Does Illinois Have a Franchise Tax for LLCs?

No. Illinois does not impose a franchise tax on LLCs or any other business entity type (35 ILCS 5/). Instead, LLCs owe state income tax based on their federal tax classification. Single-member LLCs taxed as sole proprietorships and multi-member LLCs taxed as partnerships generally owe a 1.5% replacement tax on Illinois-taxable income. Individual members pay 4.95% state income tax on their distributive share.

What Taxes Do Illinois LLCs Actually Pay?

Replacement Tax (Default Structure)

Most Illinois LLCs owe a 1.5% replacement tax on Illinois-taxable income rather than franchise tax (35 ILCS 5/). This applies to single-member LLCs taxed as disregarded entities and multi-member LLCs taxed as partnerships. Members then pay 4.95% individual income tax on their share of LLC income.

S Corporation Election

LLCs electing S-corporation status avoid entity-level Illinois income tax. Members pay 4.95% individual income tax on their distributive share. This election may reduce overall tax burden for LLCs with significant retained earnings.

C Corporation Election

LLCs electing C-corporation treatment pay 7% corporate income tax plus 1.5% replacement tax (35 ILCS 5/). Members then pay 4.95% individual income tax on dividends, creating double taxation. This structure is rarely advantageous for small LLCs.

Sales Tax

Illinois LLCs selling taxable goods or services must register for and collect 6.25% state sales tax before local add-ons.

Annual Compliance Requirements

While no franchise tax exists, Illinois LLCs must file an annual report by the first day of their anniversary month each year (805 ILCS 180/50-1). The filing fee is $75. Failure to file within 60 days incurs a $100 penalty; missing the 120-day deadline triggers administrative dissolution.

Next Steps

Determine your LLC's federal tax classification to understand your Illinois tax obligation.
Contact the Illinois Department of Revenue at https://tax.illinois.gov/ for classification-specific guidance.
Register for sales tax if applicable at https://tax.illinois.gov/questionsandanswers/286.
File your annual report on time to maintain good standing.

This is general information, not legal advice.