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90_SB1305 35 ILCS 5/304 from Ch. 120, par. 3-304 35 ILCS 5/804 from Ch. 120, par. 8-804 35 ILCS 5/1501 from Ch. 120, par. 15-1501 Amends the Illinois Income Tax Act. Provides that for tax years ending on or after December 31, 1998, persons other than residents who derive business income from this State and one or more other states shall apportion their business income using a single factor sales formula. Provides that this sales factor shall be a fraction, the numerator of which is the total sales of the person in this State during the taxable year, and the denominator of which is the total sales of the person everywhere during the taxable year. Provides that no penalty shall be imposed for failure to pay the estimated tax due before the effective date of this amendatory Act if the underpayments are solely attributable to the change in the apportionment of income. In the definition of "unitary business group", provides that if the members' accounting periods differ, the common parent's accounting period, or if there is no common parent, the accounting period of the member that is expected to have, on a recurring basis, the greatest Illinois income tax liability must be used to determine which apportionment method to use. Provides that the provisions of this amendatory Act apply to tax years ending on or after December 31, 1998. Effective immediately. LRB9009102KDcd LRB90009102KDcd 1 AN ACT to amend the Illinois Income Tax Act by changing 2 Sections 304, 804, and 1501. 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 Sections 304, 804, and 1501 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, for tax 15 years ending on or before December 30, 1998, and except as 16 otherwise provided by this Section, such person's business 17 income shall be apportioned to this State by multiplying the 18 income by a fraction, the numerator of which is the sum of 19 the property factor (if any), the payroll factor (if any) and 20 200% of the sales factor (if any), and the denominator of 21 which is 4 reduced by the number of factors other than the 22 sales factor which have a denominator of zero and by an 23 additional 2 if the sales factor has a denominator of zero. 24 For tax years ending on or after December 31, 1998, and 25 except as otherwise provided by this Section, persons other 26 than residents who derive business income from this State and 27 one or more other states shall apportion their business 28 income to this State as provided in subsection (h) of this 29 Section. 30 (1) Property factor. 31 (A) The property factor is a fraction, the -2- LRB9009102KDcd 1 numerator of which is the average value of the person's 2 real and tangible personal property owned or rented and 3 used in the trade or business in this State during the 4 taxable year and the denominator of which is the average 5 value of all the person's real and tangible personal 6 property owned or rented and used in the trade or 7 business during the taxable year. 8 (B) Property owned by the person is valued at its 9 original cost. Property rented by the person is valued at 10 8 times the net annual rental rate. Net annual rental 11 rate is the annual rental rate paid by the person less 12 any annual rental rate received by the person from 13 sub-rentals. 14 (C) The average value of property shall be 15 determined by averaging the values at the beginning and 16 ending of the taxable year but the Director may require 17 the averaging of monthly values during the taxable year 18 if reasonably required to reflect properly the average 19 value of the person's property. 20 (2) Payroll factor. 21 (A) The payroll factor is a fraction, the numerator 22 of which is the total amount paid in this State during 23 the taxable year by the person for compensation, and the 24 denominator of which is the total compensation paid 25 everywhere during the taxable year. 26 (B) Compensation is paid in this State if: 27 (i) The individual's service is performed 28 entirely within this State; 29 (ii) The individual's service is performed 30 both within and without this State, but the service 31 performed without this State is incidental to the 32 individual's service performed within this State; or 33 (iii) Some of the service is performed within 34 this State and either the base of operations, or if -3- LRB9009102KDcd 1 there is no base of operations, the place from which 2 the service is directed or controlled is within this 3 State, or the base of operations or the place from 4 which the service is directed or controlled is not 5 in any state in which some part of the service is 6 performed, but the individual's residence is in this 7 State. 8 Beginning with taxable years ending on or after 9 December 31, 1992, for residents of states that impose a 10 comparable tax liability on residents of this State, for 11 purposes of item (i) of this paragraph (B), in the case 12 of persons who perform personal services under personal 13 service contracts for sports performances, services by 14 that person at a sporting event taking place in Illinois 15 shall be deemed to be a performance entirely within this 16 State. 17 (3) Sales factor. 18 (A) The sales factor is a fraction, the numerator 19 of which is the total sales of the person in this State 20 during the taxable year, and the denominator of which is 21 the total sales of the person everywhere during the 22 taxable year. 23 (B) Sales of tangible personal property are in this 24 State if: 25 (i) The property is delivered or shipped to a 26 purchaser, other than the United States government, 27 within this State regardless of the f. o. b. point 28 or other conditions of the sale; or 29 (ii) The property is shipped from an office, 30 store, warehouse, factory or other place of storage 31 in this State and either the purchaser is the United 32 States government or the person is not taxable in 33 the state of the purchaser; provided, however, that 34 premises owned or leased by a person who has -4- LRB9009102KDcd 1 independently contracted with the seller for the 2 printing of newspapers, periodicals or books shall 3 not be deemed to be an office, store, warehouse, 4 factory or other place of storage for purposes of 5 this Section. Sales of tangible personal property 6 are not in this State if the seller and purchaser 7 would be members of the same unitary business group 8 but for the fact that either the seller or purchaser 9 is a person with 80% or more of total business 10 activity outside of the United States and the 11 property is purchased for resale. 