With the signing of House Bill 3157 ("H.B. 3157"), Illinois Governor Pat Quinn instituted changes that will affect pass-through entities that derive revenue from Illinois sources and have non-Illinois residents as shareholders, partners or members (collectively hereinafter referred to as "owners").
Effective for taxable years beginning after December 31, 2013, pass-through entities will no longer be permitted to file a composite income and replacement tax return (Form IL-1023-C) on behalf of their owner who are non-Illinois residents. Meaning, the Illinois pass-through entity owners will no longer have the option of electing to have their Illinois filing requirements satisfied by filing a return and paying tax at the pass-through entity level; the owners will now be required to file their own Illinois income tax returns.
Along with the change in policy with regard to the composite return filing, H.B. 3157 also revised the pass-through entity income tax withholding requirements. Effective for taxable years beginning after December 31, 2013, pass-through entities will be required to withhold on behalf of each non-Illinois resident owner based on the owner's share of business income apportionable to Illinois and nonbusiness income allocable to Illinois. Previously, nonbusiness income was not subject to the withholding requirements.
If you have any questions about how the signing of H.B. 3157 may affect your company, please contact a member of our State and Local Tax team.
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