corp, the activity is included in the corporate parent's PPRT computation at 2.5%.
• A multi-member LLC that has not elected corporate status is a partnership for federal purposes and a partnership for PPRT — 1.5%.
• Any entity that has filed Form 8832 to be treated as a C-corp pays 2.5% PPRT.
• An entity that has filed Form 2553 (with Form 8832 if needed) to be treated as an S-corp pays 1.5% PPRT.

A federal QSub election (qualified Subchapter S subsidiary under IRC §1361(b)(3)) is respected by Illinois — the QSub is disregarded and its income is included in the S-corp parent's IL-1120-ST.

2.5 Pre-acquisition target year / short-period considerations

PPRT applies to the short tax year of an entity that joins or leaves an affiliated group, becomes a member of a unitary business group, or otherwise has a tax year shorter than 12 months. The rate is not pro-rated — 2.5% (or 1.5%) applies to the short-period net income, computed on a short-period annualized basis only if the federal return is annualized.

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3. The PPRT tax base

3.1 Starting point: federal taxable income

For a C-corporation, the PPRT base starts with federal taxable income from Form 1120, Line 30. For an S-corporation, the PPRT base starts with the sum of separately stated items and ordinary income from Form 1120-S, Schedule K. For a partnership, the PPRT base starts with the sum of separately stated items and ordinary income from Form 1065, Schedule K.

Illinois modifies this base on Schedule M (additions) and Schedule M (subtractions) of the IL-1120, IL-1120-ST, or IL-1065 to arrive at "base income" (35 ILCS 5/203). The principal modifications relevant in practice are:

Additions (Schedule M, Step 2):

• State income taxes deducted federally (35 ILCS 5/203(b)(2)(B))
• Federal bonus depreciation under IRC §168(k) — Illinois decouples for tax years beginning on or after January 1, 2021, and adds back 100% bonus and the OBBBA bonus revival amounts (verify 2025 status — IDOR Schedule 4562)
• Federal §199 / §250 deductions (where applicable)
• Lloyd's plan of operations income and certain other narrow items

Subtractions (Schedule M, Step 3):

• Interest on U.S. obligations (constitutionally exempt under 31 U.S.C. §3124)
• Illinois income tax refunds included federally
• Federal bonus depreciation reversal (the catch-up subtraction in the year property is sold or fully depreciated under regular MACRS)
• Standard exemption — corporations $1,000, S-corps and partnerships $1,000 each (35 ILCS 5/204) — but this is a Step 5 deduction, not a Step 3 subtraction

After Schedule M modifications, the result is "base income" for Illinois purposes. Base income is the starting point for both CIT (for C-corps) and PPRT (for all subject entities).

3.2 From base income to net income allocated to Illinois

The Illinois income tax architecture uses a four-step flow from base income to net income:

1. Base income — federal taxable income with Schedule M additions and subtractions.
2. Nonbusiness income — allocated to the state of commercial domicile (or situs for tangible property income).
3. Business income — apportioned using the single sales factor (see §4).
4. Net income = (business income × Illinois apportionment factor) + (Illinois-allocated nonbusiness income) − Illinois NOL deduction − Illinois standard exemption ($1,000).

For PPRT, the rate is applied to this "net income" figure, not to base income and not to gross receipts.

3.3 Differences between the PPRT base and the CIT base

For C-corporations, the PPRT base and the CIT base are identical — both start from net income allocated to Illinois, and the only difference is the rate (2.5% PPRT, 7% CIT, combined 9.5%). This is why both taxes appear on the same IL-1120 return and are computed in parallel on Step 8.

For S-corporations and partnerships, there is no CIT — these entities pay only PPRT (1.5%) at the entity level. Owners then report their distributive share on their personal Illinois return and pay 4.95% PIT (see §8 for the owner-level credit).

For trusts, the PPRT is 1.5% on undistributed net income allocated to Illinois, and beneficiaries pay 4.95% PIT on distributed amounts under the Illinois trust rules.

