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Each domestic and foreign 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 capitalhttps://www.illinoisregisteredagent.com/corporate-definitions over the amount last reported to the Secretary of State. Some of the documents that generate a change in paid-in capital are:
- 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;
- a statutory merger.
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 accumulated from the date you indicated as your first date of doing business in Illinois.
The Secretary of State will not file your application for authority unless the back taxes, filing fees and penalties are satisfied. You may want to review what constitutes doing business in Illinois if you feel you have had a presence in Illinois prior to filing for authority with the state. See our section on Foreign qualification that specifies how to figure your initial franchise taxes.
Calculating Your Franchise Tax
The Secretary of State gives you two options for calculating your franchise tax. You must select the appropriate option 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. Of course your choice will be determined on the amount of paid in capital vs the amount of property and sales in Illinois. This option gives most incorporators the incentive to keep the paid-in capital (or par value per share) relatively low.
The Easy Calculation
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. The state has this formula listed on the annual report so that all that is required is a data entry of the paid in capital to calculate the franchise tax.
The Not-So-Easy Calculation
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 the 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 = _______________
a + c (6 decimal places)
These guidelines are also found on Illinois Registered Agent, Inc. website.
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Illinois Registered Agent, Inc.
