State of Illinois
92nd General Assembly
Legislation

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92_SB0541

 
                                               LRB9205007SMdv

 1        AN ACT concerning taxation.

 2        Be it enacted by the People of  the  State  of  Illinois,
 3    represented in the General Assembly:

 4        Section  5.   The  Illinois  Income Tax Act is amended by
 5    changing Section 304 as follows:

 6        (35 ILCS 5/304) (from Ch. 120, par. 3-304)
 7        Sec.  304.  Business  income  of   persons   other   than
 8    residents.
 9        (a)  In  general.  The  business income of a person other
10    than a resident shall be allocated  to  this  State  if  such
11    person's  business  income is derived solely from this State.
12    If a person other than a  resident  derives  business  income
13    from  this  State and one or more other states, then, for tax
14    years ending on or before December 30, 1998,  and  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  a  fraction, the numerator of which is the sum of
18    the property factor (if any), the payroll factor (if any) and
19    200% of the sales factor (if any),  and  the  denominator  of
20    which  is  4  reduced by the number of factors other than the
21    sales factor which have a  denominator  of  zero  and  by  an
22    additional  2  if the sales factor has a denominator of zero.
23    For tax years ending on  or  after  December  31,  1998,  and
24    except  as  otherwise provided by this Section, persons other
25    than residents who derive business income from this State and
26    one or more other states shall  compute  their  apportionment
27    factor  by  weighting  their  property,  payroll,  and  sales
28    factors as provided in subsection (h) of this Section.
29        (1)  Property factor.
30             (A)  The   property   factor   is  a  fraction,  the
31        numerator of which is the average value of  the  person's
 
                            -2-                LRB9205007SMdv
 1        real  and  tangible personal property owned or rented and
 2        used in the trade or business in this  State  during  the
 3        taxable  year and the denominator of which is the average
 4        value of all the  person's  real  and  tangible  personal
 5        property  owned  or  rented  and  used  in  the  trade or
 6        business during the taxable year.
 7             (B)  Property owned by the person is valued  at  its
 8        original cost. Property rented by the person is valued at
 9        8  times  the  net  annual rental rate. Net annual rental
10        rate is the annual rental rate paid by  the  person  less
11        any  annual  rental  rate  received  by  the  person from
12        sub-rentals.
13             (C)  The  average  value  of   property   shall   be
14        determined  by  averaging the values at the beginning and
15        ending of the taxable year but the Director  may  require
16        the  averaging  of monthly values during the taxable year
17        if reasonably required to reflect  properly  the  average
18        value of the person's property.
19        (2)  Payroll factor.
20             (A)  The payroll factor is a fraction, the numerator
21        of  which  is  the total amount paid in this State during
22        the taxable year by the person for compensation, and  the
23        denominator  of  which  is  the  total  compensation paid
24        everywhere during the taxable year.
25             (B)  Compensation is paid in this State if:
26                  (i)  The  individual's  service  is   performed
27             entirely within this State;
28                  (ii)  The  individual's  service  is  performed
29             both  within and without this State, but the service
30             performed without this State is  incidental  to  the
31             individual's service performed within this State; or
32                  (iii)  Some  of the service is performed within
33             this State and either the base of operations, or  if
34             there is no base of operations, the place from which
 
                            -3-                LRB9205007SMdv
 1             the service is directed or controlled is within this
 2             State,  or  the base of operations or the place from
 3             which the service is directed or controlled  is  not
 4             in  any  state  in which some part of the service is
 5             performed, but the individual's residence is in this
 6             State.
 7             Beginning with taxable  years  ending  on  or  after
 8        December  31, 1992, for residents of states that impose a
 9        comparable tax liability on residents of this State,  for
10        purposes  of  item (i) of this paragraph (B), in the case
11        of persons who perform personal services  under  personal
12        service  contracts  for  sports performances, services by
13        that person at a sporting event taking place in  Illinois
14        shall  be deemed to be a performance entirely within this
15        State.
16        (3)  Sales factor.
17             (A)  The sales factor is a fraction,  the  numerator
18        of  which  is the total sales of the person in this State
19        during the taxable year, and the denominator of which  is
20        the  total  sales  of  the  person  everywhere during the
21        taxable year.
22             (B)  Sales of tangible personal property are in this
23        State if: (i)  the property is delivered or shipped to  a
24        purchaser,  other  than  the  United  States  government,
25        within  this  State  regardless  of the f. o. b. point or
26        other conditions of the sale.; or (ii)  The  property  is
27        shipped  from  an  office,  store,  warehouse, factory or
28        other place of storage  in  this  State  and  either  the
29        purchaser  is  the United States government or the person
30        is not taxable in the state of the  purchaser;  provided,
31        however,  that  premises  owned or leased by a person who
32        has independently contracted  with  the  seller  for  the
33        printing of newspapers, periodicals or books shall not be
34        deemed  to  be  an  office,  store, warehouse, factory or
 