3.4 Net operating losses

Illinois NOLs can offset both the PPRT and CIT base. The NOL rules are the same as for CIT:

• For tax years ending on or after December 31, 2021, Illinois NOL carryforwards are limited to $100,000 per year (Public Act 102-0016, as extended). This cap remains in effect for tax year 2025 — verify the General Assembly has not lifted it. (As of last verification, the cap was extended through 2024 by P.A. 103-0009 and the 2025 status should be verified with the current Schedule NLD instructions.)
• Illinois NOLs carry forward 12 years for losses arising in tax years ending on or after December 31, 2003 (35 ILCS 5/207).
• No carryback is permitted for Illinois corporate NOLs.
• An NOL is determined on a separate-company basis even within a unitary group — Illinois does not pool losses across the combined group except as specifically allowed by the Schedule UB instructions.

The $100,000 cap on NOL utilization applies to the combined CIT + PPRT base — there is not a separate NOL pool for PPRT.

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4. Apportionment: single sales factor, market sourcing

4.1 Single sales factor (effective 2017+)

Illinois adopted a single sales factor apportionment formula for tax years ending on or after December 31, 2017 (Public Act 100-0022). Prior to that, Illinois used a three-factor formula (property, payroll, sales, double-weighted sales). The current single sales factor formula is set by 35 ILCS 5/304(a) for general business corporations and 35 ILCS 5/304(h) for partnerships and S-corporations.

Apportionment factor = Illinois sales / Everywhere sales

There is no property factor, no payroll factor, and no double-weighted anything. The denominator is total sales from all sources; the numerator is sales sourced to Illinois under the market-based sourcing rules.

4.2 Market-based sourcing rules (35 ILCS 5/304(a)(3))

For tax years ending on or after December 31, 2008, Illinois moved from cost-of-performance sourcing (where services were sourced to the state with the largest cost of performance) to market-based sourcing. Effective 2017 the rules were tightened and aligned with the single sales factor:

• Tangible personal property: sourced to Illinois if the property is delivered or shipped to a purchaser in Illinois.
• Services: sourced to Illinois "if the service is received in this State." For services, "received in this State" means the location where the customer benefits from the service. For B2C services, this is generally the customer's billing address. For B2B services, this is generally the location where the customer's business operations benefit from the service.
• Intangible property — licenses and royalties: sourced to Illinois based on the location of use of the intangible.
• Software as a Service (SaaS) and digital goods: treated as services under the market-based sourcing rule, sourced to the customer's location (the location where the customer benefits). Illinois has not formally codified a SaaS sourcing rule but IDOR's General Information Letters consistently apply the service rule.
• Sales of financial instruments: sourced under the special rules of 35 ILCS 5/304(a)(3)(C-5).

4.3 Throwback and throwout rules

Illinois does not have a throwback rule for sales of tangible personal property to a state where the seller is not taxable. This was repealed for tax years ending on or after December 31, 2008. There is also no throwout rule. Sales to a state where the seller has no nexus are simply included in the everywhere denominator but not in the Illinois numerator — they are "nowhere" income that escapes Illinois apportionment.

For services, the market-based sourcing rule applies the same way: a service "received" in a state where the seller has no nexus is excluded from the Illinois numerator (because the customer is not in Illinois) and included in the everywhere denominator.

4.4 Single-state Illinois businesses

For a business operating entirely within Illinois, the apportionment factor is 1.00 and 100% of base income is apportioned to Illinois. This is the default for many freelance and small-business clients — the apportionment analysis collapses to "all Illinois" and the only question is whether the business has any nonbusiness income to allocate (rare for service businesses).

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5. Combined reporting

5.1 The Illinois 80% test

Illinois requires combined reporting for a "unitary business group" with more than 50% direct or indirect common ownership and that meets the "operational interdependence" test of 35 ILCS 5/1501(a)(27). However, certain affiliated entities are excluded from the unitary group based on the "80% test":

• The group is filed on a worldwide basis with respect to all U.S. members.
• Foreign affiliates that have less than 80% of their property and payroll in the United States ("80/20 companies") are excluded from the Illinois unitary combined group.
• Insurance companies, financial organizations, and transportation companies are placed in separate unitary groups by industry.