12 (C) Sales, other than sales of tangible personal 13 property, are in this State if: 14 (i) The income-producing activity is performed 15 in this State; or 16 (ii) The income-producing activity is 17 performed both within and without this State and a 18 greater proportion of the income-producing activity 19 is performed within this State than without this 20 State, based on performance costs. 21 (D) For taxable years ending on or after December 22 31, 1995, the following items of income shall not be 23 included in the numerator or denominator of the sales 24 factor: dividends; amounts included under Section 78 of 25 the Internal Revenue Code; and Subpart F income as 26 defined in Section 952 of the Internal Revenue Code. No 27 inference shall be drawn from the enactment of this 28 paragraph (D) in construing this Section for taxable 29 years ending before December 31, 1995. 30 (b) Insurance companies. 31 (1) In general. Except as otherwise provided by 32 paragraph (2), business income of an insurance company for a 33 taxable year shall be apportioned to this State by 34 multiplying such income by a fraction, the numerator of which -5- LRB9009102KDcd 1 is the direct premiums written for insurance upon property or 2 risk in this State, and the denominator of which is the 3 direct premiums written for insurance upon property or risk 4 everywhere. For purposes of this subsection, the term "direct 5 premiums written" means the total amount of direct premiums 6 written, assessments and annuity considerations as reported 7 for the taxable year on the annual statement filed by the 8 company with the Illinois Director of Insurance in the form 9 approved by the National Convention of Insurance 10 Commissioners or such other form as may be prescribed in lieu 11 thereof. 12 (2) Reinsurance. If the principal source of premiums 13 written by an insurance company consists of premiums for 14 reinsurance accepted by it, the business income of such 15 company shall be apportioned to this State by multiplying 16 such income by a fraction, the numerator of which is the sum 17 of (i) direct premiums written for insurance upon property or 18 risk in this State, plus (ii) premiums written for 19 reinsurance accepted in respect of property or risk in this 20 State, and the denominator of which is the sum of (iii) 21 direct premiums written for insurance upon property or risk 22 everywhere, plus (iv) premiums written for reinsurance 23 accepted in respect of property or risk everywhere. For 24 purposes of this paragraph, premiums written for reinsurance 25 accepted in respect of property or risk in this State, 26 whether or not otherwise determinable, may, at the election 27 of the company, be determined on the basis of the proportion 28 which premiums written for reinsurance accepted from 29 companies commercially domiciled in Illinois bears to 30 premiums written for reinsurance accepted from all sources, 31 or, alternatively, in the proportion which the sum of the 32 direct premiums written for insurance upon property or risk 33 in this State by each ceding company from which reinsurance 34 is accepted bears to the sum of the total direct premiums -6- LRB9009102KDcd 1 written by each such ceding company for the taxable year. 2 (c) Financial organizations. 3 (1) In general. Business income of a financial 4 organization shall be apportioned to this State by 5 multiplying such income by a fraction, the numerator of which 6 is its business income from sources within this State, and 7 the denominator of which is its business income from all 8 sources. For the purposes of this subsection, the business 9 income of a financial organization from sources within this 10 State is the sum of the amounts referred to in subparagraphs 11 (A) through (E) following, but excluding the adjusted income 12 of an international banking facility as determined in 13 paragraph (2): 14 (A) Fees, commissions or other compensation for 15 financial services rendered within this State; 16 (B) Gross profits from trading in stocks, bonds or 17 other securities managed within this State; 18 (C) Dividends, and interest from Illinois 19 customers, which are received within this State; 20 (D) Interest charged to customers at places of 21 business maintained within this State for carrying debit 22 balances of margin accounts, without deduction of any 23 costs incurred in carrying such accounts; and 24 (E) Any other gross income resulting from the 25 operation as a financial organization within this State. 26 In computing the amounts referred to in paragraphs (A) 27 through (E) of this subsection, any amount received by a 28 member of an affiliated group (determined under Section 29 1504(a) of the Internal Revenue Code but without 30 reference to whether any such corporation is an 31 "includible corporation" under Section 1504(b) of the 32 Internal Revenue Code) from another member of such group 33 shall be included only to the extent such amount exceeds 34 expenses of the recipient directly related thereto. -7- LRB9009102KDcd 1 (2) International Banking Facility. 2 (A) Adjusted Income. The adjusted income of an 3 international banking facility is its income reduced by 4 the amount of the floor amount. 