Bill
SB 1739
Allocates gains/losses from sale of S-corp shares or certain partnerships to Illinois using a 3-year average apportionment factor, smoothing tax outcomes.
Status / Key dates (from provided record)
- Introduced: February 5, 2025 (Sen. Robert F. Martwick).
- Referred to Assignments / Revenue; committee deadlines set through May–June 2025.
- Legislative actions in record include House and Senate readings, passage votes, and a Governor’s signature recorded June 27, 2025.
Note: the supplied document bundle also contained unrelated material from another legislature (Arizona). This summary covers the Illinois provisions titled “INC TX‑PASS THROUGH ENTITIES,” which amend the Illinois Income Tax Act (35 ILCS 5/303 and 5/304).
Purpose / intent
- To change how capital gains and losses from sales or exchanges of shares in S corporations (Subchapter S) and certain partnership interests are allocated to Illinois for state income tax purposes, by using a multi‑year average of the entity’s Illinois apportionment factor rather than a single‑year measure.
Key provisions
- Amends Section 303 (allocation rules) to specify that gains and losses from:
- sales or exchanges of shares in a Subchapter S corporation; and
- sales or exchanges of interests in certain partnerships (including “investment partnerships” as defined elsewhere in law)
are allocable to Illinois “in proportion to the average of the pass‑through entity’s Illinois apportionment factor computed under Section 304” for:
- the taxable year of the sale or exchange, and
- the two immediately preceding taxable years.
- If the pass‑through entity did not exist during both of the two preceding years, the average is computed using only the years in which the entity did exist.
- (The amendment ties the allocation specifically to the apportionment factor defined under Section 304.)
Who is affected
- Pass‑through entities that are taxable in Illinois (S corporations and specified partnerships) and their owners when those entities sell or exchange interests.
- Nonresident and resident owners to the extent capital gains/losses are allocable to Illinois under the new averaging rule.
- Illinois Department of Revenue (administration, audits) and taxpayers who must compute and report the revised allocation.
Practical impact
- Smooths year‑to‑year variation in the portion of sale proceeds allocable to Illinois by averaging the apportionment factor across up to three years, which can lessen the effect of a single anomalous year on state taxable income.
- May change the Illinois tax liability on disposition of pass‑through interests compared with current single‑year allocation rules — either increasing or decreasing Illinois‑source income depending on how the entity’s apportionment factor moved over the three‑year window.
- Could modestly affect state revenue timing and collections volatility; also affects tax planning for owners of pass‑through entities considering sale/exit timing.
Implementation / mechanics
- The apportionment factor to be averaged is computed under Section 304 of the Illinois Income Tax Act (as referenced in the bill).
- If an entity is newly formed and lacks a two‑year history, the averaging formula uses only the years available (i.e., fewer than three years as applicable).
- The bill text applies to gains/losses “from sales or exchanges” — taxpayers must apply the averaging rule when determining the Illinois portion of such items for the relevant taxable year(s).
Preparedness note
- Taxpayers and tax advisors should review affected years’ apportionment factors and consider the averaging rule when modeling tax consequences of selling pass‑through interests. Agencies administering taxation will need to incorporate the averaging calculation into guidance, forms, and audit practices.
Compiled from official sources — confirm details with the bill’s official record.
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