35 ILCS 5/709.5

(35 ILCS 5/709.5)

Sec. 709.5. Withholding by partnerships, Subchapter S corporations, and trusts.

(a) In general. For each taxable year ending on or after December 31, 2008, every partnership (other than a publicly traded partnership under Section 7704 of the Internal Revenue Code or investment partnership), Subchapter S corporation, and trust must withhold from each nonresident partner, shareholder, or beneficiary (other than a partner, shareholder, or beneficiary who is exempt from tax under Section 501(a) of the Internal Revenue Code or under Section 205 of this Act, who is included on a composite return filed by the partnership or Subchapter S corporation for the taxable year under subsection (f) of Section 502 of this Act), or who is a retired partner, to the extent that partner's distributions are exempt from tax under Section 203(a)(2)(F) of this Act) an amount equal to the sum of (i) the share of business income of the partnership, Subchapter S corporation, or trust apportionable to Illinois plus (ii) for taxable years ending on or after December 31, 2014, the share of nonbusiness income of the partnership, Subchapter S corporation, or trust allocated to Illinois under Section 303 of this Act (other than an amount allocated to the commercial domicile of the taxpayer under Section 303 of this Act) that is distributable to that partner, shareholder, or beneficiary under Sections 702 and 704 and Subchapter S of the Internal Revenue Code, whether or not distributed, (iii) multiplied by the applicable rates of tax for that partner, shareholder, or beneficiary under subsections (a) through (d) of Section 201 of this Act, and (iv) net of the share of any credit under Article 2 of this Act that is distributable by the partnership, Subchapter S corporation, or trust and allowable against the tax liability of that partner, shareholder, or beneficiary for a taxable year ending on or after December 31, 2014.

(b) Credit for taxes withheld. Any amount withheld under subsection (a) of this Section and paid to the Department shall be treated as a payment of the estimated tax liability or of the liability for withholding under this Section of the partner, shareholder, or beneficiary to whom the income is distributable for the taxable year in which that person incurred a liability under this Act with respect to that income. The Department shall adopt rules pursuant to which a partner, shareholder, or beneficiary may claim a credit against its obligation for withholding under this Section for amounts withheld under this Section with respect to income distributable to it by a partnership, Subchapter S corporation, or trust and allowing its partners, shareholders, or beneficiaries to claim a credit under this subsection (b) for those withheld amounts.

(c) Exemption from withholding.

(1) A partnership, Subchapter S corporation, or trust shall not be required to withhold tax under subsection (a) of this Section with respect to any nonresident partner, shareholder, or beneficiary (other than an individual) from whom the partnership, S corporation, or trust has received a certificate, completed in the form and manner prescribed by the Department, stating that such nonresident partner, shareholder, or beneficiary shall:

(A) file all returns that the partner, shareholder, or beneficiary is required to file under Section 502 of this Act and make timely payment of all taxes imposed under Section 201 of this Act or under this Section on the partner, shareholder, or beneficiary with respect to income of the partnership, S corporation, or trust; and

(B) be subject to personal jurisdiction in this State for purposes of the collection of income taxes, together with related interest and penalties, imposed on the partner, shareholder, or beneficiary with respect to the income of the partnership, S corporation, or trust.

(2) The Department may revoke the exemption provided by this subsection (c) at any time that it determines that the nonresident partner, shareholder, or beneficiary is not abiding by the terms of the certificate. The Department shall notify the partnership, S corporation, or trust that it has revoked a certificate by notice left at the usual place of business of the partnership, S corporation, or trust or by mail to the last known address of the partnership, S corporation, or trust.

(3) A partnership, S corporation, or trust that receives a certificate under this subsection (c) properly completed by a nonresident partner, shareholder, or beneficiary shall not be required to withhold any amount from that partner, shareholder, or beneficiary, the payment of which would be due under Section 711(a-5) of this Act after the receipt of the certificate and no earlier than 60 days after the Department has notified the partnership, S corporation, or trust that the certificate has been revoked.

(4) Certificates received by a partnership, S corporation, or trust under this subsection (c) must be retained by the partnership, S corporation, or trust and a record of such certificates must be provided to the Department, in a format in which the record is available for review by the Department, upon request by the Department. The Department may, by rule, require the record of certificates to be maintained and provided to the Department electronically.

(d) For taxable years ending on and after December 31, 2023, every investment partnership, as defined in Section 1501 of this Act, shall withhold from each nonresident partner (other than a partner who is exempt from tax under Section 501(a) of the Internal Revenue Code or under Section 205 of this Act, or who is a retired partner, to the extent that partner's distributions are exempt from tax under Section 203(a)(2)(F) of this Act) an amount calculated as follows:

(1) the sum of (i) the share of income that, but for the provisions of subsection (c-5) of Section 305 of this Act, would be apportioned to Illinois by the investment partnership under subsection (a) of Section 305 of this Act and (ii) the share of nonbusiness income that, but for the provisions of subsection (c-5) of Section 305 of this Act, would be allocated to Illinois by the investment partnership under subsection (b) of Sections 305 and Section 303 of this Act (other than an amount allocated to the commercial domicile of the taxpayer under Section 303 of this Act) that is distributable to that partner under Sections 702 and 704 of the Internal Revenue Code, whether or not distributed; multiplied by

(2) the applicable rates of tax for that partner under subsections (a) through (d) of Section 201 of this Act (except that, if the partner is a partnership or subchapter S corporation, the rate shall be equal to the rate imposed on individuals under subsection (b) of Section 201 of this Act); and

(3) net of the investment partnership's distributive share of any credit under Article 2 of this Act that is distributable by the partnership and first allowable against the tax liability of that partner for a taxable year ending on or after December 31, 2023.

Except to the extent that the income of the investment partnership is business income in the hands of the partner under subsection (c-5) of Section 305 of this Act, no credit for taxes withheld shall be allowed under subsection (b) of this Section for amounts withheld under this subsection.

The provisions of subsection (c) of this Section, allowing for exemption from withholding, shall not apply for purposes of this subsection.

(Source: P.A. 103-9, eff. 6-7-23.)