5 (B) Floor Amount. The floor amount shall be the 6 amount, if any, determined by multiplying the income of 7 the international banking facility by a fraction, not 8 greater than one, which is determined as follows: 9 (i) The numerator shall be: 10 The average aggregate, determined on a 11 quarterly basis, of the financial organization's 12 loans to banks in foreign countries, to foreign 13 domiciled borrowers (except where secured primarily 14 by real estate) and to foreign governments and other 15 foreign official institutions, as reported for its 16 branches, agencies and offices within the state on 17 its "Consolidated Report of Condition", Schedule A, 18 Lines 2.c., 5.b., and 7.a., which was filed with the 19 Federal Deposit Insurance Corporation and other 20 regulatory authorities, for the year 1980, minus 21 The average aggregate, determined on a 22 quarterly basis, of such loans (other than loans of 23 an international banking facility), as reported by 24 the financial institution for its branches, agencies 25 and offices within the state, on the corresponding 26 Schedule and lines of the Consolidated Report of 27 Condition for the current taxable year, provided, 28 however, that in no case shall the amount determined 29 in this clause (the subtrahend) exceed the amount 30 determined in the preceding clause (the minuend); 31 and 32 (ii) the denominator shall be the average 33 aggregate, determined on a quarterly basis, of the 34 international banking facility's loans to banks in -8- LRB9009102KDcd 1 foreign countries, to foreign domiciled borrowers 2 (except where secured primarily by real estate) and 3 to foreign governments and other foreign official 4 institutions, which were recorded in its financial 5 accounts for the current taxable year. 6 (C) Change to Consolidated Report of Condition and 7 in Qualification. In the event the Consolidated Report 8 of Condition which is filed with the Federal Deposit 9 Insurance Corporation and other regulatory authorities is 10 altered so that the information required for determining 11 the floor amount is not found on Schedule A, lines 2.c., 12 5.b. and 7.a., the financial institution shall notify the 13 Department and the Department may, by regulations or 14 otherwise, prescribe or authorize the use of an 15 alternative source for such information. The financial 16 institution shall also notify the Department should its 17 international banking facility fail to qualify as such, 18 in whole or in part, or should there be any amendment or 19 change to the Consolidated Report of Condition, as 20 originally filed, to the extent such amendment or change 21 alters the information used in determining the floor 22 amount. 23 (d) Transportation services. Business income derived 24 from furnishing transportation services shall be apportioned 25 to this State in accordance with paragraphs (1) and (2): 26 (1) Such business income (other than that derived 27 from transportation by pipeline) shall be apportioned to 28 this State by multiplying such income by a fraction, the 29 numerator of which is the revenue miles of the person in 30 this State, and the denominator of which is the revenue 31 miles of the person everywhere. For purposes of this 32 paragraph, a revenue mile is the transportation of 1 33 passenger or 1 net ton of freight the distance of 1 mile 34 for a consideration. Where a person is engaged in the -9- LRB9009102KDcd 1 transportation of both passengers and freight, the 2 fraction above referred to shall be determined by means 3 of an average of the passenger revenue mile fraction and 4 the freight revenue mile fraction, weighted to reflect 5 the person's 6 (A) relative railway operating income from 7 total passenger and total freight service, as 8 reported to the Interstate Commerce Commission, in 9 the case of transportation by railroad, and 10 (B) relative gross receipts from passenger and 11 freight transportation, in case of transportation 12 other than by railroad. 13 (2) Such business income derived from 14 transportation by pipeline shall be apportioned to this 15 State by multiplying such income by a fraction, the 16 numerator of which is the revenue miles of the person in 17 this State, and the denominator of which is the revenue 18 miles of the person everywhere. For the purposes of this 19 paragraph, a revenue mile is the transportation by 20 pipeline of 1 barrel of oil, 1,000 cubic feet of gas, or 21 of any specified quantity of any other substance, the 22 distance of 1 mile for a consideration. 23 (e) Combined apportionment. Where 2 or more persons are 24 engaged in a unitary business as described in subsection 25 (a)(27) of Section 1501, a part of which is conducted in this 26 State by one or more members of the group, the business 27 income attributable to this State by any such member or 28 members shall be apportioned by means of the combined 29 apportionment method. 30 (f) Alternative allocation. If the allocation and 31 apportionment provisions of subsections (a) through (e) and 32 of subsection (h) do not fairly represent the extent of a 33 person's business activity in this State, the person may 34 petition for, or the Director may require, in respect of all -10- LRB9009102KDcd 1 or any part of the person's business activity, if reasonable: 2 (1) Separate accounting; 3 (2) The exclusion of any one or more factors; 4 (3) The inclusion of one or more additional factors 5 which will fairly represent the person's business 6 activities in this State; or 7 (4) The employment of any other method to 8 effectuate an equitable allocation and apportionment of 9 the person's business income. 10 (g) Cross reference. For allocation of business income 11 by residents, see Section 301(a). 12 (h) Sales factor. For tax years ending on or after 13 December 31, 1998, persons other than residents who derive 14 business income from this State and one or more other states 15 shall apportion their business income to this State by 16 multiplying the income by the sales factor. 