Illinois General Assembly - Full Text of HB2870

LRB104 12118 HLH 22217 b

104TH GENERAL ASSEMBLY
State of Illinois
2025 and 2026
HB2870

Introduced 2/6/2025, by Rep. Margaret Croke

SYNOPSIS AS INTRODUCED:

35 ILCS 5/701	from Ch. 120, par. 7-701
35 ILCS 16/10
35 ILCS 16/42

Amends the Film Production Services Tax Credit Act of 2008. Provides that accredited productions shall be considered Category 1 productions or Category 2 productions. Provides that a Category 1 production is an accredited production that meets the following criteria: (1) at least 75% of all principal filming or taping days of the accredited production that occur at any soundstage facility within or without Illinois occur at a qualified production facility; and (2) at least 20% of the total expenditures for the accredited production are for (i) tangible property that will be used at a qualified production facility or for the use of the qualified production facility; (ii) the performance of services at a qualified production facility; or (iii) any combination of (i) and (ii). Makes changes concerning the amount of the credit. Makes changes concerning the number of nonresident employees whose wages may be considered Illinois labor expenditures. Makes changes concerning the definition of "qualified production facility". Amends the Illinois Income Tax Act to make changes concerning withholdings for loan out company employees. Effective immediately.

A BILL FOR

AN ACT concerning revenue.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Illinois Income Tax Act is amended by changing Section 701 as follows:

(35 ILCS 5/701) (from Ch. 120, par. 7-701)

Sec. 701. Requirement and amount of withholding.

(a) In General. Every employer maintaining an office or transacting business within this State and required under the provisions of the Internal Revenue Code to withhold a tax on:

(1) compensation paid in this State (as determined under Section 304(a)(2)(B)) to an individual; or

(2) payments described in subsection (b) shall deduct and withhold from such compensation for each payroll period (as defined in Section 3401 of the Internal Revenue Code) an amount equal to the amount by which such individual's compensation exceeds the proportionate part of this withholding exemption (computed as provided in Section 702) attributable to the payroll period for which such compensation is payable multiplied by a percentage equal to the percentage tax rate for individuals provided in subsection (b) of Section 201.

(a-5) Withholding from nonresident employees. For taxable years beginning on or after January 1, 2020, for purposes of determining compensation paid in this State under paragraph (B) of item (2) of subsection (a) of Section 304:

(1) If an employer maintains a time and attendance system that tracks where employees perform services on a daily basis, then data from the time and attendance system shall be used. For purposes of this paragraph, time and attendance system means a system:

(A) in which the employee is required, on a contemporaneous basis, to record the work location for every day worked outside of the State where the employment duties are primarily performed; and

(B) that is designed to allow the employer to allocate the employee's wages for income tax purposes among all states in which the employee performs services.

(2) In all other cases, the employer shall obtain a written statement from the employee of the number of days reasonably expected to be spent performing services in this State during the taxable year. Absent the employer's actual knowledge of fraud or gross negligence by the employee in making the determination or collusion between the employer and the employee to evade tax, the certification so made by the employee and maintained in the employer's books and records shall be prima facie evidence and constitute a rebuttable presumption of the number of days spent performing services in this State.

(a-10) If the compensation is paid through a loan out company, as defined under Section 10 of the Film Production Services Tax Credit Act of 2008, if the compensation is considered compensation paid in this State under paragraph (B) of item (2) of subsection (a) of Section 304, and if the compensation is for in-State services performed for a production that is accredited under Section 10 of the Film Production Services Tax Credit Act of 2008 and concludes on or after July 1, 2025, then the production company or its authorized payroll service company shall be considered the employer for the purpose of withholding tax on that compensation under this Article 7 and shall withhold at the tax rate provided in subsection (b) of Section 201 on all payments to loan out companies for services performed in Illinois by the loan out company's employees. Notwithstanding any other provision of law, nonresident employees of loan out companies who perform services in Illinois shall be considered taxable nonresidents and shall be subject to the tax under this Act in the taxable year in which the employee performs services in Illinois.

(b) Payment to Residents. Any payment (including compensation, but not including a payment from which withholding is required under Section 710 of this Act) to a resident by a payor maintaining an office or transacting business within this State (including any agency, officer, or employee of this State or of any political subdivision of this State) and on which withholding of tax is required under the provisions of the Internal Revenue Code shall be deemed to be compensation paid in this State by an employer to an employee for the purposes of Article 7 and Section 601(b)(1) to the extent such payment is included in the recipient's base income and not subjected to withholding by another state. Notwithstanding any other provision to the contrary, no amount shall be withheld from unemployment insurance benefit payments made to an individual pursuant to the Unemployment Insurance Act unless the individual has voluntarily elected the withholding pursuant to rules promulgated by the Director of Employment Security.