This skill focuses on the general-business unitary rule. The combined return is filed on Schedule UB attached to the designated agent's IL-1120.

5.2 PPRT and combined reporting

PPRT is computed on the combined unitary group's net income allocated and apportioned to Illinois. Each member of the combined group is jointly and severally liable for the group's PPRT and CIT. The designated agent files the combined IL-1120 with Schedule UB and Schedule UB-INS / Schedule UB-CR as applicable.

S-corporations and partnerships are not included in C-corporation unitary combined returns — pass-through entities file their own IL-1120-ST or IL-1065 separately and compute PPRT on a stand-alone basis. A pass-through entity that is part of a tiered structure (partnership owning a partnership) files separately at each tier.

5.3 Practical impact for small businesses

For most freelance and small-business clients, combined reporting is not applicable. A single-entity S-corp or partnership simply files its own IL-1120-ST or IL-1065 and computes PPRT on its own net income. The combined reporting rules only become relevant when a client owns multiple corporations under common control that operate as a unitary business.

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6. Forms and filing

6.1 Form selection

Entity	Form	Due date (calendar year)	Extended due date
C-corporation	IL-1120	April 15 (or 15th day of 4th month after year-end)	October 15 (automatic 6-month extension on Form IL-505-B)
S-corporation	IL-1120-ST	March 15 (or 15th day of 3rd month)	September 15
Partnership	IL-1065	March 15	September 15
Trust	IL-1041	April 15	September 30 (5-1/2 month extension)

Illinois grants an automatic extension of time to file when a federal extension is in place — no separate Illinois extension form is required if no Illinois tax is owed. However, an extension of time to file is not an extension of time to pay. Form IL-505-B is used to pay the estimated balance due on extension.

6.2 PPRT computation on the return

PPRT and CIT (for C-corps) are computed in parallel on the same return:

• IL-1120 (C-corp): Step 8 computes net income; Line 50 applies the 7% CIT; Line 51 applies the 2.5% PPRT. Total Illinois liability = CIT + PPRT.
• IL-1120-ST (S-corp): Line 46 applies the 1.5% PPRT to net income. There is no CIT line because S-corps don't pay CIT.
• IL-1065 (partnership): Line 46 applies the 1.5% PPRT to net income. Same structure as IL-1120-ST.

The K-1-P (partnerships) and K-1-T (trusts) report each partner's or beneficiary's share of PPRT paid by the entity. For S-corps, Schedule K-1-P serves the same purpose. Owners use these figures to claim the owner-level credit (see §8).

6.3 Electronic filing

Illinois mandates electronic filing for all corporations, S-corporations, and partnerships unless a hardship waiver is granted. Paper filing is generally not accepted for these entity types. The MeF (Modernized e-File) system handles IL-1120, IL-1120-ST, and IL-1065 submissions.

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7. Estimated tax payments

7.1 Threshold for required estimated payments

A taxpayer (corporate or pass-through) must make estimated PPRT (and CIT) payments if the expected combined Illinois tax liability after credits exceeds $400 for the tax year (35 ILCS 5/803). The $400 threshold applies to the combined CIT + PPRT total for C-corps, and to PPRT alone for pass-throughs.

7.2 Installment schedule

Estimated payments are due in four equal installments:

Installment	Due date (calendar-year filer)	Cumulative %
1st	April 15	25%
2nd	June 15	50%
3rd	September 15	75%
4th	December 15	100%

For fiscal-year filers, the dates are the 15th day of the 4th, 6th, 9th, and 12th months of the tax year.

7.3 Safe harbors

Estimated tax is computed as the lesser of:

• 90% of the current-year liability, or
• 100% of the prior-year liability (must be a full 12-month tax year with a positive liability).

