Illinois bill ‘decouples’ state, federal taxes, raising revenue and angering businesses

SPRINGFIELD — Illinois lawmakers are sending a bill to Gov. JB Pritzker that makes a pair of changes to Illinois’ tax code in response to new federal tax provisions that could reduce state revenue.

The Governor’s Office of Management and Budget projected last month that Illinois is on track to run a $267 million deficit in fiscal year 2026. That’s partially a result of corporate tax cuts enacted at the federal level as part of the One Big Beautiful Bill Act, officially known as House Resolution 1, that President Donald Trump signed on July 4.

Many states like Illinois tie sizable portions of the tax code to the federal government’s policies. That means HR1 would also reduce the amount of revenue the state receives unless Illinois takes the action

Pritzker’s budget office recommended in its report last month that state lawmakers pass a bill to “decouple” parts of the state’s corporate tax code from the federal tax code to address this year’s deficit and allow the state to receive taxes it otherwise would not have received because of HR1.

Read more: Illinois budget on track for deficit as new federal policies create challenges

The House voted 76-33 and the Senate 37-19 to pass Senate bill 1911. If signed by the governor, it would erase about $250 million from the projected fiscal year 2026 deficit.

“The purpose, ultimately, is to make sure that we can pay the bills in the state of Illinois and not be hampered by Donald Trump and the big government bill,” Pritzker told reporters in Springfield last week.

Tax changes

One change approved by Congress allows manufacturers to claim a larger deduction for assets as soon as they go into service, allowing businesses to save more money in the short-term. By stopping that change from applying to Illinois, the state would save $144 million in FY26, according to an analysis by Senate Democrats shared with Capitol News Illinois.

One change would actually align Illinois’ tax code with the federal government by redefining a tax on businesses’ overseas profits that state lawmakers passed in May as part of the FY26 budget. That ensures the state can collect an expected $90 million in revenue from the tax this year.

The state is also extending a measure that was put in place in 2021 pertaining to filing taxes as pass-through entities. Senate Democrats say it will save businesses money on federal taxes without impacting state coffers. It was slated to expire this year but will be made permanent under the measure.

“That’s revenue that doesn’t have to go to D.C. that can stay here in Illinois,” Taxpayers’ Federation of Illinois President Maurice Scholten told Capitol News Illinois. “Illinois business owners can spend it in the communities or further invest in their businesses and expand and hire additional workers.”

Businesses concerned

Some business organizations worry the measure will hurt Illinois’ ability to attract and retain businesses. Illinois Manufacturers’ Association CEO Mark Denzler said changes to the depreciation of assets deduction will “hamper economic development efforts and put the state at a competitive disadvantage.”

“This measure deprives Illinois manufacturers of important tax benefits that allow businesses to upgrade equipment, expand facilities and grow jobs,” Denzler said in a statement. “It represents yet another blow to our state’s manufacturing industry.”

Pritzker defended the policy, arguing that businesses will still find Illinois to be an attractive place because of the state’s infrastructure, education and health care systems. Republicans said the federal government’s tax cuts would also be beneficial in Illinois.

“When the federal government tries to, you know, add rocket fuel to manufacturing and other industries, we shouldn’t have to be the outlier,” Rep. Amy Elik, R-Godfrey, said during debate in the House last week. “We should be taking advantage of those opportunities and helping businesses decide to locate here.”

Scholten argued the taxes Illinois is decoupling from will negatively impact the state in the future.

“This change pushes Illinois’ corporate tax structure even further out of line when you compare it to other states,” Scholten said. “And we understand that lawmakers were trying to balance a difficult budget, but relying on higher business taxes every time revenue falls short can create a vicious cycle that ultimately weakens Illinois’ tax base in the long run.”

FY26 revenue remains up

Despite warnings from the governor’s budget office about FY26 ending in a deficit, the latest data from the General Assembly’s independent Commission on Government Forecasting and Accountability shows FY26 revenue remains up through October compared to FY25.

The October report released Tuesday shows total general fund revenue for the year remains 2.9%, or $474 million, above this point last year. Much of that growth stems from a transfer from the state’s income tax refund account, but other sources, such as sports betting and sales tax, have also grown despite concerns about the economy slowing.

Corporate income taxes continue to be down for the year, however. It’s down 14.1%, or $228 million, for FY26 so far. However, the state brought in 22% more in corporate income taxes this October than in October 2024 following a substantial decline in September.

Capitol News Illinois is a nonprofit, nonpartisan news service that distributes state government coverage to hundreds of news outlets statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.