Illinois Bill Amends Taxation of Income Under IRC § 951A and Expands Depreciation Addback

On March 19, 2025, the Appellate Court of Illinois, First Judicial District held that PepsiCo Inc. (“PepsiCo”) subsidiary Frito-Lay North America Inc. (FLNA) did not qualify as an 80/20 company because an FLNA subsidiary set up as the nominal employer of expatriate employees was not the true employer for determining payroll costs. The case is PepsiCo, Inc. v. Illinois Department of Revenue, 2025 IL App (1st) 230913-U.

On October 31, 2025, the Illinois Legislature, sitting in a special “veto” session, passed a measure that would decouple the state’s income tax laws from amendments to bonus depreciation, modify the taxation of foreign source income under IRC § 951A, and eliminate the sunset date of the state’s pass-through entity tax.

Depreciation

The One Big Beautiful Bill Act (OBBBA), enacted last July 4, added a new 100% depreciation deduction for qualified production property under IRC § 168(n), the construction of which must begin after January 19, 2025, but before January 1, 2029. The Illinois legislation expands the state’s federal bonus deprecation addback to encompass IRC § 168(n) for tax years 2026 and thereafter. The state’s existing addback for bonus depreciation under IRC § 168(k) is similarly extended.

Foreign-Source Income

Last June, Illinois enacted legislation that made 50% of global intangible low-taxed income (GILTI) taxable for taxable years ending on or after December 31, 2025. Previously, income from GILTI was not currently taxed in Illinois.

OBBBA modifies several provisions related to IRC § 951A, including renaming GILTI to Net CFC Tested Income (NCTI). The Illinois legislation (SB 1911) modifies the state’s statutory language, so it now provides that the state will tax 50% of income recognized pursuant to IRC Section 951A regardless of whether it was GILTI or net controlled foreign corporation (CFC) tested income.

Ryan’s Take and Action Steps

News of this legislation coming out of the so-called “veto session” was relatively muted, given that the primary focus of the session was finding funding for Chicago-area transit. Nevertheless, from a corporate tax perspective, the measure provides some clarity for taxpayers. The GILTI provision was obviously a cause of confusion because GILTI no longer officially exists. It’s unclear why the state did not omit the actual terms and just cite the relevant federal provisions. Insofar as the depreciation addback is concerned, the state’s continued decoupling is unsurprising.

Following the state’s June enactment, businesses should have started planning for the changes outlined in that bill. This measure (as well as OBBBA, obviously) should prompt businesses to immediately plan for the impact of these additional changes.

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals.