Franchise Taxes
&
Illinois Corporations
Each domestic and foreign Illinois corporation is required to pay franchise tax at the time of filing its first report of issued shares (articles of Incorporation or application for authority) for the privilege of exercising its franchises in the State of Illinois. Additional franchise tax is payable to the Secretary of State whenever the corporation reports a change in its paid-in capital over the amount last reported to the Secretary of State. Some of the documents that generate a change in paid a report of the issuance of additional shares; a report of an increase in paid-in capital without the issuance of additional shares; an amendment to the articles of incorporation increasing or decreasing the amount of shares the corporation is authorized to issue; a report of cumulative changes in paid-in capital; or a statutory merger.
Foreign Qualifications
If you are a company incorporated in another state and filing an application for authority to do business in Illinois, and you indicate on your application that your company has done business in Illinois prior to the filing date of your application for authority, your company will be held responsible for the franchise tax dating back to the date your company began doing business in Illinois, along with penalties and additional annual report filing fees for those previous years indicated on your filing. The Secretary of State will not file your application for authority unless the back taxes, filing fees and penalties are satisfied. Additional information is available for calculating your initial franchise tax under our tab Foreign Corp Requirements.
Calculating Your Franchise Tax
The Secretary of State gives you two options for calculating your franchise tax on your annual report. The least painful of the computations is to elect to pay franchise tax on the entire amount of paid-in capital. This gives most incorporators the incentive to keep the paid-in capital (or par value per share) relatively low.
Easy
The Annual Franchise Tax is computed at the rate of 1/10 of 1% (.10 of 1%) for the 12 month period commencing the first day of the anniversary month of the corporation on the proportion of its paid-in capital as of the last day of the third month preceding the anniversary month represented by the ratio of Illinois property and business to total property and business everywhere - minimum tax is $25.00 and maximum tax is $2,000,000.
Not So Easy
The other choice for calculating your franchise tax is on the basis of the amount represented in this state of its paid-in capital on the last day of the third month preceding the anniversary month. The amount represented would be that portion of its paid-in capital that the sum of the value of its property located in this state (b-below) and the gross amount of business transacted by it or from businesses in this state (d-below), divided by the sum of the value of all of its property wherever located (a-below) and the gross amount of its business where ever transacted (c-below). There are exceptions of course and it is recommended to review the corporate statutes to verify which calculation you should follow.
Value of the property (gross assets):
(a) owned by the corporation, wherever located: (a) $ __________
(b) of corporation located within the State of Illinois: (b) $ __________
Gross amount of business transacted by the corporation:
(c) everywhere for the above period (c) $ __________
(d) at or from places of business in Illinois for the above
period: (d) $ _________
ALLOCATION FACTOR = b + d = (to the 6th decimal place) a + c