There is no high-income 110% safe harbor for corporations or pass-throughs — this is a federal individual rule that does not apply at the Illinois entity level.

7.4 Underpayment penalty (Form IL-2220)

Underpayment of estimated tax results in a penalty computed on Form IL-2220. The penalty rate is the IRS underpayment rate (currently 8% annual for the relevant 2025 quarters — verify with the current Illinois interest rate schedule).

7.5 Payment voucher

Payments are made with Form IL-1120-V (corporate) or IL-1120-ST-V / IL-1065-V (pass-through) or electronically through MyTax Illinois. Most clients pay electronically.

7.6 Pass-through entity tax estimated payments

If a partnership or S-corp elects the PTE tax (see §9), it must make separate estimated payments for the PTE tax in addition to PPRT estimated payments. The PTE estimated payments use the same 25/25/25/25 schedule and the same $400 threshold (applied to PTE tax alone for this purpose). PTE and PPRT are computed and paid on the same return but the estimated payment vouchers are separate (IL-1120-ST-V serves both purposes by code).

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8. Owner-level credit for PPRT

8.1 The §201(p) credit

35 ILCS 5/201(p) grants an Illinois personal income tax credit to individual partners, shareholders, and beneficiaries for their share of PPRT paid by a partnership, S-corporation, or trust. The credit is intended to mitigate (but not eliminate) the double layer of Illinois tax on pass-through income.

8.2 Credit rate and computation

The credit is 6.5% of the owner's distributive share of the partnership's, S-corporation's, or trust's "replacement tax payment" — i.e., the actual PPRT paid by the entity. The 6.5% figure is a statutory rate; it is not the PPRT rate of 1.5%.

To compute the credit:

1. Determine the owner's distributive share of the entity's PPRT (from Schedule K-1-P or K-1-T).
2. Multiply that distributive share of PPRT by 6.5%.
3. Claim the result on Schedule 1299-C (individual) or the equivalent line on IL-1040.

Worked numbers (single partner):

• Partnership net income allocated to Illinois: $100,000
• Partnership PPRT at 1.5%: $1,500
• Single partner's distributive share: 100% of PPRT = $1,500
• Owner's §201(p) credit: 6.5% × $1,500 = $97.50

The credit is small relative to the PPRT paid because the 6.5% rate applies to the PPRT amount, not to the underlying income. The economic effect is that the pass-through entity bears 1.5% PPRT on its Illinois income, and the owner gets back roughly 6.5% × 1.5% = 0.0975% of that income as a PIT credit. The net Illinois tax burden on pass-through Illinois income remains approximately 1.5% + 4.95% − 0.0975% ≈ 6.35%.

8.3 Credit limitations

• The credit is nonrefundable.
• The credit can be carried forward 5 years if it exceeds Illinois PIT liability in the year the credit is generated.
• The credit phases out for high-income taxpayers — historically the credit was reduced for taxpayers with Illinois base income above a threshold (verify current 2025 threshold; the phaseout under the original 35 ILCS 5/201(p) was repealed but watchers should confirm the current statutory text).
• The credit cannot reduce Illinois PIT below zero (no refund of excess).
• The credit is allowed to nonresident partners and shareholders only to the extent the PPRT is attributable to the nonresident's Illinois-source distributive share, claimed on Form IL-1040, Schedule NR.

8.4 Trust beneficiaries

Beneficiaries of trusts that pay PPRT receive a K-1-T showing their share of trust PPRT. The 6.5% §201(p) credit applies on the same basis as for partners and shareholders, but only to the extent the beneficiary received a distribution carrying out the trust's distributable net income (DNI) that included Illinois-source income.

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9. Interaction with the Illinois PTE tax election

9.1 Background — Public Act 102-0658

Public Act 102-0658, effective for tax years ending on or after December 31, 2021, created an optional entity-level tax for partnerships and S-corporations called the Illinois Pass-Through Entity Tax (PTE tax), codified at 35 ILCS 5/201(p-1) (sometimes referenced as the "PTE tax election" or the "SALT cap workaround"). The election is made annually on the entity's IL-1065 or IL-1120-ST.

