Revenue Committee

Filed: 5/19/2004

 

 


 

 


 
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1
AMENDMENT TO SENATE BILL 2208

2     AMENDMENT NO. ______. Amend Senate Bill 2208 by replacing
3 everything after the enacting clause with the following:
 
4     "Section 5. The Illinois Income Tax Act is amended by
5 changing Section 1501 as follows:
 
6     (35 ILCS 5/1501)  (from Ch. 120, par. 15-1501)
7     Sec. 1501. Definitions.
8     (a) In general. When used in this Act, where not otherwise
9 distinctly expressed or manifestly incompatible with the
10 intent thereof:
11         (1) Business income. The term "business income" means
12     income arising from transactions and activity in the
13     regular course of the taxpayer's trade or business, net of
14     the deductions allocable thereto, and includes income from
15     tangible and intangible property if the acquisition,
16     management, and disposition of the property constitute
17     integral parts of the taxpayer's regular trade or business
18     operations. Such term does not include compensation or the
19     deductions allocable thereto. For each taxable year
20     beginning on or after January 1, 2003, a taxpayer may elect
21     to treat all income other than compensation as business
22     income. This election shall be made in accordance with
23     rules adopted by the Department and, once made, shall be
24     irrevocable.

 

 

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1         (2) Commercial domicile. The term "commercial
2     domicile" means the principal place from which the trade or
3     business of the taxpayer is directed or managed.
4         (3) Compensation. The term "compensation" means wages,
5     salaries, commissions and any other form of remuneration
6     paid to employees for personal services.
7         (4) Corporation. The term "corporation" includes
8     associations, joint-stock companies, insurance companies
9     and cooperatives. Any entity, including a limited
10     liability company formed under the Illinois Limited
11     Liability Company Act, shall be treated as a corporation if
12     it is so classified for federal income tax purposes.
13         (5) Department. The term "Department" means the
14     Department of Revenue of this State.
15         (6) Director. The term "Director" means the Director of
16     Revenue of this State.
17         (7) Fiduciary. The term "fiduciary" means a guardian,
18     trustee, executor, administrator, receiver, or any person
19     acting in any fiduciary capacity for any person.
20         (8) Financial organization.
21             (A) The term "financial organization" means any
22         bank, bank holding company, trust company, savings
23         bank, industrial bank, land bank, safe deposit
24         company, private banker, savings and loan association,
25         building and loan association, credit union, currency
26         exchange, cooperative bank, small loan company, sales
27         finance company, investment company, or any person
28         which is owned by a bank or bank holding company. For
29         the purpose of this Section a "person" will include
30         only those persons which a bank holding company may
31         acquire and hold an interest in, directly or
32         indirectly, under the provisions of the Bank Holding
33         Company Act of 1956 (12 U.S.C. 1841, et seq.), except
34         where interests in any person must be disposed of

 

 

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1         within certain required time limits under the Bank
2         Holding Company Act of 1956.
3             (B) For purposes of subparagraph (A) of this
4         paragraph, the term "bank" includes (i) any entity that
5         is regulated by the Comptroller of the Currency under
6         the National Bank Act, or by the Federal Reserve Board,
7         or by the Federal Deposit Insurance Corporation and
8         (ii) any federally or State chartered bank operating as
9         a credit card bank.
10             (C) For purposes of subparagraph (A) of this
11         paragraph, the term "sales finance company" has the
12         meaning provided in the following item (i) or (ii):
13                 (i) A person primarily engaged in one or more
14             of the following businesses: the business of
15             purchasing customer receivables, the business of
16             making loans upon the security of customer
17             receivables, the business of making loans for the
18             express purpose of funding purchases of tangible
19             personal property or services by the borrower, or
20             the business of finance leasing. For purposes of
21             this item (i), "customer receivable" means:
22                     (a) a retail installment contract or
23                 retail charge agreement within the meaning of
24                 the Sales Finance Agency Act, the Retail
25                 Installment Sales Act, or the Motor Vehicle
26                 Retail Installment Sales Act;
27                     (b) an installment, charge, credit, or
28                 similar contract or agreement arising from the
29                 sale of tangible personal property or services
30                 in a transaction involving a deferred payment
31                 price payable in one or more installments
32                 subsequent to the sale; or
33                     (c) the outstanding balance of a contract
34                 or agreement described in provisions (a) or (b)