17 (1) 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 (2) Sales of tangible personal property are in this 23 State if the property is delivered or shipped to a 24 purchaser within this State regardless of the f.o.b. 25 point or other conditions of the sale. 26 (3) Sales, other than sales of tangible personal 27 property, are in this State if: 28 (A) the income producing activity is performed 29 in this State; or 30 (B) the income producing activity is performed 31 both within and without this State and a greater 32 proportion of the income-producing activity is 33 performed within this State than without this State, 34 based on performance costs. -11- LRB9009102KDcd 1 (4) The following items of income shall not be 2 included in the numerator or denominator of the sales 3 factor: dividends; amounts included under Section 78 of 4 the Internal Revenue Code; and Subpart F income as 5 defined in Section 952 of the Internal Revenue Code. 6 (Source: P.A. 89-379, eff. 1-1-96; 89-399, eff. 8-20-95; 7 89-626, eff. 8-9-96; 90-562, eff. 12-16-97.) 8 (35 ILCS 5/804) (from Ch. 120, par. 8-804) 9 Sec. 804. Failure to Pay Estimated Tax. 10 (a) In general. In case of any underpayment of estimated 11 tax by a taxpayer, except as provided in subsection (d) or 12 (e), the taxpayer shall be liable to a penalty in an amount 13 determined at the rate prescribed by Section 3-3 of the 14 Uniform Penalty and Interest Act upon the amount of the 15 underpayment (determined under subsection (b)) for each 16 required installment. 17 (b) Amount of underpayment. For purposes of subsection 18 (a), the amount of the underpayment shall be the excess of: 19 (1) the amount of the installment which would be 20 required to be paid under subsection (c), over 21 (2) the amount, if any, of the installment paid on 22 or before the last date prescribed for payment. 23 (c) Amount of Required Installments. 24 (1) Amount. 25 (A) In General. Except as provided in 26 paragraph (2), the amount of any required 27 installment shall be 25% of the required annual 28 payment. 29 (B) Required Annual Payment. For purposes of 30 subparagraph (A), the term "required annual payment" 31 means the lesser of 32 (i) 90% of the tax shown on the return 33 for the taxable year, or if no return is filed, -12- LRB9009102KDcd 1 90% of the tax for such year, or 2 (ii) 100% of the tax shown on the return 3 of the taxpayer for the preceding taxable year 4 if a return showing a liability for tax was 5 filed by the taxpayer for the preceding taxable 6 year and such preceding year was a taxable year 7 of 12 months. 8 (2) Lower Required Installment where Annualized 9 Income Installment is Less Than Amount Determined Under 10 Paragraph (1). 11 (A) In General. In the case of any required 12 installment if a taxpayer establishes that the 13 annualized income installment is less than the 14 amount determined under paragraph (1), 15 (i) the amount of such required 16 installment shall be the annualized income 17 installment, and 18 (ii) any reduction in a required 19 installment resulting from the application of 20 this subparagraph shall be recaptured by 21 increasing the amount of the next required 22 installment determined under paragraph (1) by 23 the amount of such reduction, and by increasing 24 subsequent required installments to the extent 25 that the reduction has not previously been 26 recaptured under this clause. 27 (B) Determination of Annualized Income 28 Installment. In the case of any required 29 installment, the annualized income installment is 30 the excess, if any, of 31 (i) an amount equal to the applicable 32 percentage of the tax for the taxable year 33 computed by placing on an annualized basis the 34 net income for months in the taxable year -13- LRB9009102KDcd 1 ending before the due date for the installment, 2 over 3 (ii) the aggregate amount of any prior 4 required installments for the taxable year. 5 (C) Applicable Percentage. 6 In the case of the following The applicable 7 required installments: percentage is: 8 1st ............................... 22.5% 9 2nd ............................... 45% 10 3rd ............................... 67.5% 11 4th ............................... 90% 12 (D) Annualized Net Income; Individuals. For 13 individuals, net income shall be placed on an 14 annualized basis by: 15 (i) multiplying by 12, or in the case of 16 a taxable year of less than 12 months, by the 17 number of months in the taxable year, the net 18 income computed without regard to the standard 19 exemption for the months in the taxable year 20 ending before the month in which the 21 installment is required to be paid; 22 (ii) dividing the resulting amount by the 23 number of months in the taxable year ending 24 before the month in which such installment date 25 falls; and 26 (iii) deducting from such amount the 27 standard exemption allowable for the taxable 28 year, such standard exemption being determined 29 as of the last date prescribed for payment of 30 the installment. 31 (E) Annualized Net Income; Corporations. For 32 corporations, net income shall be placed on an 33 annualized basis by multiplying by 12 the taxable 34 income -14- LRB9009102KDcd 1 (i) for the first 3 months of the taxable 2 year, in the case of the installment required 3 to be paid in the 4th month, 4 (ii) for the first 3 months or for the 5 first 5 months of the taxable year, in the case 6 of the installment required to be paid in the 7 6th month, 8 (iii) for the first 6 months or for the 9 first 8 months of the taxable year, in the case 10 of the installment required to be paid in the 11 9th month, and 12 (iv) for the first 9 months or for the 13 first 11 months of the taxable year, in the 14 case of the installment required to be paid in 15 the 12th month of the taxable year, 16 then dividing the resulting amount by the number of 17 months in the taxable year (3, 5, 6, 8, 9, or 11 as 18 the case may be). 19 (d) Exceptions. Notwithstanding the provisions of the 20 preceding subsections, the penalty imposed by subsection (a) 21 shall not be imposed if the taxpayer was not required to file 22 an Illinois income tax return for the preceding taxable year, 23