9.2 PTE tax rate and base

• Rate: 4.95% (matches the Illinois individual income tax rate).
• Base: the entity's net income allocated to Illinois — the same base as PPRT.
• Mechanism: the entity pays the 4.95% PTE tax at the entity level (federally deductible as a business expense under IRS Notice 2020-75), and each partner or shareholder receives a credit on their IL-1040 equal to their distributive share of the PTE tax paid (the "PTE credit"). The PTE credit is fully creditable against the partner's or shareholder's Illinois individual income tax — it is essentially a refundable mechanism that converts pass-through 4.95% PIT into a federally deductible state tax expense.

9.3 Does the PTE election affect PPRT?

No. The PTE election is layered on top of PPRT — it does not replace PPRT and does not change the PPRT rate. A partnership or S-corp that elects PTE tax pays:

• 1.5% PPRT (mandatory), plus
• 4.95% PTE tax (elected),

both on the same Illinois-allocated net income base. The total entity-level Illinois tax for an electing pass-through is 6.45% of Illinois-allocated net income.

The owner then gets:

• A PTE credit equal to 100% of their share of the 4.95% PTE tax, which fully offsets their Illinois PIT on the pass-through income, AND
• The §201(p) owner credit of 6.5% of their share of the 1.5% PPRT (i.e., a small additional 0.0975% credit).

9.4 When does the PTE election make sense?

The PTE election is generally beneficial when the partners or shareholders are itemizing on their federal return and would otherwise be capped by the $10,000 federal SALT cap under IRC §164(b)(6) (the cap was raised to $40,000 by OBBBA for 2025, then phasing back to $10,000; verify current 2025 cap). By paying the 4.95% state tax at the entity level, the deduction becomes a federal business expense not subject to the SALT cap.

For freelance developers earning, say, $200,000 of net income through an Illinois S-corp:

• Without PTE election: owner pays $200,000 × 4.95% = $9,900 of IL PIT, capped at the SALT cap on federal Schedule A.
• With PTE election: S-corp pays $200,000 × 4.95% = $9,900 of IL PTE tax (federally deductible at the entity level), and owner gets a 100% credit on IL-1040 — no IL PIT due on the pass-through income.

The federal benefit is roughly 9,900 × marginal federal rate. At a 32% marginal rate that's about $3,168 of federal tax savings, minus the increased federal taxable income from any state refund mechanics.

9.5 Election mechanics

• The election is made annually by checking the box on IL-1065 or IL-1120-ST.
• The election is irrevocable for that tax year — once made, it cannot be revoked for that year.
• The election binds all partners or shareholders — individual owners cannot opt out.
• Tiered partnerships: a lower-tier partnership that elects PTE flows the PTE credit up to upper-tier partners; the upper-tier partnership can also elect PTE on its own (cascading), but this is complex and rarely done.
• Nonresident partners must file IL-1040 to claim the PTE credit; if they don't, the credit is lost.

9.6 PTE and PPRT estimated payments

A pass-through that elects PTE must make estimated payments covering both the PPRT and the PTE tax. The $400 threshold applies to the combined PPRT + PTE liability. Estimated payments are made through MyTax Illinois on a single PTE/PPRT voucher.

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10. Worked examples

10.1 Example 1 — Illinois C-corporation with all-Illinois income

Facts:

• ABC Software, Inc., a Delaware-incorporated C-corp with commercial domicile and all operations in Illinois.
• Federal taxable income (Form 1120, Line 30): $500,000.
• No Schedule M additions or subtractions material to the calculation.
• 100% of sales sourced to Illinois (single sales factor = 1.00).
• No NOL carryforward.

