This Week in State Tax

The Illinois Department of Revenue recently issued a General Information Letter (GIL) addressing a taxpayer’s petition to use alternative apportionment for Illinois corporate income tax purposes in connection with Global Intangible Low Taxed Income (GILTI). Recall, for taxable years ending on or after December 31, 2025, the Illinois dividends received deduction for GILTI was limited to 50 percent of the amount of GILTI. The single-sales-factor apportionment regulations promulgated by the Department exclude dividends, Section 78 amounts, and Subpart F income from the sales factor, and Illinois Form 1120 specifically excludes GILTI from the sales factor. The taxpayer submitted a petition for alternative apportionment arguing that including a portion of GILTI in the Illinois tax base without a corresponding sales factor inclusion distorted the net income apportioned to Illinois and requested permission to include 50 percent of the GILTI in the sales factor denominator. 

Under Illinois law, a taxpayer may depart from the statutory apportionment rules only if those rules do not fairly represent the market for the taxpayer’s goods, services, or other sources of business income, and the taxpayer bears the burden of proof to demonstrate any distortion. Regulations provide that a taxpayer seeking alternative apportionment must present clear and convincing evidence that the statutory formula produces a distorted result, such as taxing extraterritorial values or attributing income to Illinois out of proportion to the taxpayer’s Illinois market. The taxpayer must also show that its proposed method would more fairly apportion income to Illinois based on that market. In the GIL denying the taxpayer’s alternative apportionment petition, the Department observed that the petition asserted that the statutory method produced a grossly distorted result, without explaining in detail how the statutory formula applied to the taxpayer, providing information about the market for the taxpayer’s goods and services, demonstrating that the statutory formula failed to fairly represent the extent of that market, or showing that the proposed method would produce a reasonable result. The Department therefore declined to approve the request as submitted, but it did invite the taxpayer to supplement the petition with additional information.

Please contact Brad Wilhelmson and Gianluca Pitetti with questions about General Information Letter IT 26-0008-GIL, Illinois Department of Revenue (July 28, 2026).

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The Michigan Department of Treasury released guidance on computing the tax liability of a unitary group of insurers. Under Michigan law, a domestic insurance company is subject to the Michigan insurance premiums tax, while a foreign (formed under the laws of a state other than Michigan) or alien (formed outside the U.S.) insurer instead pays the greater of the premiums tax or the retaliatory tax imposed under the Michigan Insurance Code. According to Michigan law, when the laws of another state or country impose, in the aggregate, greater taxes, fees, deposit requirements, or other burdens on a Michigan insurer than Michigan would impose on a similarly situated insurer from that jurisdiction, Michigan imposes a retaliatory tax on the foreign insurer. In that circumstance, the foreign insurer must pay an amount intended to equal the greater aggregate burden that its domiciliary jurisdiction would impose on a comparable Michigan insurer. In 2024, a state appellate court determined that a unitary group of insurers must file a unitary return at the group level rather than separate company returns.

The new guidance clarifies the computation of the premiums tax and retaliatory tax for a unitary group. To determine its liability, the group must first identify its foreign or alien insurer members and its domestic insurer members. A unitary group with foreign members must then determine whether those members have a retaliatory tax liability as a group, computed using solely the tax attributes of its foreign members and excluding the attributes of domestic members not subject to the retaliatory tax. If the foreign members’ aggregate retaliatory tax liability exceeds their premiums tax liability, the group pays retaliatory tax with respect to those members in lieu of premiums tax and separately computes premiums tax using only the combined tax attributes of its domestic members. If the foreign members are not collectively subject to the retaliatory tax, or if the group has no foreign members, the group computes one combined premiums tax liability based on the combined tax attributes of all its members, foreign and domestic. The Department is developing new forms and instructions for 2026 and subsequent tax years, as well as interim schedules for the 2025 tax year and open prior years, to reflect this position. For open years before 2025, amended returns are not required solely to comply with the decision, although Treasury will accept them. Group returns filed in response to the appellate court decision, which had been on hold, will now be reviewed and processed under this guidance.

Contact Dan De Jong with questions about the Department’s response to Nationwide Agribusiness Insurance Co. v. Department of Treasury.

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The Pennsylvania Department of Revenue recently issued guidance regarding newly enacted legislation changing the sourcing of sales under the sales tax rules in Philadelphia and Allegheny Counties. Under the new law, vendors currently required to collect the 6 percent Commonwealth sales tax must also collect and remit the 2 percent Philadelphia local sales tax and the 1 percent Allegheny County local sales tax on taxable sales delivered to customers in those jurisdictions. The legislation was enacted on July 12, 2026, with a retroactive effective date for tax years after December 31, 2025. Recognizing that vendors need time to adjust, the Department has stated that it will not begin enforcing the new rules until October 1, 2026. 

Previously, Philadelphia and Allegheny County local sales taxes were generally based on the point of sale, which was deemed to occur at the place of business of the retailer making the sale, regardless of the location of the customer. Under the new law, local sales tax is now based on the point of destination, i.e., where the product or service is delivered to the customer. This shift aligns the administration of local sales tax with the sourcing rules already used for Pennsylvania state sales tax, meaning vendors will apply a single, consistent, destination-based approach across both the state and local components. 

The new law leaves other aspects of Pennsylvania's sales and use tax regime unchanged. State sales tax rules remain the same, and state sales tax must continue to be collected whenever a vendor sells taxable items or services. State and local use tax rules are also unaffected: when sales tax is not collected at the time of purchase, purchasers still owe use tax when taxable items or services are used in Philadelphia or Allegheny Counties. 

For more information on Pennsylvania's local sales tax changes, please contact Justin Mikol or Robert Weyman.

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