 

 

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1                 of this item (i).
2                 A customer receivable need not provide for
3             payment of interest on deferred payments. A sales
4             finance company may purchase a customer receivable
5             from, or make a loan secured by a customer
6             receivable to, the seller in the original
7             transaction or to a person who purchased the
8             customer receivable directly or indirectly from
9             that seller.
10                 (ii) A corporation meeting each of the
11             following criteria:
12                     (a) the corporation must be a member of an
13                 "affiliated group" within the meaning of
14                 Section 1504(a) of the Internal Revenue Code,
15                 determined without regard to Section 1504(b)
16                 of the Internal Revenue Code;
17                     (b) more than 50% of the gross income of
18                 the corporation for the taxable year must be
19                 interest income derived from qualifying loans.
20                 A "qualifying loan" is a loan made to a member
21                 of the corporation's affiliated group that
22                 originates customer receivables (within the
23                 meaning of item (i)) or to whom customer
24                 receivables originated by a member of the
25                 affiliated group have been transferred, to the
26                 extent the average outstanding balance of
27                 loans from that corporation to members of its
28                 affiliated group during the taxable year do not
29                 exceed the limitation amount for that
30                 corporation. The "limitation amount" for a
31                 corporation is the average outstanding
32                 balances during the taxable year of customer
33                 receivables (within the meaning of item (i))
34                 originated by all members of the affiliated

 

 

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1                 group. If the average outstanding balances of
2                 the loans made by a corporation to members of
3                 its affiliated group exceed the limitation
4                 amount, the interest income of that
5                 corporation from qualifying loans shall be
6                 equal to its interest income from loans to
7                 members of its affiliated groups times a
8                 fraction equal to the limitation amount
9                 divided by the average outstanding balances of
10                 the loans made by that corporation to members
11                 of its affiliated group;
12                     (c) the total of all shareholder's equity
13                 (including, without limitation, paid-in
14                 capital on common and preferred stock and
15                 retained earnings) of the corporation plus the
16                 total of all of its loans, advances, and other
17                 obligations payable or owed to members of its
18                 affiliated group may not exceed 20% of the
19                 total assets of the corporation at any time
20                 during the tax year; and
21                     (d) more than 50% of all interest-bearing
22                 obligations of the affiliated group payable to
23                 persons outside the group determined in
24                 accordance with generally accepted accounting
25                 principles must be obligations of the
26                 corporation.
27             This amendatory Act of the 91st General Assembly is
28         declaratory of existing law.
29             (D) Subparagraphs (B) and (C) of this paragraph are
30         declaratory of existing law and apply retroactively,
31         for all tax years beginning on or before December 31,
32         1996, to all original returns, to all amended returns
33         filed no later than 30 days after the effective date of
34         this amendatory Act of 1996, and to all notices issued

 

 

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1         on or before the effective date of this amendatory Act
2         of 1996 under subsection (a) of Section 903, subsection
3         (a) of Section 904, subsection (e) of Section 909, or
4         Section 912. A taxpayer that is a "financial
5         organization" that engages in any transaction with an
6         affiliate shall be a "financial organization" for all
7         purposes of this Act.
8             (E) For all tax years beginning on or before
9         December 31, 1996, a taxpayer that falls within the
10         definition of a "financial organization" under
11         subparagraphs (B) or (C) of this paragraph, but who
12         does not fall within the definition of a "financial
13         organization" under the Proposed Regulations issued by
14         the Department of Revenue on July 19, 1996, may
15         irrevocably elect to apply the Proposed Regulations
16         for all of those years as though the Proposed
17         Regulations had been lawfully promulgated, adopted,
18         and in effect for all of those years. For purposes of
19         applying subparagraphs (B) or (C) of this paragraph to
20         all of those years, the election allowed by this
21         subparagraph applies only to the taxpayer making the
22         election and to those members of the taxpayer's unitary
23         business group who are ordinarily required to
24         apportion business income under the same subsection of
25         Section 304 of this Act as the taxpayer making the
26         election. No election allowed by this subparagraph
27         shall be made under a claim filed under subsection (d)
28         of Section 909 more than 30 days after the effective
29         date of this amendatory Act of 1996.
30             (F) Finance Leases. For purposes of this
31         subsection, a finance lease shall be treated as a loan
32         or other extension of credit, rather than as a lease,
33         regardless of how the transaction is characterized for
34         any other purpose, including the purposes of any