Computation:

Step	Amount
Federal taxable income	$500,000
Schedule M additions	$0
Schedule M subtractions	$0
Base income	$500,000
Apportionment factor	1.00
Apportioned business income	$500,000
Illinois standard exemption	($1,000)
Net income	$499,000
Illinois CIT @ 7.0%	$34,930
Illinois PPRT @ 2.5%	$12,475
Total Illinois entity tax	$47,405

Effective Illinois tax rate on $500,000 of income: 9.48% (the statutory combined 9.5% rate, slightly less because of the $1,000 exemption).

10.2 Example 2 — Illinois S-corporation, single shareholder, no PTE election

Facts:

• XYZ Consulting, Inc., a Delaware S-corp with commercial domicile in Illinois, owned 100% by Maria, an Illinois resident.
• Federal ordinary income (Form 1120-S, Line 21): $200,000.
• No separately stated items affect the calculation.
• Maria pays herself a reasonable salary of $80,000 (already deducted on the 1120-S).
• 100% of sales sourced to Illinois.
• No NOL carryforward.
• No PTE election made for 2025.

Entity-level computation (IL-1120-ST):

Step	Amount
Federal ordinary income	$200,000
Schedule M modifications	$0
Base income	$200,000
Apportionment factor	1.00
Apportioned business income	$200,000
Illinois standard exemption	($1,000)
Net income	$199,000
Illinois PPRT @ 1.5%	$2,985

Owner-level computation (Maria's IL-1040):

Step	Amount
W-2 wages from XYZ (already taxed via withholding)	$80,000
K-1-P distributive share of S-corp ordinary income	$200,000
Total Illinois base income	$280,000
Illinois PIT @ 4.95%	$13,860
§201(p) credit for PPRT (6.5% × $2,985)	($194)
Maria's Illinois PIT after credit	$13,666

Total Illinois tax burden on $280,000 of business profit:

Component	Amount
Entity-level PPRT	$2,985
Maria's PIT after §201(p) credit	$13,666
Total	$16,651
Effective rate on $280,000	5.95%

10.3 Example 3 — Same facts as Example 2, but with PTE election

Facts: Same as Example 2 except XYZ elects the PTE tax for 2025.

Entity-level computation (IL-1120-ST with PTE election):

Step	Amount
Base income	$200,000
Net income (after $1,000 exemption)	$199,000
Illinois PPRT @ 1.5%	$2,985
Illinois PTE tax @ 4.95%	$9,851
Total entity-level Illinois tax	$12,836

The PTE tax of $9,851 is federally deductible at the entity level under IRS Notice 2020-75, reducing the S-corp's federal ordinary income from $200,000 to $190,149 — Maria's federal K-1 ordinary income is now $190,149 rather than $200,000.

Owner-level computation (Maria's IL-1040 with PTE credit):

Step	Amount
W-2 wages	$80,000
K-1-P distributive share (now $190,149 federally; $200,000 Illinois with PTE addback)	$200,000
Total Illinois base income (PTE addback under 35 ILCS 5/203(b)(2)(S-5))	$280,000
Illinois PIT @ 4.95% before credits	$13,860
PTE credit (100% of $9,851)	($9,851)
§201(p) credit for PPRT (6.5% × $2,985)	($194)
Maria's Illinois PIT after credits	$3,815

Total Illinois tax burden:

Component	Amount
Entity-level PPRT	$2,985
Entity-level PTE tax	$9,851
Maria's PIT after credits	$3,815
Total Illinois tax	$16,651
Effective Illinois rate	5.95%

Note that the Illinois total is identical to Example 2 — the PTE election does not change the Illinois tax burden; it only changes whether the tax is paid at the entity level (federally deductible) or at the owner level (subject to the SALT cap).

Federal benefit of PTE election:

• Maria's federal K-1 ordinary income falls from $200,000 to $190,149, saving federal tax of $9,851 × marginal federal rate.
• At a 24% federal marginal rate, that's approximately $2,364 of federal tax savings from electing PTE — pure benefit with no Illinois cost.