(c) Special Definitions. Withholding shall be considered required under the provisions of the Internal Revenue Code to the extent the Internal Revenue Code either requires withholding or allows for voluntary withholding the payor and recipient have entered into such a voluntary withholding agreement. For the purposes of Article 7 and Section 1002(c) the term "employer" includes any payor who is required to withhold tax pursuant to this Section.

(d) Reciprocal Exemption. The Director may enter into an agreement with the taxing authorities of any state which imposes a tax on or measured by income to provide that compensation paid in such state to residents of this State shall be exempt from withholding of such tax; in such case, any compensation paid in this State to residents of such state shall be exempt from withholding. All reciprocal agreements shall be subject to the requirements of Section 2505-575 of the Department of Revenue Law (20 ILCS 2505/2505-575).

(e) Notwithstanding subsection (a)(2) of this Section, no withholding is required on payments for which withholding is required under Section 3405 or 3406 of the Internal Revenue Code.

(Source: P.A. 101-585, eff. 8-26-19; 102-558, eff. 8-20-21.)

Section 10. The Film Production Services Tax Credit Act of 2008 is amended by changing Sections 10 and 42 as follows:

(35 ILCS 16/10)

Sec. 10. Definitions. As used in this Act:

"Accredited production" means: (i) for productions commencing before May 1, 2006, a film, video, or television production that has been certified by the Department in which the aggregate Illinois labor expenditures included in the cost of the production, in the period that ends 12 months after the time principal filming or taping of the production began, exceed $100,000 for productions of 30 minutes or longer, or $50,000 for productions of less than 30 minutes; and (ii) for productions commencing on or after May 1, 2006, a film, video, or television production that has been certified by the Department in which the Illinois production spending included in the cost of production in the period that ends 12 months after the time principal filming or taping of the production began exceeds $100,000 for productions of 30 minutes or longer or exceeds $50,000 for productions of less than 30 minutes. "Accredited production" does not include a production that:

(1) is news, current events, or public programming, or a program that includes weather or market reports;

(2) is a talk show produced for local or regional markets;

(3) (blank);

(4) is a sports event or activity;

(5) is a gala presentation or awards show;

(6) is a finished production that solicits funds;

(7) is a production produced by a film production company if records, as required by 18 U.S.C. 2257, are to be maintained by that film production company with respect to any performer portrayed in that single media or multimedia program; or

(8) is a production produced primarily for industrial, corporate, or institutional purposes.

"Accredited animated production" means an accredited production in which movement and characters' performances are created using a frame-by-frame technique and a significant number of major characters are animated. Motion capture by itself is not an animation technique.

"Accredited production certificate" means a certificate issued by the Department certifying that the production is an accredited production that meets the guidelines of this Act.

"Applicant" means a taxpayer that is a film production company that is operating or has operated an accredited production located within the State of Illinois and that (i) owns the copyright in the accredited production throughout the Illinois production period or (ii) has contracted directly with the owner of the copyright in the accredited production or a person acting on behalf of the owner to provide services for the production, where the owner of the copyright is not an eligible production corporation.

"Category 1 production" means an accredited production that meets the following criteria:

(1) at least 75% of all principal filming or taping days of the accredited production that occur at any soundstage facility within or without Illinois occur at a qualified production facility; and

(2) at least 20% of the total expenditures for the accredited production are for (i) tangible property that will be used at a qualified production facility or for the use of the qualified production facility; (ii) the performance of services at a qualified production facility; or (iii) any combination of (i) and (ii).

"Category 2 production" means an accredited production that that is not a Category 1 production.