 

 

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1         regulatory agency to which the lessor is subject. A
2         finance lease is any transaction in the form of a lease
3         in which the lessee is treated as the owner of the
4         leased asset entitled to any deduction for
5         depreciation allowed under Section 167 of the Internal
6         Revenue Code.
7         (9) Fiscal year. The term "fiscal year" means an
8     accounting period of 12 months ending on the last day of
9     any month other than December.
10         (10) Includes and including. The terms "includes" and
11     "including" when used in a definition contained in this Act
12     shall not be deemed to exclude other things otherwise
13     within the meaning of the term defined.
14         (11) Internal Revenue Code. The term "Internal Revenue
15     Code" means the United States Internal Revenue Code of 1954
16     or any successor law or laws relating to federal income
17     taxes in effect for the taxable year.
18         (12) Mathematical error. The term "mathematical error"
19     includes the following types of errors, omissions, or
20     defects in a return filed by a taxpayer which prevents
21     acceptance of the return as filed for processing:
22             (A) arithmetic errors or incorrect computations on
23         the return or supporting schedules;
24             (B) entries on the wrong lines;
25             (C) omission of required supporting forms or
26         schedules or the omission of the information in whole
27         or in part called for thereon; and
28             (D) an attempt to claim, exclude, deduct, or
29         improperly report, in a manner directly contrary to the
30         provisions of the Act and regulations thereunder any
31         item of income, exemption, deduction, or credit.
32         (13) Nonbusiness income. The term "nonbusiness income"
33     means all income other than business income or
34     compensation.

 

 

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1         (14) Nonresident. The term "nonresident" means a
2     person who is not a resident.
3         (15) Paid, incurred and accrued. The terms "paid",
4     "incurred" and "accrued" shall be construed according to
5     the method of accounting upon the basis of which the
6     person's base income is computed under this Act.
7         (16) Partnership and partner. The term "partnership"
8     includes a syndicate, group, pool, joint venture or other
9     unincorporated organization, through or by means of which
10     any business, financial operation, or venture is carried
11     on, and which is not, within the meaning of this Act, a
12     trust or estate or a corporation; and the term "partner"
13     includes a member in such syndicate, group, pool, joint
14     venture or organization.
15         The term "partnership" includes any entity, including
16     a limited liability company formed under the Illinois
17     Limited Liability Company Act, classified as a partnership
18     for federal income tax purposes.
19         The term "partnership" does not include a syndicate,
20     group, pool, joint venture, or other unincorporated
21     organization established for the sole purpose of playing
22     the Illinois State Lottery.
23         (17) Part-year resident. The term "part-year resident"
24     means an individual who became a resident during the
25     taxable year or ceased to be a resident during the taxable
26     year. Under Section 1501(a)(20)(A)(i) residence commences
27     with presence in this State for other than a temporary or
28     transitory purpose and ceases with absence from this State
29     for other than a temporary or transitory purpose. Under
30     Section 1501(a)(20)(A)(ii) residence commences with the
31     establishment of domicile in this State and ceases with the
32     establishment of domicile in another State.
33         (18) Person. The term "person" shall be construed to
34     mean and include an individual, a trust, estate,

 

 