10.4 Example 4 — Illinois sole proprietor (no PPRT, for comparison)

Facts:

• Same Maria, but operating as a Schedule C sole proprietor (no S-corp), all in Illinois.
• Net Schedule C profit: $280,000.

Computation:

Step	Amount
Schedule C profit	$280,000
Federal SE tax (computed separately)	(handled by federal skills)
Illinois base income (after federal AGI adjustments)	$280,000
Illinois PIT @ 4.95%	$13,860
PPRT	$0 (sole prop exempt)
Total Illinois tax	$13,860
Effective Illinois rate	4.95%

Compared to Example 2 (S-corp without PTE election, $16,651 Illinois tax), the sole proprietor saves $2,791 of Illinois tax by avoiding PPRT entirely. This is the Illinois-side cost of an S-corp election that must be weighed against the federal SE tax savings in the us-s-corp-election-decision analysis.

10.5 Example 5 — Multi-state partnership

Facts:

• DEF Partners LLP, a multi-state partnership.
• Federal ordinary income: $1,000,000.
• Sales: $5,000,000 total, of which $1,500,000 sourced to Illinois (market-based).
• Two equal partners: Alice (Illinois resident) and Bob (Wisconsin resident).
• No PTE election.

Apportionment:

Illinois apportionment factor = $1,500,000 / $5,000,000 = 0.30 (30%)

Entity-level computation:

Step	Amount
Base income	$1,000,000
Apportionment factor	0.30
Apportioned business income	$300,000
Illinois exemption	($1,000)
Net income	$299,000
Illinois PPRT @ 1.5%	$4,485

Each partner's distributive share of PPRT (50/50 split):

• Alice: $2,243
• Bob: $2,243

Alice's IL-1040 (Illinois resident):

• Distributive share of partnership income: $500,000 (50% of $1,000,000 federal) — but for Illinois, Alice is a resident and is taxed on all her partnership income, with credit for tax paid to other states.
• Illinois PIT @ 4.95% on $500,000: $24,750
• §201(p) credit: 6.5% × $2,243 = $146
• Other state credit for Wisconsin tax paid on Alice's Wisconsin-source share: depends on Wisconsin filing.

Bob's IL-1040 Schedule NR (Wisconsin nonresident):

• Only Illinois-source share is taxable in Illinois.
• Bob's Illinois-source share = $500,000 × 0.30 = $150,000
• Illinois PIT @ 4.95% on $150,000: $7,425
• §201(p) credit: 6.5% × $2,243 = $146
• Bob's IL-1040 net: $7,279

10.6 Example 6 — C-corp vs S-corp head-to-head

Facts:

• A $500,000 net-income business, all Illinois operations, owner takes all profit out as distributions/dividends.
• Owner is an Illinois resident in the top federal bracket.

As C-corp (Example 1 redo with distribution layer):

Layer	Amount
Net income before tax	$500,000
Illinois CIT @ 7.0% on $499,000 net	$34,930
Illinois PPRT @ 2.5% on $499,000 net	$12,475
Federal corp tax @ 21% on ~$452,595 (after IL state tax deduction)	$95,045
Net to distribute as dividend	$357,550
Illinois PIT on $357,550 dividend @ 4.95%	$17,699
Federal qualified dividend tax @ 20% + NIIT 3.8%	$85,012
Total tax	$245,161
Take-home	$254,839

As S-corp (with PTE election):

Layer	Amount
Net income	$500,000
Illinois PPRT @ 1.5% on $499,000	$7,485
Illinois PTE @ 4.95% on $499,000	$24,701
Federal income on Schedule K-1 after PTE deduction	$467,814
Federal income tax on $467,814 at top brackets (~32% blended)	~$149,700
Illinois PIT on owner side after PTE credit	~$0 (PTE credit covers it) − $487 §201(p)
Total tax (approx)	~$181,400
Take-home	~$318,600

The S-corp/PTE combination is materially better than the C-corp/dividend structure for a single Illinois owner taking all profits out, by approximately $63,000 on a $500,000 business. The C-corp structure only becomes advantageous when significant earnings are retained inside the corporation at the 21% federal rate.

