HB3128 amends the Illinois Income Tax Act to create a new tax incentive for taxpayers who set aside money in a “small business asset purchase account.” The bill allows an individual, partnership, trust, estate, or corporation to deduct 50% of contributions made to such an account during the tax year, up to $50,000 per taxpayer per year, beginning with tax years on or after January 1, 2026. The account must be held separately from other accounts, and its proceeds must be used to purchase property used primarily in Illinois for which a federal Section 179 deduction is claimed.
The bill also requires taxpayers to add back 50% of withdrawals from the account into Illinois base income, creating a matching recapture mechanism so that the tax benefit is tied to actual qualifying business purchases rather than general income sheltering. In addition, it amends the Uniform Penalty and Interest Act to impose a penalty for improper use of funds in the account. The proposal is structured as a targeted small-business investment incentive intended to encourage capital purchases by Illinois businesses.
Impact
HB3128 would add new subtraction modifications to Illinois base income calculations for individuals, corporations, partnerships, trusts, and estates, and it would create corresponding income add-backs for withdrawals from the new account. It would also add a new penalty provision for misuse of account funds under the Uniform Penalty and Interest Act. In practical terms, the bill would reduce state income tax liability for taxpayers who contribute to qualifying small business asset purchase accounts, while preserving state revenue by taxing later withdrawals and penalizing improper use.
Sentiment
No committee transcripts or recorded votes were provided, so there is no direct evidence of debate, support, or opposition in the available materials. Based on the bill text alone, the measure appears to be a pro-business tax incentive aimed at encouraging investment in Illinois small businesses. The absence of recorded action suggests the bill was introduced but not yet advanced in the available legislative history.
Contention
The main policy issue is whether the state should provide a new income tax deduction for business investment savings accounts, which would reduce near-term tax revenue in exchange for encouraging equipment and property purchases. Supporters would likely emphasize small-business growth, capital formation, and in-state investment, while critics would likely focus on revenue loss, the complexity of administering a new account-based tax preference, and the possibility that higher-income taxpayers or business owners benefit most. The bill’s penalty and add-back provisions are designed to address misuse concerns, but those same compliance rules may also be a point of scrutiny.