Personal property replacement taxes are revenues collected by the state of Illinois and paid to local governments to replace money that was lost by local governments when their powers to impose personal property taxes on corporations, partnerships, and other local business entities were taken away in 1970 by the Illinois Constitution. In 1979, the General Assembly enacted a law to provide for statewide taxes to replace the revenues lost to local governments.
Corporations pay a 2.5 percent replacement tax on their net Illinois income, while partnerships, trusts and S corporations pay a 1.5 percent tax. Public utilities pay a 0.8 percent tax on invested capital. Corporate income tax due dates are generally the 15th day of the third or fourth month, depending on the tax year end date of the corporation filing the return.
The proceeds from these taxes are placed into the Personal Property Tax Replacement Fund to be distributed to local taxing districts. One portion (51.65 percent) of the revenue goes to taxing districts in Cook County, and the other portion (48.35 percent) goes to taxing districts in the remaining 101 counties. The money is distributed on the basis of each taxing district’s share of personal property tax collections from the 1977 tax year for downstate counties and 1976 for Cook County. The allocation factor to each taxing district can change when taxing districts that are currently receiving PPRT distributions merge into another taxing district, when two or more existing taxing districts consolidate to create a new taxing district, or when a portion of the territory of a taxing district is disconnected and annexed to another taxing district.
Between the end of July and middle of August each year, the Illinois Department of Revenue posts a list of estimates for each taxing district for the current fiscal year at Fiscal Year 2022 Estimate for Replacement Taxes. Local PPRT governments will be receiving less than they had in previous years due to an allocation change by the IDOR. The IDOR performs its statutorily required reconciliation process, which is referred to as a ‘True-Up,’ annually. In previous years, the True-Up has required less than one percent, on average, in reallocations. However, a significant revenue increase was created in tax year 2022 that allowed taxpayers receiving Pass-through Equity (PTE) income to pay a new elective tax instead of pass-through withholding, which had been the required payment method. This True-Up is expected to modify tax collections for fiscal year 2024 resulting in approximately $861.9 million from the PPRT and $215.5 million from the Corporate Income Tax being reallocated to the Personal Income Tax disbursements.