or if the taxpayer has underpaid taxes solely because of the24 increased rate in effect during the period from July 1, 198925 through December 1989,or, for individuals, if the taxpayer 26 had no tax liability for the preceding taxable year and such 27 year was a taxable year of 12 months. The penalty imposed by 28 subsection (a) shall also not be imposed on any underpayments 29 of estimated tax due before the effective date of this 30 amendatory Act of 1998 which underpayments are solely 31 attributable to the change in apportionment from subsection 32 (a) to subsection (h) of Section 304. The provisions of this 33 amendatory Act of 1998 apply to tax years ending on or after 34 December 31, 1998. -15- LRB9009102KDcd 1 (e) The penalty imposed for underpayment of estimated 2 tax by subsection (a) of this Section shall not be imposed to 3 the extent that the Department or his designate determines, 4 pursuant to Section 3-8 of the Uniform Penalty and Interest 5 Act that the penalty should not be imposed. 6 (f) Definition of tax. For purposes of subsections (b) 7 and (c), the term "tax" means the excess of the tax imposed 8 under Article 2 of this Act, over the amounts credited 9 against such tax under Sections 601(b) (3) and (4). 10 (g) Application of Section in case of tax withheld on 11 compensation. For purposes of applying this Section in the 12 case of an individual, tax withheld under Article 7 for the 13 taxable year shall be deemed a payment of estimated tax, and 14 an equal part of such amount shall be deemed paid on each 15 installment date for such taxable year, unless the taxpayer 16 establishes the dates on which all amounts were actually 17 withheld, in which case the amounts so withheld shall be 18 deemed payments of estimated tax on the dates on which such 19 amounts were actually withheld. 20 (g-5) Amounts withheld under the State Salary and 21 Annuity Withholding Act. An individual who has amounts 22 withheld under paragraph (10) of Section 4 of the State 23 Salary and Annuity Withholding Act may elect to have those 24 amounts treated as payments of estimated tax made on the 25 dates on which those amounts are actually withheld. 26 (i) Short taxable year. The application of this Section 27 to taxable years of less than 12 months shall be in 28 accordance with regulations prescribed by the Department. 29 The changes in this Section made by Public Act 84-127 30 shall apply to taxable years ending on or after January 1, 31 1986. 32 (Source: P.A. 90-448, eff. 8-16-97.) 33 (35 ILCS 5/1501) (from Ch. 120, par. 15-1501) -16- LRB9009102KDcd 1 Sec. 1501. Definitions. 2 (a) In general. When used in this Act, where not 3 otherwise distinctly expressed or manifestly incompatible 4 with the intent thereof: 5 (1) Business income. The term "business income" 6 means income arising from transactions and activity in 7 the regular course of the taxpayer's trade or business, 8 net of the deductions allocable thereto, and includes 9 income from tangible and intangible property if the 10 acquisition, management, and disposition of the property 11 constitute integral parts of the taxpayer's regular trade 12 or business operations. Such term does not include 13 compensation or the deductions allocable thereto. 14 (2) Commercial domicile. The term "commercial 15 domicile" means the principal place from which the trade 16 or business of the taxpayer is directed or managed. 17 (3) Compensation. The term "compensation" means 18 wages, salaries, commissions and any other form of 19 remuneration paid to employees for personal services. 20 (4) Corporation. The term "corporation" includes 21 associations, joint-stock companies, insurance companies 22 and cooperatives. Any entity, including a limited 23 liability company formed under the Illinois Limited 24 Liability Company Act, shall be treated as a corporation 25 if it is so classified for federal income tax purposes. 26 (5) Department. The term "Department" means the 27 Department of Revenue of this State. 28 (6) Director. The term "Director" means the 29 Director of Revenue of this State. 30 (7) Fiduciary. The term "fiduciary" means a 31 guardian, trustee, executor, administrator, receiver, or 32 any person acting in any fiduciary capacity for any 33 person. 34 (8) Financial organization. -17- LRB9009102KDcd 1 (A) The term "financial organization" means 2 any bank, bank holding company, trust company, 3 savings bank, industrial bank, land bank, safe 4 deposit company, private banker, savings and loan 5 association, building and loan association, credit 6 union, currency exchange, cooperative bank, small 7 loan company, sales finance company, investment 8 company, or any person which is owned by a bank or 9 bank holding company. For the purpose of this 10 Section a "person" will include only those persons 11 which a bank holding company may acquire and hold an 12 interest in, directly or indirectly, under the 13 provisions of the Bank Holding Company Act of 1956 14 (12 U.S.C. 1841, et seq.), except where interests in 15 any person must be disposed of within certain 16 required time limits under the Bank Holding Company 17 Act of 1956. 