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1     partnership, association, firm, company, corporation,
2     limited liability company, or fiduciary. For purposes of
3     Section 1301 and 1302 of this Act, a "person" means (i) an
4     individual, (ii) a corporation, (iii) an officer, agent, or
5     employee of a corporation, (iv) a member, agent or employee
6     of a partnership, or (v) a member, manager, employee,
7     officer, director, or agent of a limited liability company
8     who in such capacity commits an offense specified in
9     Section 1301 and 1302.
10         (18A) Records. The term "records" includes all data
11     maintained by the taxpayer, whether on paper, microfilm,
12     microfiche, or any type of machine-sensible data
13     compilation.
14         (19) Regulations. The term "regulations" includes
15     rules promulgated and forms prescribed by the Department.
16         (20) Resident. The term "resident" means:
17             (A) an individual (i) who is in this State for
18         other than a temporary or transitory purpose during the
19         taxable year; or (ii) who is domiciled in this State
20         but is absent from the State for a temporary or
21         transitory purpose during the taxable year;
22             (B) The estate of a decedent who at his or her
23         death was domiciled in this State;
24             (C) A trust created by a will of a decedent who at
25         his death was domiciled in this State; and
26             (D) An irrevocable trust, the grantor of which was
27         domiciled in this State at the time such trust became
28         irrevocable. For purpose of this subparagraph, a trust
29         shall be considered irrevocable to the extent that the
30         grantor is not treated as the owner thereof under
31         Sections 671 through 678 of the Internal Revenue Code.
32         (21) Sales. The term "sales" means all gross receipts
33     of the taxpayer not allocated under Sections 301, 302 and
34     303.

 

 

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1         (22) State. The term "state" when applied to a
2     jurisdiction other than this State means any state of the
3     United States, the District of Columbia, the Commonwealth
4     of Puerto Rico, any Territory or Possession of the United
5     States, and any foreign country, or any political
6     subdivision of any of the foregoing. For purposes of the
7     foreign tax credit under Section 601, the term "state"
8     means any state of the United States, the District of
9     Columbia, the Commonwealth of Puerto Rico, and any
10     territory or possession of the United States, or any
11     political subdivision of any of the foregoing, effective
12     for tax years ending on or after December 31, 1989.
13         (23) Taxable year. The term "taxable year" means the
14     calendar year, or the fiscal year ending during such
15     calendar year, upon the basis of which the base income is
16     computed under this Act. "Taxable year" means, in the case
17     of a return made for a fractional part of a year under the
18     provisions of this Act, the period for which such return is
19     made.
20         (24) Taxpayer. The term "taxpayer" means any person
21     subject to the tax imposed by this Act.
22         (25) International banking facility. The term
23     international banking facility shall have the same meaning
24     as is set forth in the Illinois Banking Act or as is set
25     forth in the laws of the United States or regulations of
26     the Board of Governors of the Federal Reserve System.
27         (26) Income Tax Return Preparer.
28             (A) The term "income tax return preparer" means any
29         person who prepares for compensation, or who employs
30         one or more persons to prepare for compensation, any
31         return of tax imposed by this Act or any claim for
32         refund of tax imposed by this Act. The preparation of a
33         substantial portion of a return or claim for refund
34         shall be treated as the preparation of that return or

 

 

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1         claim for refund.
2             (B) A person is not an income tax return preparer
3         if all he or she does is
4                 (i) furnish typing, reproducing, or other
5             mechanical assistance;
6                 (ii) prepare returns or claims for refunds for
7             the employer by whom he or she is regularly and
8             continuously employed;
9                 (iii) prepare as a fiduciary returns or claims
10             for refunds for any person; or
11                 (iv) prepare claims for refunds for a taxpayer
12             in response to any notice of deficiency issued to
13             that taxpayer or in response to any waiver of
14             restriction after the commencement of an audit of
15             that taxpayer or of another taxpayer if a
16             determination in the audit of the other taxpayer
17             directly or indirectly affects the tax liability
18             of the taxpayer whose claims he or she is
19             preparing.
20         (27) Unitary business group. The term "unitary
21     business group" means a group of persons related through
22     common ownership whose business activities are integrated
23     with, dependent upon and contribute to each other. The
24     group will not include those members whose business
25     activity outside the United States is 80% or more of any
26     such member's total business activity; for purposes of this
27     paragraph and clause (a)(3)(B)(ii) of Section 304,
28     business activity within the United States shall be
29     measured by means of the factors ordinarily applicable
30     under subsections (a), (b), (c), (d), or (h) of Section 304
31     except that, in the case of members ordinarily required to
32     apportion business income by means of the 3 factor formula
33     of property, payroll and sales specified in subsection (a)
34     of Section 304, including the formula as weighted in

 

 