                            -4-                LRB9205007SMdv
 1        other place of storage  for  purposes  of  this  Section.
 2        Sales of tangible personal property are not in this State
 3        if  the seller and purchaser would be members of the same
 4        unitary business group but for the fact that  either  the
 5        seller or purchaser is a person with 80% or more of total
 6        business  activity  outside  of the United States and the
 7        property is purchased for resale.
 8             (B-1)  Patents, copyrights, trademarks, and  similar
 9        items of intangible personal property.
10                  (i)  Gross  receipts  from the licensing, sale,
11             or  other  disposition  of  a   patent,   copyright,
12             trademark,  or  similar  item of intangible personal
13             property are in this State to the extent the item is
14             utilized in this State during  the  year  the  gross
15             receipts are included in gross income.
16                  (ii)  Place of utilization.
17                       (I)  A  patent  is  utilized in a state to
18                  the extent that it is employed  in  production,
19                  fabrication, manufacturing, or other processing
20                  in  the  state or to the extent that a patented
21                  product is produced in the state.  If a  patent
22                  is  utilized in more than one state, the extent
23                  to which it is utilized in any one state  shall
24                  be  a  fraction  equal to the gross receipts of
25                  the licensee or purchaser from sales or  leases
26                  of items produced, fabricated, manufactured, or
27                  processed  within  that  state using the patent
28                  and of  patented  items  produced  within  that
29                  state,  divided  by  the  total  of  such gross
30                  receipts for all states in which the patent  is
31                  utilized.
32                       (II)  A  copyright  is utilized in a state
33                  to  the   extent   that   printing   or   other
34                  publication  originates  in  the  state.   If a
 
                            -5-                LRB9205007SMdv
 1                  copyright is utilized in more than  one  state,
 2                  the  extent  to which it is utilized in any one
 3                  state shall be a fraction equal  to  the  gross
 4                  receipts  from  sales  or licenses of materials
 5                  printed or published in that state  divided  by
 6                  the total of such gross receipts for all states
 7                  in which the copyright is utilized.
 8                       (III)  Trademarks   and   other  items  of
 9                  intangible personal property governed  by  this
10                  paragraph  (B-1)  are  utilized in the state in
11                  which the commercial domicile of  the  licensee
12                  or purchaser is located.
13                  (iii)  If  the  state of utilization of an item
14             of property governed by this paragraph (B-1)  cannot
15             be  determined from the taxpayer's books and records
16             or from the books and records of any person  related
17             to the taxpayer within the meaning of Section 267(b)
18             of  the  Internal  Revenue  Code, 26 U.S.C. 267, the
19             gross receipts attributable to that  item  shall  be
20             excluded from both the numerator and the denominator
21             of the sales factor.
22             (B-2)  Gross  receipts  from  the  license, sale, or
23        other disposition of patents, copyrights, trademarks, and
24        similar items of  intangible  personal  property  may  be
25        included  in  the  numerator  or denominator of the sales
26        factor only if gross receipts from  licenses,  sales,  or
27        other disposition of such items comprise more than 50% of
28        the  taxpayer's  total  gross  receipts included in gross
29        income during the tax year  and  during  each  of  the  2
30        immediately  preceding  tax  years; provided that, when a
31        taxpayer is a member of a unitary  business  group,  such
32        determination  shall  be  made  on the basis of the gross
33        receipts of the entire unitary business group.
34             (C)  Sales, other than sales governed by  paragraphs
 