18 (B) For purposes of subparagraph (A) of this 19 paragraph, the term "bank" includes (i) any entity 20 that is regulated by the Comptroller of the Currency 21 under the National Bank Act, or by the Federal 22 Reserve Board, or by the Federal Deposit Insurance 23 Corporation and (ii) any federally or State 24 chartered bank operating as a credit card bank. 25 (C) For purposes of subparagraph (A) of this 26 paragraph, the term "sales finance company" means a 27 person primarily engaged in the business of 28 purchasing or making loans upon the security of 29 retail installment contracts or retail charge 30 agreements or the outstanding balances under such 31 contracts or agreements. The term includes but is 32 not limited to persons: (i) to whom the Sales 33 Finance Agency Act is rendered inapplicable by 34 subsection (b) of Section 17 thereof; (ii) engaged -18- LRB9009102KDcd 1 in consumer sales finance activities governed by the 2 Sales Finance Agency Act or that would be governed 3 by that Act if conducted in this State; (iii) 4 engaged in activities governed by the Retail 5 Installment Sales Act, including the making or 6 purchasing of retail installment contracts or retail 7 charge agreements for "goods" or "services" as 8 defined in that Act, or activities that would be 9 governed by that Act if conducted in this State; 10 (iv) engaged in activities governed by the Motor 11 Vehicle Retail Installment Sales Act or that would 12 be governed by that Act if conducted in this State; 13 (v) engaged in commercial finance activities 14 governed by the Illinois Uniform Commercial Code or 15 that would be governed by that Code if conducted in 16 this State; or (vi) engaged in the finance leasing 17 of tangible personal property where "finance 18 leasing" is activity that is the economic equivalent 19 of an extension of credit and for which a deduction 20 for depreciation under Section 167 of the Internal 21 Revenue Code of 1986 is not available to a lessor. 22 (D) Subparagraphs (B) and (C) of this 23 paragraph are declaratory of existing law and apply 24 retroactively, for all tax years beginning on or 25 before December 31, 1996, to all original returns, 26 to all amended returns filed no later than 30 days 27 after the effective date of this amendatory Act of 28 1996, and to all notices issued on or before the 29 effective date of this amendatory Act of 1996 under 30 subsection (a) of Section 903, subsection (a) of 31 Section 904, subsection (e) of Section 909, or 32 Section 912. A taxpayer that is a "financial 33 organization" that engages in any transaction with 34 an affiliate shall be a "financial organization" for -19- LRB9009102KDcd 1 all purposes of this Act. 2 (E) For all tax years beginning on or before 3 December 31, 1996, a taxpayer that falls within the 4 definition of a "financial organization" under 5 subparagraphs (B) or (C) of this paragraph, but who 6 does not fall within the definition of a "financial 7 organization" under the Proposed Regulations issued 8 by the Department of Revenue on July 19, 1996, may 9 irrevocably elect to apply the Proposed Regulations 10 for all of those years as though the Proposed 11 Regulations had been lawfully promulgated, adopted, 12 and in effect for all of those years. For purposes 13 of applying subparagraphs (B) or (C) of this 14 paragraph to all of those years, the election 15 allowed by this subparagraph applies only to the 16 taxpayer making the election and to those members of 17 the taxpayer's unitary business group who are 18 ordinarily required to apportion business income 19 under the same subsection of Section 304 of this Act 20 as the taxpayer making the election. No election 21 allowed by this subparagraph shall be made under a 22 claim filed under subsection (d) of Section 909 more 23 than 30 days after the effective date of this 24 amendatory Act of 1996. 25 (9) Fiscal year. The term "fiscal year" means an 26 accounting period of 12 months ending on the last day of 27 any month other than December. 28 (10) Includes and including. The terms "includes" 29 and "including" when used in a definition contained in 30 this Act shall not be deemed to exclude other things 31 otherwise within the meaning of the term defined. 32 (11) Internal Revenue Code. The term "Internal 33 Revenue Code" means the United States Internal Revenue 34 Code of 1954 or any successor law or laws relating to -20- LRB9009102KDcd 1 federal income taxes in effect for the taxable year. 2 (12) Mathematical error. The term "mathematical 3 error" includes the following types of errors, omissions, 4 or defects in a return filed by a taxpayer which prevents 5 acceptance of the return as filed for processing: 6 (A) arithmetic errors or incorrect 7 computations on the return or supporting schedules; 8 (B) entries on the wrong lines; 9 (C) omission of required supporting forms or 10 schedules or the omission of the information in 11 whole or in part called for thereon; and 12 (D) an attempt to claim, exclude, deduct, or 13 improperly report, in a manner directly contrary to 14 the provisions of the Act and regulations thereunder 15 any item of income, exemption, deduction, or credit. 16 (13) Nonbusiness income. The term "nonbusiness 17 income" means all income other than business income or 18 compensation. 19 (14) Nonresident. The term "nonresident" means a 20 person who is not a resident. 21 (15) Paid, incurred and accrued. The terms "paid", 22 "incurred" and "accrued" shall be construed according to 23 the method of accounting upon the basis of which the 24 person's base income is computed under this Act. 25 (16) Partnership and partner. The term 26 "partnership" includes a syndicate, group, pool, joint 27 venture or other unincorporated organization, through or 28 by means of which any business, financial operation, or 29 venture is carried on, and which is not, within the 30 meaning of this Act, a trust or estate or a corporation; 31 and the term "partner" includes a member in such 32 syndicate, group, pool, joint venture or organization. 33 Any entity, including a limited liability company 34 formed under the Illinois Limited Liability Company Act, -21- LRB9009102KDcd 1 shall be treated as a partnership if it is so classified 2 for federal income tax purposes. 