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90_SB0592
35 ILCS 5/304 from Ch. 120, par. 3-304
Amends the Illinois Income Tax Act. Provides that if a
person other than a resident derives business income from
this State and others, the business income shall be
apportioned to this State by multiplying the income by the
sales factor (now by multiplying the income by a fraction,
the numerator of which is the sum of the property factor, the
payroll factor, and 200% of the sales factor and the
denominator of which is 4 reduced by the number of factors
other than the sales factor which have a denominator of zero
and by an additional 2 if the sales factor has a denominator
of zero). Deletes provisions in the definition of sales
factor stating that sales are in this State if the property
is shipped from this State and the purchaser is the
government or is otherwise exempt from taxation. Deletes
provision stating that sales are not in this State if the
seller and purchaser would be members of the same unitary
business group but for the fact that one of them is a person
with 80% or more of total business activity outside of the
United States and the property is purchased for resale.
Provides that the provision excluding dividends and Subpart F
income from the sales factor shall apply to taxable years
ending on or after December 31, 1995 (now taxable years
ending on or after December 31, 1995 and excluding taxable
years ending after December 31, 1997). Effective
immediately.
LRB9000850KDksA
LRB9000850KDksA
1 AN ACT to amend the Illinois Income Tax Act by changing
2 Section 304.
3 Be it enacted by the People of the State of Illinois,
4 represented in the General Assembly:
5 Section 5. The Illinois Income Tax Act is amended by
6 changing Section 304 as follows:
7 (35 ILCS 5/304) (from Ch. 120, par. 3-304)
8 Sec. 304. Business income of persons other than
9 residents.
10 (a) In general. The business income of a person other
11 than a resident shall be allocated to this State if such
12 person's business income is derived solely from this State.
13 If a person other than a resident derives business income
14 from this State and one or more other states, then, except as
15 otherwise provided by this Section, such person's business
16 income shall be apportioned to this State by multiplying the
17 income by the sales factor a fraction, the numerator of which
18 is the sum of the property factor (if any), the payroll
19 factor (if any) and 200% of the sales factor (if any), and
20 the denominator of which is 4 reduced by the number of
21 factors other than the sales factor which have a denominator
22 of zero and by an additional 2 if the sales factor has a
23 denominator of zero.
24 (1) Property factor.
25 (A) The property factor is a fraction, the
26 numerator of which is the average value of the person's
27 real and tangible personal property owned or rented and
28 used in the trade or business in this State during the
29 taxable year and the denominator of which is the average
30 value of all the person's real and tangible personal
31 property owned or rented and used in the trade or
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1 business during the taxable year.
2 (B) Property owned by the person is valued at its
3 original cost. Property rented by the person is valued at
4 8 times the net annual rental rate. Net annual rental
5 rate is the annual rental rate paid by the person less
6 any annual rental rate received by the person from
7 sub-rentals.
8 (C) The average value of property shall be
9 determined by averaging the values at the beginning and
10 ending of the taxable year but the Director may require
11 the averaging of monthly values during the taxable year
12 if reasonably required to reflect properly the average
13 value of the person's property.
14 (2) Payroll factor.
15 (A) The payroll factor is a fraction, the numerator
16 of which is the total amount paid in this State during
17 the taxable year by the person for compensation, and the
18 denominator of which is the total compensation paid
19 everywhere during the taxable year.
20 (B) Compensation is paid in this State if:
21 (i) The individual's service is performed
22 entirely within this State;
23 (ii) The individual's service is performed
24 both within and without this State, but the service
25 performed without this State is incidental to the
26 individual's service performed within this State; or
27 (iii) Some of the service is performed within
28 this State and either the base of operations, or if
29 there is no base of operations, the place from which
30 the service is directed or controlled is within this
31 State, or the base of operations or the place from
32 which the service is directed or controlled is not
33 in any state in which some part of the service is
34 performed, but the individual's residence is in this
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1 State.
2 Beginning with taxable years ending on or after
3 December 31, 1992, for residents of states that impose a
4 comparable tax liability on residents of this State, for
5 purposes of item (i) of this paragraph (B), in the case
6 of persons who perform personal services under personal
7 service contracts for sports performances, services by
8 that person at a sporting event taking place in Illinois
9 shall be deemed to be a performance entirely within this
10 State.
11 (3) Sales factor.
12 (1) (A) The sales factor is a fraction, the
13 numerator of which is the total sales of the person in
14 this State during the taxable year, and the denominator
15 of which is the total sales of the person everywhere
16 during the taxable year.
