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SB 1833

INC TX-ILLINOIS SOURCES

104th Regular Session Introduced by Chapin Rose

Illinois excludes from base income the portion of income from multistate business activity not connected to Illinois sources, reducing taxable income for affected taxpayers.

Rule 3-9(a) / Re-referred to Assignments
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Bill Summary · SB 1833

SB 1833 — Summary (INC TX-ILLINOIS SOURCES)

Status: Enacted (Governor signed 6/20/2025); Effective date: September 1, 2025
Sponsor: Sen. Chapin Rose
Citation changed: 35 ILCS 5/203 (Illinois Income Tax Act)
Companion: HB 2695

Purpose / Intent

SB 1833 amends the definition of "base income" in the Illinois Income Tax Act to more clearly exclude from Illinois taxable income those portions of income or loss that arise from business activity conducted both inside and outside Illinois but are not derived from or connected with Illinois sources. The change is aimed at preventing Illinois taxation of business income (including pass‑through entity income) that is attributable solely to out‑of‑state sources.

Key Provisions

  • Amends Section 203 (base income defined) of the Illinois Income Tax Act (35 ILCS 5/203).
  • When calculating an individual taxpayer’s base income (which begins with federal adjusted gross income), the taxpayer’s federal AGI shall be modified to exclude:
    1. The portion of income or loss received from a trade or business conducted both within and without Illinois that is not derived from or connected with Illinois sources; and
    2. The portion of income or loss received from a pass‑through entity (e.g., partnership, S corporation) that conducts business both within and without Illinois and that is not derived from or connected with Illinois sources.
  • The text is added as a subtraction/modification to the federal AGI used to compute Illinois base income for individuals.

Who is Affected

  • Individual residents and nonresidents whose federal AGI includes business income from operations both inside and outside Illinois.
  • Owners or partners receiving pass‑through income from entities conducting multistate activity.
  • Tax professionals preparing Illinois returns and the Illinois Department of Revenue (administration, audits, and guidance).
  • State fiscal impact: likely reduces Illinois taxable income for affected taxpayers, which may reduce state individual income tax receipts (amount not specified in the bill).

Procedural / Timeline Notes

  • Introduced: February 5, 2025 (Senate). Extensive legislative actions, including conference committee, passed both chambers in May 2025.
  • Governor signed: June 20, 2025. Official effective date recorded as September 1, 2025.
  • The amendment becomes part of 35 ILCS 5/203 and will apply to taxable years as of the effective date; taxpayers and preparers should expect the Department of Revenue to issue guidance on documentation and source‑of‑income determinations for claims of the exclusion.

Practical Considerations

  • Taxpayers claiming the exclusion will likely need to support allocations showing the portion of income/loss not connected to Illinois sources (apportionment records, bookkeeping, contracts, etc.).
  • The change interacts with Illinois apportionment and sourcing rules and may require administrative guidance to implement consistently.

Compiled from official sources — confirm details with the bill’s official record.

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