                            -6-                LRB9205007SMdv
 1        (B) and (B-1), are in this State if:
 2                  (i)  The income-producing activity is performed
 3             in this State; or
 4                  (ii)  The    income-producing    activity    is
 5             performed  both  within and without this State and a
 6             greater proportion of the income-producing  activity
 7             is  performed  within  this  State than without this
 8             State, based on performance costs.
 9             (D)  For taxable years ending on or  after  December
10        31,  1995,  the  following  items  of income shall not be
11        included in the numerator or  denominator  of  the  sales
12        factor:  dividends;  amounts included under Section 78 of
13        the Internal  Revenue  Code;  and  Subpart  F  income  as
14        defined  in  Section 952 of the Internal Revenue Code. No
15        inference shall be  drawn  from  the  enactment  of  this
16        paragraph  (D)  in  construing  this  Section for taxable
17        years ending before December 31, 1995.
18             (E)  Paragraphs (B-1) and (B-2) shall apply  to  tax
19        years ending on or after December 31, 1999, provided that
20        a  taxpayer  may  elect  to apply the provisions of these
21        paragraphs to prior tax years.  Such  election  shall  be
22        made in the form and manner prescribed by the Department,
23        shall  be  irrevocable, and shall apply to all tax years;
24        provided  that,  if  a  taxpayer's  Illinois  income  tax
25        liability for any tax year, as assessed under Section 903
26        prior to January  1,  1999,  was  computed  in  a  manner
27        contrary  to the provisions of paragraphs (B-1) or (B-2),
28        no refund shall be payable to the taxpayer for  that  tax
29        year  to the extent such refund is the result of applying
30        the provisions of paragraph (B-1) or (B-2) retroactively.
31        In the case of a unitary business  group,  such  election
32        shall  apply  to  all members of such group for every tax
33        year such group is in existence, but shall not  apply  to
34        any taxpayer for any period during which that taxpayer is
 
                            -7-                LRB9205007SMdv
 1        not a member of such group.
 2        (b)  Insurance companies.
 3             (1)  In  general.  Except  as  otherwise provided by
 4        paragraph (2), business income of  an  insurance  company
 5        for  a taxable year shall be apportioned to this State by
 6        multiplying such income by a fraction, the  numerator  of
 7        which  is  the direct premiums written for insurance upon
 8        property or risk in this State, and  the  denominator  of
 9        which  is  the direct premiums written for insurance upon
10        property  or  risk  everywhere.  For  purposes  of   this
11        subsection,  the term "direct premiums written" means the
12        total amount of direct premiums written, assessments  and
13        annuity  considerations  as reported for the taxable year
14        on the annual statement filed by  the  company  with  the
15        Illinois  Director  of  Insurance in the form approved by
16        the National Convention  of  Insurance  Commissioners  or
17        such other form as may be prescribed in lieu thereof.
18             (2)  Reinsurance.   If   the   principal  source  of
19        premiums written by  an  insurance  company  consists  of
20        premiums  for  reinsurance  accepted  by it, the business
21        income of such company shall be apportioned to this State
22        by multiplying such income by a fraction,  the  numerator
23        of  which  is  the sum of (i) direct premiums written for
24        insurance upon property or risk in this State, plus  (ii)
25        premiums  written  for reinsurance accepted in respect of
26        property or risk in this State, and  the  denominator  of
27        which  is  the  sum  of (iii) direct premiums written for
28        insurance upon property or  risk  everywhere,  plus  (iv)
29        premiums  written  for reinsurance accepted in respect of
30        property  or  risk  everywhere.  For  purposes  of   this
31        paragraph,  premiums  written for reinsurance accepted in
32        respect of property or risk in this State, whether or not
33        otherwise determinable,  may,  at  the  election  of  the
34        company,  be  determined  on  the basis of the proportion
 
                            -8-                LRB9205007SMdv
 1        which premiums  written  for  reinsurance  accepted  from
 2        companies  commercially  domiciled  in  Illinois bears to
 3        premiums  written  for  reinsurance  accepted  from   all
 4        sources,  or,  alternatively, in the proportion which the
 5        sum of the direct premiums  written  for  insurance  upon
 6        property  or  risk  in  this State by each ceding company
 7        from which reinsurance is accepted bears to  the  sum  of
 8        the  total  direct  premiums  written by each such ceding
 9        company for the taxable year.
10        (c)  Financial organizations.
11             (1)  In general.  Business  income  of  a  financial
12        organization  shall  be  apportioned  to  this  State  by
13        multiplying  such  income by a fraction, the numerator of
14        which is its business income  from  sources  within  this
15        State,  and  the  denominator  of  which  is its business
16        income  from  all  sources.  For  the  purposes  of  this
17        subsection,  the   business   income   of   a   financial
18        organization from sources within this State is the sum of
19        the  amounts referred to in subparagraphs (A) through (E)
20        following,  but  excluding  the  adjusted  income  of  an
21        international banking facility as determined in paragraph
22        (2):
23                  (A)  Fees, commissions  or  other  compensation
24             for financial services rendered within this State;
25                  (B)  Gross  profits  from  trading  in  stocks,
26             bonds or other securities managed within this State;
27                  (C)  Dividends,   and  interest  from  Illinois
28             customers, which are received within this State;
29                  (D)  Interest charged to customers at places of
30             business maintained within this State  for  carrying
31             debit balances of margin accounts, without deduction
32             of any costs incurred in carrying such accounts; and
33                  (E)  Any  other gross income resulting from the
34             operation as a financial  organization  within  this
 