3 For purposes of the tax imposed at subsection (c) of 4 Section 201 of this Act, the term "partnership" does not 5 include a syndicate, group, pool, joint venture or other 6 unincorporated organization established for the sole 7 purpose of playing the Illinois State Lottery. 8 (17) Part-year resident. The term "part-year 9 resident" means an individual who became a resident 10 during the taxable year or ceased to be a resident during 11 the taxable year. Under Section 1501 (a) (20) (A) (i) 12 residence commences with presence in this State for other 13 than a temporary or transitory purpose and ceases with 14 absence from this State for other than a temporary or 15 transitory purpose. Under Section 1501 (a) (20) (A) (ii) 16 residence commences with the establishment of domicile in 17 this State and ceases with the establishment of domicile 18 in another State. 19 (18) Person. The term "person" shall be construed 20 to mean and include an individual, a trust, estate, 21 partnership, association, firm, company, corporation, 22 limited liability company, or fiduciary. For purposes of 23 Section 1301 and 1302 of this Act, a "person" means (i) 24 an individual, (ii) a corporation, (iii) an officer, 25 agent, or employee of a corporation, (iv) a member, agent 26 or employee of a partnership, or (v) a member, manager, 27 employee, officer, director, or agent of a limited 28 liability company who in such capacity commits an offense 29 specified in Section 1301 and 1302. 30 (18A) Records. The term "records" includes all 31 data maintained by the taxpayer, whether on paper, 32 microfilm, microfiche, or any type of machine-sensible 33 data compilation. 34 (19) Regulations. The term "regulations" includes -22- LRB9009102KDcd 1 rules promulgated and forms prescribed by the Department. 2 (20) Resident. The term "resident" means: 3 (A) an individual (i) who is in this State for 4 other than a temporary or transitory purpose during 5 the taxable year; or (ii) who is domiciled in this 6 State but is absent from the State for a temporary 7 or transitory purpose during the taxable year; 8 (B) The estate of a decedent who at his or her 9 death was domiciled in this State; 10 (C) A trust created by a will of a decedent 11 who at his death was domiciled in this State; and 12 (D) An irrevocable trust, the grantor of which 13 was domiciled in this State at the time such trust 14 became irrevocable. For purpose of this 15 subparagraph, a trust shall be considered 16 irrevocable to the extent that the grantor is not 17 treated as the owner thereof under Sections 671 18 through 678 of the Internal Revenue Code. 19 (21) Sales. The term "sales" means all gross 20 receipts of the taxpayer not allocated under Sections 21 301, 302 and 303. 22 (22) State. The term "state" when applied to a 23 jurisdiction other than this State means any state of the 24 United States, the District of Columbia, the Commonwealth 25 of Puerto Rico, any Territory or Possession of the United 26 States, and any foreign country, or any political 27 subdivision of any of the foregoing. For purposes of the 28 foreign tax credit under Section 601, the term "state" 29 means any state of the United States, the District of 30 Columbia, the Commonwealth of Puerto Rico, and any 31 territory or possession of the United States, or any 32 political subdivision of any of the foregoing, effective 33 for tax years ending on or after December 31, 1989. 34 (23) Taxable year. The term "taxable year" means -23- LRB9009102KDcd 1 the calendar year, or the fiscal year ending during such 2 calendar year, upon the basis of which the base income is 3 computed under this Act. "Taxable year" means, in the 4 case of a return made for a fractional part of a year 5 under the provisions of this Act, the period for which 6 such return is made. 7 (24) Taxpayer. The term "taxpayer" means any person 8 subject to the tax imposed by this Act. 9 (25) International banking facility. The term 10 international banking facility shall have the same 11 meaning as is set forth in the Illinois Banking Act or as 12 is set forth in the laws of the United States or 13 regulations of the Board of Governors of the Federal 14 Reserve System. 15 (26) Income Tax Return Preparer. 16 (A) The term "income tax return preparer" 17 means any person who prepares for compensation, or 18 who employs one or more persons to prepare for 19 compensation, any return of tax imposed by this Act 20 or any claim for refund of tax imposed by this Act. 21 The preparation of a substantial portion of a return 22 or claim for refund shall be treated as the 23 preparation of that return or claim for refund. 24 (B) A person is not an income tax return 25 preparer if all he or she does is 26 (i) furnish typing, reproducing, or other 27 mechanical assistance; 28 (ii) prepare returns or claims for 29 refunds for the employer by whom he or she is 30 regularly and continuously employed; 31 (iii) prepare as a fiduciary returns or 32 claims for refunds for any person; or 33 (iv) prepare claims for refunds for a 34 taxpayer in response to any notice of -24- LRB9009102KDcd 1 deficiency issued to that taxpayer or in 2 response to any waiver of restriction after the 3 commencement of an audit of that taxpayer or of 4 another taxpayer if a determination in the 5 audit of the other taxpayer directly or 6 indirectly affects the tax liability of the 7 taxpayer whose claims he or she is preparing. 