Bill
SB 3614
Creates a tax-advantaged savings vehicle (SBAPA) for Illinois small businesses to fund eligible capital purchases, with a 50% deduction starting 2027 and penalties for misuse.
Title: Small Business Asset Purchase Account Act
Purpose
- Establish a new program called the Small Business Asset Purchase Account (SBAPA) to help small businesses save funds for eligible capital purchases.
- Provide a tax incentive and regulatory framework to encourage small businesses (including family farms) to set aside cash for large investments and to invest at times that suit their operations, rather than being bound to standard tax calendars.
Key Provisions
1) Creation and Use of SBAPA
- Eligible institutions: SBAPA accounts would be opened at an eligible financial institution (banks or savings banks in Illinois, with FDIC insurance).
- Eligible costs: Funds in the SBAPA may be used only for costs qualifying as “eligible costs,” defined as purchases of property primarily used in Illinois for which the taxpayer claims a Section 179 deduction (internal IRS code reference).
- Account structure: SBAPA is a trust or custodial account established for the exclusive purpose of paying eligible costs. Contributions must be cash and assets may not be commingled with other property.
- Contribution limits: Cash contributions to an SBAPA are limited to no more than $100,000 per calendar year per taxpayer.
- Account holder role: The account holder is responsible for documenting purchases to demonstrate eligibility.
2) Tax Treatment (Illinois Income Tax Act)
- Deductions: Contributions to SBAPA and certain withdrawals are treated under Section 203 of the Illinois Income Tax Act.
- Tax-free earnings: Earnings from the SBAPA (including interest and other income on the principal) are excluded from the account holder’s Illinois taxable income for the tax year.
- 50% deduction for contributions: For tax years beginning on or after January 1, 2027, 50% of the amount contributed to an SBAPA during that year is allowed as a deduction (the text implies a parallel treatment to other deductions under the base law, but the specific language states 50% deduction to the extent included in the Illinois base income modifications).
- Interaction with 179 deductions: The SBAPA-related deduction is coordinated with the existing Illinois base income rules and modifications, including the treatment of withdrawals and earnings.
3) Penalties and Compliance
- Penalties: If an SBAPA withdrawal is used for non-eligible costs, the withdrawal is subject to penalties under the Uniform Penalty and Interest Act (Section 3-3.5).
- Documentation: The account holder is responsible for documenting eligible purchases.
- Rules and administration: The Department of Revenue is authorized to adopt rules to implement and administer the Act.
4) Affected Parties
- Small businesses in Illinois (fewer than 50 employees at opening) establish SBAPAs to fund eligible capital purchases.
- Eligible financial institutions in Illinois (banks/savings banks with FDIC insurance) would administer SBAPAs.
- The Illinois Department of Revenue would oversee rules, administration, and enforcement.
5) Timeline and Effective Dates
- The bill introduces the SBAPA concept and corresponding tax provisions as part of the 2025-2026 legislative session.
- For the tax deduction feature, a key effective date is for tax years beginning January 1, 2027 (the 50% contribution deduction and related treatment). Earnings in the SBAPA remain tax-excluded in Illinois income for the tax year in which earned.
Notes on Tax Code Amends
- The bill adds a new section to the Illinois Income Tax Act (creating a dedicated deduction in Section 203 for SBAPA-related contributions and earnings treatment).
- The modifications align with, and coordinate, existing Illinois tax provision structure (e.g., base income modifications for individuals and corporations), but introduce the SBAPA-specific deduction (notably clause NN and OO for 2027 and beyond).
Potential Impact
In short, SB 3614 creates a dedicated, tax-advantaged savings vehicle for small Illinois businesses to finance eligible capital purchases, with explicit penalties for misuse and a phased tax deduction starting in 2027.
Compiled from official sources — confirm details with the bill’s official record.
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