17 (2) (B) Sales of tangible personal property are in
18 this State if: (i) the property is delivered or shipped
19 to a purchaser, other than the United States government,
20 within this State regardless of the f. o. b. point or
21 other conditions of the sale; or
22 (ii) The property is shipped from an office,
23 store, warehouse, factory or other place of storage
24 in this State and either the purchaser is the United
25 States government or the person is not taxable in
26 the state of the purchaser; provided, however, that
27 premises owned or leased by a person who has
28 independently contracted with the seller for the
29 printing of newspapers, periodicals or books shall
30 not be deemed to be an office, store, warehouse,
31 factory or other place of storage for purposes of
32 this Section. Sales of tangible personal property
33 are not in this State if the seller and purchaser
34 would be members of the same unitary business group
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1 but for the fact that either the seller or purchaser
2 is a person with 80% or more of total business
3 activity outside of the United States and the
4 property is purchased for resale.
5 (3) (C) Sales, other than sales of tangible
6 personal property, are in this State if:
7 (A) (i) The income-producing activity is
8 performed in this State; or
9 (B) (ii) The income-producing activity is
10 performed both within and without this State and a
11 greater proportion of the income-producing activity
12 is performed within this State than without this
13 State, based on performance costs.
14 (4) (D) For taxable years ending on or after
15 December 31, 1995 and excluding taxable years ending
16 after December 31, 1997, the following items of income
17 shall not be included in the numerator or denominator of
18 the sales factor: dividends; amounts included under
19 Section 78 of the Internal Revenue Code; and Subpart F
20 income as defined in Section 952 of the Internal Revenue
21 Code. No inference shall be drawn from the enactment of
22 this paragraph (D) in construing this Section for taxable
23 years ending before December 31, 1995.
24 (b) Insurance companies.
25 (1) In general. Except as otherwise provided by
26 paragraph (2), business income of an insurance company for a
27 taxable year shall be apportioned to this State by
28 multiplying such income by a fraction, the numerator of which
29 is the direct premiums written for insurance upon property or
30 risk in this State, and the denominator of which is the
31 direct premiums written for insurance upon property or risk
32 everywhere. For purposes of this subsection, the term "direct
33 premiums written" means the total amount of direct premiums
34 written, assessments and annuity considerations as reported
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1 for the taxable year on the annual statement filed by the
2 company with the Illinois Director of Insurance in the form
3 approved by the National Convention of Insurance
4 Commissioners or such other form as may be prescribed in lieu
5 thereof.
6 (2) Reinsurance. If the principal source of premiums
7 written by an insurance company consists of premiums for
8 reinsurance accepted by it, the business income of such
9 company shall be apportioned to this State by multiplying
10 such income by a fraction, the numerator of which is the sum
11 of (i) direct premiums written for insurance upon property or
12 risk in this State, plus (ii) premiums written for
13 reinsurance accepted in respect of property or risk in this
14 State, and the denominator of which is the sum of (iii)
15 direct premiums written for insurance upon property or risk
16 everywhere, plus (iv) premiums written for reinsurance
17 accepted in respect of property or risk everywhere. For
18 purposes of this paragraph, premiums written for reinsurance
19 accepted in respect of property or risk in this State,
20 whether or not otherwise determinable, may, at the election
21 of the company, be determined on the basis of the proportion
22 which premiums written for reinsurance accepted from
23 companies commercially domiciled in Illinois bears to
24 premiums written for reinsurance accepted from all sources,
25 or, alternatively, in the proportion which the sum of the
26 direct premiums written for insurance upon property or risk
27 in this State by each ceding company from which reinsurance
28 is accepted bears to the sum of the total direct premiums
29 written by each such ceding company for the taxable year.
30 (c) Financial organizations.
31 (1) In general. Business income of a financial
32 organization shall be apportioned to this State by
33 multiplying such income by a fraction, the numerator of which
34 is its business income from sources within this State, and
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1 the denominator of which is its business income from all
2 sources. For the purposes of this subsection, the business
3 income of a financial organization from sources within this
4 State is the sum of the amounts referred to in subparagraphs
5 (A) through (E) following, but excluding the adjusted income
6 of an international banking facility as determined in
7 paragraph (2):
8 (A) Fees, commissions or other compensation for
9 financial services rendered within this State;
10 (B) Gross profits from trading in stocks, bonds or
11 other securities managed within this State;
12 (C) Dividends, and interest from Illinois
13 customers, which are received within this State;
14 (D) Interest charged to customers at places of
15 business maintained within this State for carrying debit
16 balances of margin accounts, without deduction of any
17 costs incurred in carrying such accounts; and
18 (E) Any other gross income resulting from the
19 operation as a financial organization within this State.
20 In computing the amounts referred to in paragraphs (A)
21 through (E) of this subsection, any amount received by a
22 member of an affiliated group (determined under Section
23 1504(a) of the Internal Revenue Code but without
24 reference to whether any such corporation is an
25 "includible corporation" under Section 1504(b) of the
26 Internal Revenue Code) from another member of such group
27 shall be included only to the extent such amount exceeds
28 expenses of the recipient directly related thereto.
29 (2) International Banking Facility.
30 (A) Adjusted Income. The adjusted income of an
31 international banking facility is its income reduced by
32 the amount of the floor amount.