8 (27) Unitary business group. The term "unitary 9 business group" means a group of persons related through 10 common ownership whose business activities are integrated 11 with, dependent upon and contribute to each other. The 12 group will not include those members whose business 13 activity outside the United States is 80% or more of any 14 such member's total business activity; for purposes of 15 this paragraph and clause (a) (3) (B) (ii) of Section 16 304, business activity within the United States shall be 17 measured by means of the factors ordinarily applicable 18 under subsections (a), (b), (c), and(d), or (h) of 19 Section 304 except that, in the case of members 20 ordinarily required to apportion business income by means 21 of the 3 factor formula of property, payroll and sales 22 specified in subsection (a) of Section 304, or the 23 single-factor sales formula specified in subsection (h) 24 of Section 304, such members shall not use the sales 25 factor in the computation and the results of the property 26 and payroll factor computations of subsection (a) of 27 Section 304 shall be divided by 2 (by one if either the 28 property or payroll factor has a denominator of zero). 29 The computation required by the preceding sentence shall, 30 in each case, involve the division of the member's 31 property, payroll, or revenue miles in the United States, 32 insurance premiums on property or risk in the United 33 States, or financial organization business income from 34 sources within the United States, as the case may be, by -25- LRB9009102KDcd 1 the respective worldwide figures for such items. Common 2 ownership in the case of corporations is the direct or 3 indirect control or ownership of more than 50% of the 4 outstanding voting stock of the persons carrying on 5 unitary business activity. Unitary business activity can 6 ordinarily be illustrated where the activities of the 7 members are: (1) in the same general line (such as 8 manufacturing, wholesaling, retailing of tangible 9 personal property, insurance, transportation or finance); 10 or (2) are steps in a vertically structured enterprise or 11 process (such as the steps involved in the production of 12 natural resources, which might include exploration, 13 mining, refining, and marketing); and, in either 14 instance, the members are functionally integrated through 15 the exercise of strong centralized management (where, for 16 example, authority over such matters as purchasing, 17 financing, tax compliance, product line, personnel, 18 marketing and capital investment is not left to each 19 member). In no event, however, will any unitary business 20 group include members which are ordinarily required to 21 apportion business income under different subsections of 22 Section 304 except that for tax years ending on or after 23 December 31, 1987 this prohibition shall not apply to a 24 unitary business group composed of one or more taxpayers 25 all of which apportion business income pursuant to 26 subsection (b) of Section 304, or all of which apportion 27 business income pursuant to subsection (d) of Section 28 304, and a holding company of such single-factor 29 taxpayers (see definition of "financial organization" for 30 rule regarding holding companies of financial 31 organizations). If a unitary business group would, but 32 for the preceding sentence, include members that are 33 ordinarily required to apportion business income under 34 different subsections of Section 304, then for each -26- LRB9009102KDcd 1 subsection of Section 304 for which there are two or more 2 members, there shall be a separate unitary business group 3 composed of such members. For purposes of the preceding 4 two sentences, a member is "ordinarily required to 5 apportion business income" under a particular subsection 6 of Section 304 if it would be required to use the 7 apportionment method prescribed by such subsection except 8 for the fact that it derives business income solely from 9 Illinois. If the unitary business group members' 10 accounting periods differ, the common parent's accounting 11 period or, if there is no common parent, the accounting 12 period of the member that is expected to have, on a 13 recurring basis, the greatest Illinois income tax 14 liability must be used to determine whether to use the 15 apportionment method provided in subsection (a) or 16 subsection (h) of Section 304. The prohibition against 17 membership in a unitary business group for taxpayers 18 ordinarily required to apportion income under different 19 subsections of Section 304 does not apply to taxpayers 20 required to apportion income under subsection (a) and 21 subsection (h) of Section 304. The provisions of this 22 amendatory Act of 1998 apply to tax years ending on or 23 after December 31, 1998. 24 (28) Subchapter S corporation. The term 25 "Subchapter S corporation" means a corporation for which 26 there is in effect an election under Section 1362 of the 27 Internal Revenue Code, or for which there is a federal 28 election to opt out of the provisions of the Subchapter S 29 Revision Act of 1982 and have applied instead the prior 30 federal Subchapter S rules as in effect on July 1, 1982. 31 (b) Other definitions. 32 (1) Words denoting number, gender, and so forth, 33 when used in this Act, where not otherwise distinctly 34 expressed or manifestly incompatible with the intent -27- LRB9009102KDcd 1 thereof: 2 (A) Words importing the singular include and 3 apply to several persons, parties or things; 4 (B) Words importing the plural include the 5 singular; and 6 (C) Words importing the masculine gender 7 include the feminine as well. 8 (2) "Company" or "association" as including 9 successors and assigns. The word "company" or 10 "association", when used in reference to a corporation, 11 shall be deemed to embrace the words "successors and 12 assigns of such company or association", and in like 13 manner as if these last-named words, or words of similar 14 import, were expressed. 15 (3) Other terms. Any term used in any Section of 16 this Act with respect to the application of, or in 17 connection with, the provisions of any other Section of 18 this Act shall have the same meaning as in such other 19 Section. 20 (Source: P.A. 88-480; 89-399, eff. 8-20-95; 89-711, eff. 21 2-14-97.) 22 Section 99. Effective date. This Act takes effect upon 23 becoming law.
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