"Credit" means:

(1) for an accredited production that (i) is approved by the Department on or before January 1, 2005, (ii) begins and commencing before May 1, 2006, and (iii) concludes before July 1, 2025, the amount equal to 25% of the Illinois labor expenditure approved by the Department. The applicant is deemed to have paid, on its balance due day for the year, an amount equal to 25% of its qualified Illinois labor expenditure for the tax year. For Illinois labor expenditures generated by the employment of residents of geographic areas of high poverty or high unemployment, as determined by the Department, in an accredited production commencing before May 1, 2006 and approved by the Department after January 1, 2005, the applicant shall receive an enhanced credit of 10% in addition to the 25% credit; and

(2) for an accredited production that (i) begins commencing on or after May 1, 2006, (ii) begins and before January 1, 2009, and (iii) concludes before July 1, 2025, the amount equal to:

(i) 20% of the Illinois production spending for the taxable year; plus

(ii) 15% of the Illinois labor expenditures generated by the employment of residents of geographic areas of high poverty or high unemployment, as determined by the Department; and

(3) for an accredited production that begins commencing on or after January 1, 2009 and concludes before July 1, 2025, the amount equal to:

(i) 30% of the Illinois production spending for the taxable year; plus

(ii) 15% of the Illinois labor expenditures generated by the employment of residents of geographic areas of high poverty or high unemployment, as determined by the Department; .

(4) for a Category 1 production that concludes on or after July 1, 2025, the amount equal to:

(i) 35% of the Illinois production spending for the use of tangible personal property or the performance of services from vendors in Illinois and for Illinois labor expenditures generated by the employment of Illinois residents; plus

(ii) 3% of the Illinois labor expenditures generated by the employment of Illinois residents that perform services as one of the 2 most senior positions in any department of the accredited production or as an actor appearing in a series regular role on an accredited production that is a television series; plus

(iii) 15% of the Illinois labor expenditures generated by the employment of residents of geographic areas of high poverty or high unemployment, as determined by the Department; plus

(iv) 30% of the wages paid to nonresidents for services performed on an accredited production, subject to the limitations of paragraphs (5) and (9.3) of the definition of "Illinois labor expenditure";

(5) for a Category 2 production that concludes on or after July 1, 2025, the amount equal to:

(i) 35% of the Illinois production spending for Illinois labor expenditures generated by the employment of Illinois residents; plus

(ii) 3% of the Illinois labor expenditures generated by the employment of Illinois residents that perform services as one of the 2 most senior positions in any department of the accredited production or as an actor appearing in a series regular role on an accredited production that is a television series; plus

(iii) 15% of the Illinois labor expenditures generated by the employment of residents of geographic areas of high poverty or high unemployment, as determined by the Department; plus

(iv) 30% of the Illinois production spending for the use of tangible personal property and the performance of services from vendors in Illinois; plus

(v) 30% of the wages paid to nonresidents for services performed on an accredited production, subject to the limitations of paragraphs (5) and (9.4) of the definition of "Illinois labor expenditure"; and

(6) notwithstanding any other provision of law, for an accredited production that concludes on or after July 1, 2025, if the total expenditures for the production exceed $75,000,000, then the amount of the credit shall not exceed 30% of the total expenditures for the production.

"Department" means the Department of Commerce and Economic Opportunity.

"Director" means the Director of Commerce and Economic Opportunity.

"Illinois labor expenditure" means salary or wages paid to employees of the applicant for services on the accredited production.

To qualify as an Illinois labor expenditure, the expenditure must be:

(1) Reasonable in the circumstances.

(2) Included in the federal income tax basis of the property.

(3) Incurred by the applicant for services on or after January 1, 2004.

(4) Incurred for the production stages of the accredited production, from the final script stage to the end of the post-production stage.

(5) Limited to the following:

(A) for productions that begin before May 1, 2006 and conclude before July 1, 2025, the first $25,000 of wages paid or incurred to each employee of the a production; commencing before May 1, 2006 and

(B) for productions that (i) begin on or after May 1, 2006, (ii) begin before July 1, 2022, and (iii) conclude before July 1, 2025, the first $100,000 of wages paid or incurred to each employee of the a production; commencing on or after May 1, 2006 and prior to July 1, 2022.

(C) for productions that begin on or after July 1, 2022 and conclude before July 1, 2025, For productions commencing on or after July 1, 2022, limited to the first $500,000 of wages paid or incurred to each eligible nonresident or resident employee of a production company or loan out company that provides in-State services to a production, whether those wages are paid or incurred by the production company, loan out company, or both, subject to withholding payments provided for in Article 7 of the Illinois Income Tax Act; .