                            -9-                LRB9205007SMdv
 1             State.  In  computing  the  amounts  referred  to in
 2             paragraphs (A) through (E) of this  subsection,  any
 3             amount  received  by a member of an affiliated group
 4             (determined under Section 1504(a)  of  the  Internal
 5             Revenue  Code  but  without reference to whether any
 6             such  corporation  is  an  "includible  corporation"
 7             under Section 1504(b) of the Internal Revenue  Code)
 8             from  another member of such group shall be included
 9             only to the extent such amount exceeds  expenses  of
10             the recipient directly related thereto.
11             (2)  International Banking Facility.
12                  (A)  Adjusted  Income.   The adjusted income of
13             an international  banking  facility  is  its  income
14             reduced by the amount of the floor amount.
15                  (B)  Floor  Amount.   The floor amount shall be
16             the amount, if any, determined  by  multiplying  the
17             income  of  the  international banking facility by a
18             fraction, not greater than one, which is  determined
19             as follows:
20                       (i)  The numerator shall be:
21                       The  average  aggregate,  determined  on a
22                  quarterly    basis,    of     the     financial
23                  organization's   loans   to  banks  in  foreign
24                  countries,  to  foreign   domiciled   borrowers
25                  (except where secured primarily by real estate)
26                  and  to  foreign  governments and other foreign
27                  official  institutions,  as  reported  for  its
28                  branches, agencies and offices within the state
29                  on  its  "Consolidated  Report  of  Condition",
30                  Schedule A, Lines 2.c., 5.b., and  7.a.,  which
31                  was  filed  with  the Federal Deposit Insurance
32                  Corporation and other  regulatory  authorities,
33                  for the year 1980, minus
34                       The  average  aggregate,  determined  on a
 
                            -10-               LRB9205007SMdv
 1                  quarterly basis,  of  such  loans  (other  than
 2                  loans of an international banking facility), as
 3                  reported  by  the financial institution for its
 4                  branches,  agencies  and  offices  within   the
 5                  state,  on the corresponding Schedule and lines
 6                  of the Consolidated Report of Condition for the
 7                  current taxable year, provided,  however,  that
 8                  in  no case shall the amount determined in this
 9                  clause  (the  subtrahend)  exceed  the   amount
10                  determined   in   the   preceding  clause  (the
11                  minuend); and
12                       (ii)  the denominator shall be the average
13                  aggregate, determined on a quarterly basis,  of
14                  the  international  banking facility's loans to
15                  banks  in   foreign   countries,   to   foreign
16                  domiciled   borrowers   (except  where  secured
17                  primarily  by  real  estate)  and  to   foreign
18                  governments    and   other   foreign   official
19                  institutions,  which  were  recorded   in   its
20                  financial  accounts  for  the  current  taxable
21                  year.
22                  (C)  Change to Consolidated Report of Condition
23             and in Qualification.  In the event the Consolidated
24             Report  of Condition which is filed with the Federal
25             Deposit Insurance Corporation and  other  regulatory
26             authorities  is  altered  so  that  the  information
27             required  for  determining  the  floor amount is not
28             found on Schedule A, lines 2.c., 5.b. and 7.a.,  the
29             financial  institution  shall  notify the Department
30             and the Department may, by regulations or otherwise,
31             prescribe or authorize the  use  of  an  alternative
32             source   for   such   information.   The   financial
33             institution  shall also notify the Department should
34             its international banking facility fail  to  qualify
 
