Taxes for Canadian businesses in Illinois

Home » News » U.S. Tax FAQs » Taxes for Canadian Businesses in the USA – Illinois

Taxes For Canadian Businesses in Illinois

November 12, 2021

Question:

What state taxes does a Canadian business pay in Illinois?

Answer:

Sales Tax

The Illinois state sales tax rate is currently 6.25%. Depending on local municipalities, the total tax rate can be as high as 11%.

Use Tax

The Illinois state use tax rate is currently 6.25%.

Unemployment Insurance (Payroll Tax)

If you have employees working in Illinois, you must pay unemployment taxes on their gross wages up to the taxable wage base ($12,960 as of 2021). The tax rate varies from 0.2% to 6.4% depending on your experience rating. Illinois’ unemployment insurance tax rate for new employers is 3.175.

Withholding Tax (Payroll Tax)

If you have an employee earning income while in Illinois, you must withhold a certain percentage of their income from each payroll. The amount of tax you withhold from an employee depends on the length of your pay period, the employee’s gross pay and the number of withholding allowances/exemptions claimed on their IL-W-4.

Corporate Income Tax

Illinois has a flat corporate income tax rate of 9.5% of taxable income.

Franchise Tax

The franchise tax rate is 1% of the gross amount of paid-in capital. Illinois is currently in the process of phasing out the tax over the next 4 years. In 2021, the first $1,000 in liability will be exempt.

Discussion:

If you remain under certain thresholds in this state, you are not responsible for taxes.

Tax	Threshold
Sales	$100,000 or 200 separate transactions
Use	$100,000

Availability of Treaty Benefits

Use taxes are often treated as income taxes by the Canadian government when calculating income in Canada and applying for foreign tax credits. Meaning, if you pay use tax in the USA but have no net profit, you will not benefit from a tax credit theoretically. The actual application is a bit more complex.

Income taxes in the USA are almost always treated as income taxes by the Canadian government. Thus, in the majority of cases, if you pay tax in the state, you don’t pay tax again in Canada unless the Canadian rate is higher.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.