(D) for Category 1 productions that conclude on or after July 1, 2025, subject to the provisions of paragraph (9.3): (i) 100% of the wages paid to or incurred for each person who is an eligible resident employee of a production company or a loan out company and who provides in-State services to a production; plus (ii) the first $500,000 of wages paid to or incurred for each person who is an eligible nonresident employee of a production company and who provides in-State services to a production; plus (iii) 100% of the wages paid to or incurred for up to 10 people who are eligible nonresident employees of a loan out company and who provide in-State services to a production, including, but not limited to, nonresident actors who are employees of a loan out company, subject to the limitations of paragraph (9.3) for the production with respect to actors; if the total number of eligible nonresident loan out company employees exceeds 10, in the aggregate, for an eligible production, then the additional eligible nonresident loan out company employees who provide in-State services to the production in excess of 10 such employees may be considered eligible nonresident employees of the production company, subject to the provisions set forth in item (ii) of this subparagraph (D), so long as, after the inclusion of those additional loan out company employees, the total number of eligible nonresident employees of the accredited production does not exceed the number of eligible nonresident employees allowed for that accredited production under the provisions of paragraph (9.3); and

(E) for Category 2 productions that conclude on or after July 1, 2025, subject to the provisions of paragraph (9.4), the first $500,000 of wages paid to or incurred for each person who is an eligible nonresident employee of a production company or a loan out company or a resident employee of a production company or a loan out company and who provides in-State services to a production.

Wages paid to a loan out company employee are considered wages for the purpose of calculating the production's Illinois labor expenditures regardless of whether those wages are paid or incurred by the production company, loan out company, or both, subject to withholding payments provided for in Article 7 of the Illinois Income Tax Act.

For purposes of calculating Illinois labor expenditures for a television series, the eligible nonresident wage limitations provided under this subparagraph are applied to the entire season. For the purpose of this paragraph (5), an eligible nonresident is a nonresident whose wages qualify as an Illinois labor expenditure under the provisions of paragraphs paragraph (9) through (9.4) that apply to that production.

(6) For a production commencing before May 1, 2006, exclusive of the salary or wages paid to or incurred for the 2 highest paid employees of the production.

(7) Directly attributable to the accredited production.

(8) (Blank).

(9) Prior to July 1, 2022, paid to persons resident in Illinois at the time the payments were made. For a production commencing on or after July 1, 2022, subject to the limitations of paragraphs (9.1) through (9.4), paid to persons resident in Illinois and nonresidents at the time the payments were made.

(9.1) For purposes of paragraph (9) this subparagraph, if the production is accredited by the Department before the effective date of this amendatory Act of the 102nd General Assembly, only wages paid to nonresidents working in the following positions shall be considered Illinois labor expenditures: Writer, Director, Director of Photography, Production Designer, Costume Designer, Production Accountant, VFX Supervisor, Editor, Composer, and Actor, subject to the limitations set forth under this subparagraph. For an accredited Illinois production spending of $25,000,000 or less, no more than 2 nonresident actors' wages shall qualify as an Illinois labor expenditure. For an accredited production with Illinois production spending of more than $25,000,000, no more than 4 nonresident actor's wages shall qualify as Illinois labor expenditures.

(9.2) For purposes of paragraph (9) this subparagraph, if the production is accredited by the Department on or after the effective date of this amendatory Act of the 102nd General Assembly and the production concludes before July 1, 2025, wages paid to nonresidents shall qualify as Illinois labor expenditures only under the following conditions:

(A) the nonresident must be employed in a qualified position;

(B) for each of those accredited productions, the wages of not more than 9 nonresidents who are employed in a qualified position other than Actor shall qualify as Illinois labor expenditures;

(C) for an accredited production with Illinois production spending of $25,000,000 or less, no more than 2 nonresident actors' wages shall qualify as Illinois labor expenditures; and

(D) for an accredited production with Illinois production spending of more than $25,000,000, no more than 4 nonresident actors' wages shall qualify as Illinois labor expenditures.

As used in this paragraph (9.2) (9), "qualified position" means: Writer, Director, Director of Photography, Production Designer, Costume Designer, Production Accountant, VFX Supervisor, Editor, Composer, or Actor.

(9.3) For purposes of paragraph (9), in the case of a Category 1 production that concludes on or after July 1, 2025, wages paid to nonresidents shall qualify as Illinois labor expenditures only under the following conditions:

(A) the wages of not more than 13 nonresidents who are selected by the accredited production and employed in a position other than Actor shall qualify as Illinois labor expenditures;

(B) for an accredited production with Illinois production spending of $20,000,000 or less, no more than 4 nonresident actors' wages shall qualify as Illinois labor expenditures;

(C) for an accredited production with Illinois production spending of more than $20,000,000 and less than $40,000,000, no more than 5 nonresident actors' wages shall qualify as Illinois labor expenditures; and

(D) for an accredited production with Illinois production spending of $40,000,000 or more, no more than 6 nonresident actors' wages shall qualify as Illinois labor expenditures.