33 (B) Floor Amount. The floor amount shall be the
34 amount, if any, determined by multiplying the income of
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1 the international banking facility by a fraction, not
2 greater than one, which is determined as follows:
3 (i) The numerator shall be:
4 The average aggregate, determined on a
5 quarterly basis, of the financial organization's
6 loans to banks in foreign countries, to foreign
7 domiciled borrowers (except where secured primarily
8 by real estate) and to foreign governments and other
9 foreign official institutions, as reported for its
10 branches, agencies and offices within the state on
11 its "Consolidated Report of Condition", Schedule A,
12 Lines 2.c., 5.b., and 7.a., which was filed with the
13 Federal Deposit Insurance Corporation and other
14 regulatory authorities, for the year 1980, minus
15 The average aggregate, determined on a
16 quarterly basis, of such loans (other than loans of
17 an international banking facility), as reported by
18 the financial institution for its branches, agencies
19 and offices within the state, on the corresponding
20 Schedule and lines of the Consolidated Report of
21 Condition for the current taxable year, provided,
22 however, that in no case shall the amount determined
23 in this clause (the subtrahend) exceed the amount
24 determined in the preceding clause (the minuend);
25 and
26 (ii) the denominator shall be the average
27 aggregate, determined on a quarterly basis, of the
28 international banking facility's loans to banks in
29 foreign countries, to foreign domiciled borrowers
30 (except where secured primarily by real estate) and
31 to foreign governments and other foreign official
32 institutions, which were recorded in its financial
33 accounts for the current taxable year.
34 (C) Change to Consolidated Report of Condition and
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1 in Qualification. In the event the Consolidated Report
2 of Condition which is filed with the Federal Deposit
3 Insurance Corporation and other regulatory authorities is
4 altered so that the information required for determining
5 the floor amount is not found on Schedule A, lines 2.c.,
6 5.b. and 7.a., the financial institution shall notify the
7 Department and the Department may, by regulations or
8 otherwise, prescribe or authorize the use of an
9 alternative source for such information. The financial
10 institution shall also notify the Department should its
11 international banking facility fail to qualify as such,
12 in whole or in part, or should there be any amendment or
13 change to the Consolidated Report of Condition, as
14 originally filed, to the extent such amendment or change
15 alters the information used in determining the floor
16 amount.
17 (d) Transportation services. Business income derived
18 from furnishing transportation services shall be apportioned
19 to this State in accordance with paragraphs (1) and (2):
20 (1) Such business income (other than that derived
21 from transportation by pipeline) shall be apportioned to
22 this State by multiplying such income by a fraction, the
23 numerator of which is the revenue miles of the person in
24 this State, and the denominator of which is the revenue
25 miles of the person everywhere. For purposes of this
26 paragraph, a revenue mile is the transportation of 1
27 passenger or 1 net ton of freight the distance of 1 mile
28 for a consideration. Where a person is engaged in the
29 transportation of both passengers and freight, the
30 fraction above referred to shall be determined by means
31 of an average of the passenger revenue mile fraction and
32 the freight revenue mile fraction, weighted to reflect
33 the person's
34 (A) relative railway operating income from
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1 total passenger and total freight service, as
2 reported to the Interstate Commerce Commission, in
3 the case of transportation by railroad, and
4 (B) relative gross receipts from passenger and
5 freight transportation, in case of transportation
6 other than by railroad.
7 (2) Such business income derived from
8 transportation by pipeline shall be apportioned to this
9 State by multiplying such income by a fraction, the
10 numerator of which is the revenue miles of the person in
11 this State, and the denominator of which is the revenue
12 miles of the person everywhere. For the purposes of this
13 paragraph, a revenue mile is the transportation by
14 pipeline of 1 barrel of oil, 1,000 cubic feet of gas, or
15 of any specified quantity of any other substance, the
16 distance of 1 mile for a consideration.
17 (e) Combined apportionment. Where 2 or more persons are
18 engaged in a unitary business as described in subsection
19 (a)(27) of Section 1501, a part of which is conducted in this
20 State by one or more members of the group, the business
21 income attributable to this State by any such member or
22 members shall be apportioned by means of the combined
23 apportionment method.
24 (f) Alternative allocation. If the allocation and
25 apportionment provisions of subsections (a) through (e) do
26 not fairly represent the extent of a person's business
27 activity in this State, the person may petition for, or the
28 Director may require, in respect of all or any part of the
29 person's business activity, if reasonable:
30 (1) Separate accounting;
31 (2) The exclusion of any one or more factors;
32 (3) The inclusion of one or more additional factors
33 which will fairly represent the person's business
34 activities in this State; or
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1 (4) The employment of any other method to
2 effectuate an equitable allocation and apportionment of
3 the person's business income.
4 (g) Cross reference. For allocation of business income
5 by residents, see Section 301(a).
6 (Source: P.A. 89-379, eff. 1-1-96; 89-399, eff. 8-20-95;
7 89-626, eff. 8-9-96.)
8 Section 99. Effective date. This Act takes effect upon
9 becoming law.