Illinois corporate income tax rate hits No. 2 in U.S.

Illinois corporate income tax rate hits No. 2 in U.S.

Illinois businesses pay the nation’s second-highest corporate income tax rates. Chicago is considering taxing them more.

Illinois levies the second-highest state corporate income tax rate in the nation, according to new rankings released Jan. 23 by the nonpartisan Tax Foundation.

Illinois’ flat corporate income tax rate tallies 9.5% and includes a 7% business income tax rate and a 2.5% Personal Property Replacement Tax for corporations. Only Minnesota, with a corporate income tax rate of 9.8%, taxes corporations at a higher rate.

Illinois had previously imposed the third-highest corporate income tax rate in the nation, however New Jersey’s corporate income tax fell from 11.5% to 9% beginning in 2024 as the state’s 2.5% corporation business tax surcharge expired.

New Jersey was not alone in making changes to reduce corporate income tax burdens. Six states made changes to their corporate income tax rates for 2024, with all of them being tax rate cuts. These changes furthered momentum for tax reductions that has been building since 2021.

Between 2021 and 2023 most states – 26, to be exact, including all of Illinois’ neighboring states – reduced their personal or corporate income tax rates or both. They returned an estimated $13 billion to taxpayers during those years.

Tax reductions in nearby states are scheduled to continue, too. Iowa’s corporate tax rate is scheduled to be reduced to a flat 5.5%, subject to revenue availability. The state previously taxed corporate income on a graduated basis with rates ranging from 5.5% to 9.8%.

Illinois’ stubbornly high corporate income tax rate is one of the main reasons why the state’s tax code is among the least friendly for businesses in the entire Midwest. Since 2018, all of Illinois’ neighboring states have made improvements in their business tax climate rankings, except for Indiana – which fell from the nation’s ninth-friendliest to 10th-friendliest and maintains the best ranking in the region.

To make matters worse in Illinois, Chicago voters are being asked to approve a $100-million tax hike that will disproportionately fall on businesses in the upcoming March election. The measure, dubiously branded a “mansion tax,” would increase Chicago’s Real Estate Transfer Tax rate on properties valued over $1 million.

The tax is much more than a “mansion tax” because relatively few residences sell at that rate but many business properties and apartment complexes fall in that range. Crain’s Chicago Business’ analysis showed the total value of $1M+ real estate transactions disproportionately were commercial property sales rather than residential property sales by a rate of 9 to 1, or $7.5 billion to $841.8 million, from April 2021 to April 2022.

Businesses in Chicago already pay the second-highest state corporate income tax rates in the nation. They also pay the second-highest commercial property taxes in the nation. Now Mayor Brandon Johnson is trying to increase their tax burdens even more.

Chicago voters can decide March 19 whether the city becomes more or less hostile to businesses by imposing a “mansion tax” that really isn’t.

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