(9.4) For purposes of paragraph (9), in the case of a Category 2 production that concludes on or after July 1, 2025, wages paid to nonresidents shall qualify as Illinois labor expenditures only under the following conditions:

(A) the wages of not more than 9 nonresidents who are employed in any position other than Actor shall qualify as Illinois labor expenditures; those nonresidents shall be selected by the accredited production;

(B) for an accredited production with Illinois production spending of $25,000,000 or less, no more than 2 nonresident actors' wages shall qualify as Illinois labor expenditures; and

(C) for an accredited production with Illinois production spending of more than $25,000,000, no more than 4 nonresident actors' wages shall qualify as Illinois labor expenditures.

(10) Paid for services rendered in Illinois.

"Illinois production spending" means the expenses incurred by the applicant for an accredited production, but does not include any monetary prize or the cost of any non-monetary prize awarded pursuant to a production in respect of a game, questionnaire, or contest. "Illinois production spending" includes, without limitation, all of the following:

(1) expenses to purchase, from vendors within Illinois, tangible personal property that is used in the accredited production;

(2) expenses to acquire services, from vendors in Illinois, for film production, editing, or processing; and

(2.1) airfare, if purchased from an airline with a commercial domicile in Illinois; and

(3) for a production commencing before July 1, 2022, the compensation, not to exceed $100,000 for any one employee, for contractual or salaried employees who are Illinois residents performing services with respect to the accredited production. For a production commencing on or after July 1, 2022, the compensation, not to exceed $500,000 for any one employee, for contractual or salaried employees who are Illinois residents or nonresident employees, subject to the limitations set forth under Section 10 of this Act.

"Loan out company" means a personal service corporation or other entity that is under contract with the taxpayer to provide specified individual personnel, such as artists, crew, actors, producers, or directors for the performance of services used directly in a production. "Loan out company" does not include entities contracted with by the taxpayer to provide goods or ancillary contractor services such as catering, construction, trailers, equipment, or transportation.

"Qualified production facility" means stage facilities in the State in which commercials, television shows, and films are or are intended to be regularly produced and that meet the other requirements of this definition applicable to the accredited production and that contain at least one sound stage of at least 15,000 square feet.

If the applicant is using the facility for a Category 1 production, then the facility must meet the following requirements:

(1) if construction of the facility was completed before January 1, 2026, then the facility must contain one or more sound stages that, in the aggregate, are at least 2,000 square feet; and

(2) if construction of the facility was completed on or after January 1, 2026, then the qualified production facility must:

(A) consist of 4 or more soundstages that have an average square footage of at least 15,000 square feet each and that are column free with a clear height of at least 15 feet under a permanent grid;

(B) be composed of one or more contiguous buildings; and

(C) include production support space, such as production offices, a mill, backlot, or post-production facilities.

Notwithstanding the provisions of this definition, the owner of a facility that qualifies as a qualified production facility on the effective date of this amendatory Act of the 104th General Assembly may expand its existing facilities or construct another facility in this State on or after the effective date of this amendatory Act of the 104th General Assembly, and that new construction shall be considered a qualified production facility so long as the additional facilities contain one or more sound stages of at least 2,000 square feet in the aggregate.

For the purposes of this definition of "qualified production facility", construction of the facility is considered complete when a certificate of occupancy is issued for the facility.

Rulemaking authority to implement Public Act 95-1006, if any, is conditioned on the rules being adopted in accordance with all provisions of the Illinois Administrative Procedure Act and all rules and procedures of the Joint Committee on Administrative Rules; any purported rule not so adopted, for whatever reason, is unauthorized.

"Total expenditures" means all spending for the accredited production that occurs in Illinois, including, but not limited to, spending for labor, goods, and services, regardless of whether that spending is considered Illinois production spending or an Illinois labor expenditure.

(Source: P.A. 102-558, eff. 8-20-21; 102-700, eff. 4-19-22; 102-1125, eff. 2-3-23; 103-595, eff. 6-26-24.)

(35 ILCS 16/42)

Sec. 42. Sunset of credits. The application of credits awarded pursuant to this Act shall be limited by a reasonable and appropriate sunset date. A taxpayer shall not be awarded any new credits pursuant to this Act for tax years beginning on or after January 1, 2039 January 1, 2033.

(Source: P.A. 101-178, eff. 8-1-19; 102-700, eff. 4-19-22; 102-1125, eff. 2-3-23.)

Section 99. Effective date. This Act takes effect upon becoming law.