On June 16, 2026, Gov. J.B. Pritzker signed Illinois’ fiscal year 2027 budget, including the revenue package enacted through Senate Bill 3019 (the Bill or the Budget). The legislation introduces a series of state and local tax changes aimed primarily at digital business models, platform-based revenue, and emerging industries, while also incorporating limited relief provisions and targeted business tax changes.
Most notably, the legislation creates a new tax on targeted advertising services, imposed at a rate of 10% on gross receipts derived from such services in Illinois. The tax applies to persons with more than $1 million in annual Illinois receipts from targeted advertising and broadly encompasses digital advertising delivered through programmatic or data-driven methods. The statute defines targeted advertising services in expansive terms, focusing on advertising that uses personal data or user characteristics to deliver content to specific audiences, and adopts an Illinois sourcing framework tied to the location of the user or customer receiving the advertisement.
The Budget also establishes a new social media platform fee applicable to businesses that operate platforms with a significant number of Illinois users. The fee is structured as a monthly charge that increases based on the number of Illinois users from whom the platform collects data, with applicability beginning once a platform exceeds 100,000 Illinois users. The statute requires reporting of user counts and imposes the fee as a condition of operating such platforms in the state.
In addition, the Bill enacts a new digital asset tax, imposing a 0.2% privilege tax on the value of digital asset business activity. The tax applies to digital asset brokers, including remote providers that exceed $100,000 in annual gross receipts from Illinois customers, determined quarterly, and requires collection and remittance by the service provider. The Bill includes broad sourcing provisions that attribute transactions to Illinois based on customer location indicators. Specifically, transactions are considered to have occurred in Illinois if the customer is physically located in Illinois or if online transactions, account information, mailing address, IP address, or other data indicate Illinois is the customer’s place of primary use. Brokers must register with the state before Jan. 1, 2027, using a form to be provided by the Department of Revenue. Brokers must specify the party responsible for filing returns and paying tax. Registration lasts one year and is automatically renewed unless canceled by the broker or revoked by the state.
Beyond these provisions, the Bill imposes additional targeted taxes, including a 15% tax on fantasy contest receipts and taxes on certain prediction market activities[1]. Specifically, the legislation establishes a comprehensive regime for fantasy contest operators, subjecting licensed providers to a 15% privilege tax on adjusted gross receipts derived from Illinois participants and placing them under the regulatory authority of the Illinois Gaming Board. The Bill also significantly expands the state’s sports wagering framework by incorporating prediction market-style products into the definition of taxable activity, redefining “exchange wagers” to include agreements, contracts, or transactions executed on platforms tied to sporting events. These transactions are subject to a novel, volume-based tax structure, under which operators must pay a 1.75% tax on the value of each exchange wager, increasing to 3.5% once a specified annual transaction threshold is exceeded. By taxing activity on a per-transaction basis rather than on net revenue and limiting permissible operators to licensed sports wagering providers, the legislation both broadens the tax base and effectively channels prediction market activity into the existing regulated sports wagering framework.
The Bill also includes changes affecting corporate taxpayers, which are intended to increase near-term revenue collections, including but not limited to:
- Amendments to the Illinois Income Tax Act to give partnerships making a pass-through entity tax election a new choice of tax base calculation method. Specifically, for tax years beginning on or after Jan. 1, 2024, partnerships may elect between a “full distributive share” method (taxing all partners’ share of income regardless of source) or an “Illinois-sourced income” method (taxing only the portion of income sourced to Illinois) for the entity-level tax. This provides flexibility in how partnerships compute the base for the elective SALT workaround tax. This significant change may affect the state tax liability and federal SALT deduction benefits for partnerships and their partners, especially multi-state partnerships. Clients making or considering Illinois PTE tax elections may wish to evaluate which method yields a more favorable outcome and adjust their tax planning accordingly.
- Caps on corporate NOL carryforward utilization at 15% (or $500,000, whichever is greater) for tax years ending in 2027, rising to 30% ($500,000 minimum) for years ending in 2028, and then gradually increases the cap to 50% in 2029, 65% in 2030, and 80% (with a $500,000 floor) in 2031, after which the prior 100% usage resumes. These limits are intended to accelerate near-term tax collections for budgeting purposes. These caps may impact corporate taxpayers’ ability to offset income with losses for several years, thus affecting financial projections and cash tax payments in 2027–2031.