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11. Conservative defaults and reviewer flags

When information is incomplete, default to:

• Treating the entity per its federal classification. Do not second-guess the federal check-the-box or S-election.
• Sourcing services to the customer's billing address absent better information.
• Including all gross receipts in the everywhere denominator; including only clearly Illinois-sourced amounts in the numerator.
• Not claiming the §201(p) credit for nonresidents unless the K-1-P clearly shows Illinois-source income to the nonresident.
• Assuming the $100,000 Illinois NOL cap remains in effect for 2025 unless the General Assembly has lifted it (verify with current Schedule NLD instructions).
• Not making the PTE election unless the federal SALT cap analysis shows a clear federal benefit and the client has authorized the election in writing.

Flag for credentialed reviewer:

• Any multi-state apportionment computation with services or intangibles.
• Any combined unitary group filing (Schedule UB).
• Any PTE election decision involving more than $100,000 of pass-through income or any tiered structure.
• Any nonresident partner withholding question under 35 ILCS 5/709.5.
• Any short-period return or first/final-year return.
• Any apportionment factor below 5% or above 95% in a multi-state business — these extremes often indicate a sourcing error.

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12. Provenance

Statutory citations:

• 35 ILCS 5/201(c) — PPRT on corporations, 2.5%
• 35 ILCS 5/201(d) — PPRT on partnerships, trusts, S-corps, 1.5%
• 35 ILCS 5/201(p) — owner-level credit for PPRT, 6.5%
• 35 ILCS 5/201(p-1) — Pass-Through Entity tax (PTE tax), 4.95%
• 35 ILCS 5/203 — base income modifications
• 35 ILCS 5/204 — standard exemption
• 35 ILCS 5/207 — Illinois NOL carryforward (12 years)
• 35 ILCS 5/304(a) — apportionment, single sales factor
• 35 ILCS 5/304(a)(3) — market-based sourcing for services and intangibles
• 35 ILCS 5/709.5 — pass-through withholding on nonresident partners
• 35 ILCS 5/803 — estimated tax requirements
• 35 ILCS 5/1501(a)(27) — unitary business group definition
• 30 ILCS 115/12 — PPRT distribution to local taxing districts
• Illinois Constitution of 1970, Article IX, §5(c) — abolition of personal property tax

Public Acts:

• P.A. 100-0022 — single sales factor effective 2017
• P.A. 102-0658 — PTE tax election effective 2021
• P.A. 102-0016 — $100,000 NOL cap (initial)
• P.A. 103-0009 — NOL cap extension (verify 2025 status)

IDOR forms and publications:

• Form IL-1120, IL-1120 Instructions (2025 draft)
• Form IL-1120-ST, IL-1120-ST Instructions (2025 draft)
• Form IL-1065, IL-1065 Instructions (2025 draft)
• Schedule UB — combined apportionment
• Schedule UB-CR — combined return supplemental schedules
• Schedule M — additions and subtractions
• Schedule NLD — Illinois net loss deduction
• Schedule 1299-C — credits for individuals (§201(p) credit)
• Schedule K-1-P, K-1-T — partner/shareholder/beneficiary information
• Form IL-2220 — underpayment of estimated tax
• Form IL-505-B — payment voucher for extension
• IDOR General Information Letters on market-based sourcing (various, 2018–2024)

Federal references:

• IRS Notice 2020-75 — federal deductibility of state PTE taxes
• IRC §164(b)(6) — federal SALT cap
• Treasury Regulations §301.7701-1 through §301.7701-3 — entity classification ("check the box")

Distribution mechanics for PPRT revenue:

• 30 ILCS 115/12 sets the formula based on 1976 (1977 for Cook County) personal property tax extensions.
• Revenue does not enter the State General Revenue Fund; flows to local taxing districts.

Verified by: pending (skill is at version 0.1, awaiting credentialed reviewer signoff).

Last updated: 2025-11-15.

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