                            -11-               LRB9205007SMdv
 1             as such, in whole or in part, or should there be any
 2             amendment  or  change  to the Consolidated Report of
 3             Condition, as originally filed, to the  extent  such
 4             amendment  or  change alters the information used in
 5             determining the floor amount.
 6        (d)  Transportation  services.  Business  income  derived
 7    from furnishing transportation services shall be  apportioned
 8    to this State in accordance with paragraphs (1) and (2):
 9             (1)  Such  business  income (other than that derived
10        from transportation by pipeline) shall be apportioned  to
11        this  State by multiplying such income by a fraction, the
12        numerator of which is the revenue miles of the person  in
13        this  State,  and the denominator of which is the revenue
14        miles of the person  everywhere.  For  purposes  of  this
15        paragraph,  a  revenue  mile  is  the transportation of 1
16        passenger or 1 net ton of freight the distance of 1  mile
17        for  a  consideration.  Where  a person is engaged in the
18        transportation  of  both  passengers  and  freight,   the
19        fraction  above  referred to shall be determined by means
20        of an average of the passenger revenue mile fraction  and
21        the  freight  revenue  mile fraction, weighted to reflect
22        the person's
23                  (A)  relative  railway  operating  income  from
24             total  passenger  and  total  freight  service,   as
25             reported  to  the Interstate Commerce Commission, in
26             the case of transportation by railroad, and
27                  (B)  relative gross receipts from passenger and
28             freight transportation, in  case  of  transportation
29             other than by railroad.
30             (2)  Such     business     income    derived    from
31        transportation by pipeline shall be apportioned  to  this
32        State  by  multiplying  such  income  by  a fraction, the
33        numerator of which is the revenue miles of the person  in
34        this  State,  and the denominator of which is the revenue
 
                            -12-               LRB9205007SMdv
 1        miles of the person everywhere. For the purposes of  this
 2        paragraph,  a  revenue  mile  is  the  transportation  by
 3        pipeline  of 1 barrel of oil, 1,000 cubic feet of gas, or
 4        of any specified quantity of  any  other  substance,  the
 5        distance of 1 mile for a consideration.
 6        (e)  Combined apportionment.  Where 2 or more persons are
 7    engaged  in  a  unitary  business  as described in subsection
 8    (a)(27) of Section 1501, a part of which is conducted in this
 9    State by one or more  members  of  the  group,  the  business
10    income  attributable  to  this  State  by  any such member or
11    members  shall  be  apportioned  by  means  of  the  combined
12    apportionment method.
13        (f)  Alternative  allocation.  If  the   allocation   and
14    apportionment  provisions  of subsections (a) through (e) and
15    of subsection (h) do not fairly represent  the  extent  of  a
16    person's  business  activity  in  this  State, the person may
17    petition for, or the Director may require, in respect of  all
18    or any part of the person's business activity, if reasonable:
19             (1)  Separate accounting;
20             (2)  The exclusion of any one or more factors;
21             (3)  The inclusion of one or more additional factors
22        which   will   fairly  represent  the  person's  business
23        activities in this State; or
24             (4)  The  employment  of   any   other   method   to
25        effectuate  an  equitable allocation and apportionment of
26        the person's business income.
27        (g)  Cross reference. For allocation of  business  income
28    by residents, see Section 301(a).
29        (h)  For  tax years ending on or after December 31, 1998,
30    the apportionment  factor  of  persons  who  apportion  their
31    business  income  to this State under subsection (a) shall be
32    equal to:
33             (1)  for tax years ending on or after  December  31,
34        1998  and  before  December  31,  1999,  16  2/3%  of the
 
                            -13-               LRB9205007SMdv
 1        property factor plus 16 2/3% of the payroll  factor  plus
 2        66 2/3% of the sales factor;
 3             (2)  for  tax  years ending on or after December 31,
 4        1999 and before December 31, 2000, 8 1/3% of the property
 5        factor plus 8 1/3% of the payroll factor plus 83 1/3%  of
 6        the sales factor;
 7             (3)  for  tax  years ending on or after December 31,
 8        2000, the sales factor.
 9    If, in any tax year ending on or after December 31, 1998  and
10    before  December  31,  2000,  the denominator of the payroll,
11    property, or sales factor is zero, the  apportionment  factor
12    computed  in paragraph (1) or (2) of this subsection for that
13    year shall be divided by an amount equal to  100%  minus  the
14    percentage  weight  given to each factor whose denominator is
15    equal to zero.
16    (Source: P.A. 90-562, eff.  12-16-97;  90-613,  eff.  7-9-98;
17    91-541, eff. 8-13-99.)

18        Section  99.  Effective date.  This Act takes effect upon
19    becoming law.

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