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1     subsection (h) of Section 304, such members shall not use
2     the sales factor in the computation and the results of the
3     property and payroll factor computations of subsection (a)
4     of Section 304 shall be divided by 2 (by one if either the
5     property or payroll factor has a denominator of zero). The
6     computation required by the preceding sentence shall, in
7     each case, involve the division of the member's property,
8     payroll, or revenue miles in the United States, insurance
9     premiums on property or risk in the United States, or
10     financial organization business income from sources within
11     the United States, as the case may be, by the respective
12     worldwide figures for such items. Common ownership in the
13     case of corporations is the direct or indirect control or
14     ownership of more than 50% of the outstanding voting stock
15     of the persons carrying on unitary business activity.
16     Unitary business activity can ordinarily be illustrated
17     where the activities of the members are: (1) in the same
18     general line (such as manufacturing, wholesaling,
19     retailing of tangible personal property, insurance,
20     transportation or finance); or (2) are steps in a
21     vertically structured enterprise or process (such as the
22     steps involved in the production of natural resources,
23     which might include exploration, mining, refining, and
24     marketing); and, in either instance, the members are
25     functionally integrated through the exercise of strong
26     centralized management (where, for example, authority over
27     such matters as purchasing, financing, tax compliance,
28     product line, personnel, marketing and capital investment
29     is not left to each member). For tax years ending before
30     December 31, 2004, no In no event, however, will any
31     unitary business group may include members which are
32     ordinarily required to apportion business income under
33     different subsections of Section 304 except that for tax
34     years ending on or after December 31, 1987 and before

 

 

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1     December 31, 2004, this prohibition shall not apply to a
2     unitary business group composed of one or more taxpayers
3     all of which apportion business income pursuant to
4     subsection (b) of Section 304, or all of which apportion
5     business income pursuant to subsection (d) of Section 304,
6     and a holding company of such single-factor taxpayers (see
7     definition of "financial organization" for rule regarding
8     holding companies of financial organizations). If a
9     unitary business group would, but for the preceding
10     sentence, include members that are ordinarily required to
11     apportion business income under different subsections of
12     Section 304, then for each subsection of Section 304 for
13     which there are two or more members, there shall be a
14     separate unitary business group composed of such members.
15     For purposes of the preceding two sentences, a member is
16     "ordinarily required to apportion business income" under a
17     particular subsection of Section 304 if it would be
18     required to use the apportionment method prescribed by such
19     subsection except for the fact that it derives business
20     income solely from Illinois. If the unitary business group
21     members' accounting periods differ, the common parent's
22     accounting period or, if there is no common parent, the
23     accounting period of the member that is expected to have,
24     on a recurring basis, the greatest Illinois income tax
25     liability must be used to determine whether to use the
26     apportionment method provided in subsection (a) or
27     subsection (h) of Section 304. The prohibition against
28     membership in a unitary business group for taxpayers
29     ordinarily required to apportion income under different
30     subsections of Section 304 does not apply to taxpayers
31     required to apportion income under subsection (a) and
32     subsection (h) of Section 304. The provisions of this
33     amendatory Act of 1998 apply to tax years ending on or
34     after December 31, 1998.

 

 

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1         (28) Subchapter S corporation. The term "Subchapter S
2     corporation" means a corporation for which there is in
3     effect an election under Section 1362 of the Internal
4     Revenue Code, or for which there is a federal election to
5     opt out of the provisions of the Subchapter S Revision Act
6     of 1982 and have applied instead the prior federal
7     Subchapter S rules as in effect on July 1, 1982.
 
8     (b) Other definitions.
9         (1) Words denoting number, gender, and so forth, when
10     used in this Act, where not otherwise distinctly expressed
11     or manifestly incompatible with the intent thereof:
12             (A) Words importing the singular include and apply
13         to several persons, parties or things;
14             (B) Words importing the plural include the
15         singular; and
16             (C) Words importing the masculine gender include
17         the feminine as well.
18         (2) "Company" or "association" as including successors
19     and assigns. The word "company" or "association", when used
20     in reference to a corporation, shall be deemed to embrace
21     the words "successors and assigns of such company or
22     association", and in like manner as if these last-named
23     words, or words of similar import, were expressed.
24         (3) Other terms. Any term used in any Section of this
25     Act with respect to the application of, or in connection
26     with, the provisions of any other Section of this Act shall
27     have the same meaning as in such other Section.
28 (Source: P.A. 91-535, eff. 1-1-00; 91-913, eff. 1-1-01; 92-846,
29 eff. 8-23-02.)".