- Amendments to the Hotel Operators’ Occupation Tax Act to treat lodging booking platforms (hotel marketplace facilitators) as hotel operators responsible for tax collection when they meet specific thresholds. Effective July 1, 2026, any lodging intermediary (e.g., online hotel booking site or vacation rental platform) with either $10,000 in quarterly Illinois receipts or 200 separate Illinois transactions in a 12-month period (mirroring marketplace nexus standards) must register and collect state hotel taxes and any local hotel taxes that the Illinois Department of Revenue administers on behalf of localities, for all room rentals it facilitates in Illinois. The law also clarifies rules for re-renters of hotel rooms, ensuring that intermediaries, rather than the underlying hotel, are the deemed taxpayer when applicable. This provision expands Illinois’ marketplace facilitator regime to the lodging industry, closing a compliance gap.
- Inclusion of explicit home-rule preemption for certain new taxes to avoid additional local layers. In particular, the law prohibits any municipality or county from enacting a local tax on targeted digital advertising services. Similarly, hotel booking facilitators now centralize local hotel tax collection via the state, which streamlines compliance for multi-jurisdictional businesses.
Separately, although not codified in the Bill, the state has announced an administrative pause on new agreements under the Data Center Investment Program, effective July 1, 2026, with existing agreements remaining in effect. This development signals increased scrutiny of incentive programs tied to high-growth, energy-intensive industries. While the Bill does not statutorily change the Data Center Investment Program, the governor has directed (administratively) a pause on new data center tax incentive agreements effective July 1, 2026. This means no new data center sales tax exemption certificates will be issued after that date until further notice, although existing agreements remain valid.
Legal Considerations and Potential Challenges
Several of the newly enacted tax provisions present meaningful legal uncertainty and may be the subject of administrative interpretation and potential litigation. In particular, the digital advertising tax raises questions under the Commerce Clause due to its reliance on user-based sourcing and its potential to tax revenue streams with only an attenuated connection to Illinois. The breadth of the statutory definitions, combined with the use of gross receipts as the tax base, may also invite challenges based on extraterritoriality and fair apportionment principles. The governor himself acknowledged the legal vulnerability of the digital advertising tax and declined to assign any revenue estimates to the new tax, anticipating that it would be challenged similar to what occurred in Maryland.
The social media platform fee presents additional considerations, as it is structured based on the number of Illinois users and the collection of user data rather than traditional measures of in-state business activity. This approach may give rise to arguments that the fee functions as a tax on access to or use of the internet or digital platforms, potentially implicating federal preemption concerns as well as constitutional limitations on discriminatory or undue burdens on interstate commerce.
Similarly, the digital asset tax adopts expansive sourcing rules that rely on customer location data, including IP address and account information, which may create evidentiary and compliance challenges. The breadth of these sourcing provisions may also increase the likelihood of disputes regarding whether sufficient nexus exists and whether the resulting tax obligations are fairly apportioned to in-state activity.
More broadly, the combined effect of these provisions reflects a shift toward user-based and data-driven taxation, an area where legal standards continue to evolve. As a result, taxpayers should anticipate ongoing developments through administrative guidance, audit activity, and potential judicial challenges as the state seeks to implement and enforce these new rules.
Overall, the Bill represents a significant expansion of Illinois’ tax base into digital and data-driven activities, coupled with new compliance obligations tied to user location and platform engagement. Taxpayers operating in digital advertising, social media, and digital asset markets, as well as marketplace facilitators and other intermediaries, may wish to evaluate the impact of these provisions and prepare for implementation ahead of the Jan. 1, 2027, effective date for most major changes.
[1] The Commodity Futures Trading Commission (CFTC) has filed suit against Illinois in the U.S. District Court for the Northern District of Illinois, challenging the state’s efforts to regulate prediction market platforms as unlawful under the Commodity Exchange Act, which the CFTC asserts grants it exclusive jurisdiction over such “event contract” markets. The CFTC has subsequently amended its complaint to also challenge the state’s newly enacted transaction-based tax on prediction market activity, seeking to enjoin enforcement on federal preemption grounds. This litigation remains pending and may affect the implementation and enforceability of the state’s prediction market provisions. See United States of America and Commodity Futures Trading Commission v. State of Illinois et al., No. 1:26-cv-03659 (N.D. Ill. filed Apr. 2, 2026).