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91_SB0799
LRB9101226PTpk
1 AN ACT to amend the Illinois Income Tax Act by changing
2 Section 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 Section 1501 as follows:
7 (35 ILCS 5/1501) (from Ch. 120, par. 15-1501)
8 Sec. 1501. Definitions.
9 (a) In general. When used in this Act, where not
10 otherwise distinctly expressed or manifestly incompatible
11 with the intent thereof:
12 (1) Business income. The term "business income"
13 means income arising from transactions and activity in
14 the regular course of the taxpayer's trade or business,
15 net of the deductions allocable thereto, and includes
16 income from tangible and intangible property if the
17 acquisition, management, and disposition of the property
18 constitute integral parts of the taxpayer's regular trade
19 or business operations. Such term does not include
20 compensation or the deductions allocable thereto.
21 (2) Commercial domicile. The term "commercial
22 domicile" means the principal place from which the trade
23 or business of the taxpayer is directed or managed.
24 (3) Compensation. The term "compensation" means
25 wages, salaries, commissions and any other form of
26 remuneration paid to employees for personal services.
27 (4) Corporation. The term "corporation" includes
28 associations, joint-stock companies, insurance companies
29 and cooperatives. Any entity, including a limited
30 liability company formed under the Illinois Limited
31 Liability Company Act, shall be treated as a corporation
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1 if it is so classified for federal income tax purposes.
2 (5) Department. The term "Department" means the
3 Department of Revenue of this State.
4 (6) Director. The term "Director" means the
5 Director of Revenue of this State.
6 (7) Fiduciary. The term "fiduciary" means a
7 guardian, trustee, executor, administrator, receiver, or
8 any person acting in any fiduciary capacity for any
9 person.
10 (8) Financial organization.
11 (A) The term "financial organization" means
12 any bank, bank holding company, trust company,
13 savings bank, industrial bank, land bank, safe
14 deposit company, private banker, savings and loan
15 association, building and loan association, credit
16 union, currency exchange, cooperative bank, small
17 loan company, sales finance company, investment
18 company, or any person which is owned by a bank or
19 bank holding company. For the purpose of this
20 Section a "person" will include only those persons
21 which a bank holding company may acquire and hold an
22 interest in, directly or indirectly, under the
23 provisions of the Bank Holding Company Act of 1956
24 (12 U.S.C. 1841, et seq.), except where interests in
25 any person must be disposed of within certain
26 required time limits under the Bank Holding Company
27 Act of 1956.
28 (B) For purposes of subparagraph (A) of this
29 paragraph, the term "bank" includes (i) any entity
30 that is regulated by the Comptroller of the Currency
31 under the National Bank Act, or by the Federal
32 Reserve Board, or by the Federal Deposit Insurance
33 Corporation and (ii) any federally or State
34 chartered bank operating as a credit card bank.
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1 (C) For purposes of subparagraph (A) of this
2 paragraph, the term "sales finance company" has the
3 meaning provided in the following item (i) or (ii):
4 means
5 (i) A person primarily engaged in the
6 business of purchasing or making loans upon the
7 security of customer receivables. For purposes
8 of this item (i), "customer receivable" means:
9 (a) a retail installment contract or
10 retail charge agreement within the meaning of
11 the Sales Finance Agency Act, the Retail
12 Installment Sales Act, or the Motor Vehicle
13 Retail Installment Sales Act;
14 (b) an installment, charge, credit, or
15 similar contract or agreement arising from the
16 sale of tangible personal property or services
17 in a transaction involving a deferred payment
18 price payable in one or more installments
19 subsequent to the sale; or
20 (c) the outstanding balance of a contract
21 or agreement described in provisions (a) or (b)
22 of this item (i).
23 A customer receivable need not provide for
24 payment of interest on deferred payments. A
25 sales finance company may purchase a customer
26 receivable from, or make a loan secured by a
27 customer receivable to, the seller in the
28 original transaction or to a person who
29 purchased the customer receivable directly or
30 indirectly from that seller.
31 (ii) A corporation meeting each of the
32 following criteria:
33 (a) the corporation must be a member of
34 an "affiliated group" within the meaning of
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1 Section 1504(a) of the Internal Revenue Code,
2 determined without regard to Section 1504(b) of
3 the Internal Revenue Code;
4 (b) more than 50% of the gross income of
5 the corporation for the taxable year must be
6 interest income derived from qualifying loans.
7 A "qualifying loan" is a loan made to a member
8 of the corporation's affiliated group that
9 originates customer receivables (within the
10 meaning of item (i)) or to whom customer
11 receivables originated by a member of the
12 affiliated group have been transferred, to the
13 extent the average outstanding balance of loans
14 from that corporation to members of its
15 affiliated group during the taxable year do not
16 exceed the limitation amount for that
17 corporation. The "limitation amount" for a
18 corporation is the average outstanding balances
19 during the taxable year of customer receivables
20 (within the meaning of item (i)) originated by
21 all members of the affiliated group. If the
22 average outstanding balances of the loans made
23 by a corporation to members of its affiliated
24 group exceed the limitation amount, the
25 interest income of that corporation from
26 qualifying loans shall be equal to its interest
27 income from loans to members of its affiliated
28 groups times a fraction equal to the limitation
29 amount divided by the average outstanding
30 balances of the loans made by that corporation
31 to members of its affiliated group;
32 (c) the total of all shareholder's equity
33 (including, without limitation, paid-in capital
34 on common and preferred stock and retained
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1 earnings) of the corporation plus the total of
2 all of its loans, advances, and other
3 obligations payable or owed to members of its
4 affiliated group may not exceed 20% of the
5 total assets of the corporation at any time
6 during the tax year; and
7 (d) more than 50% of all interest-bearing
8 obligations of the affiliated group payable to
9 persons outside the group determined in
10 accordance with generally accepted accounting
11 principles must be obligations of the
12 corporation.
13 This amendatory Act of the 91st General Assembly is
14 declaratory of existing law. retail installment contracts
15 or retail charge agreements or the outstanding balances
16 under such contracts or agreements. The term includes
17 but is not limited to persons: (i) to whom the Sales
18 Finance Agency Act is rendered inapplicable by subsection
19 (b) of Section 17 thereof; (ii) engaged in consumer sales
20 finance activities governed by the Sales Finance Agency
21 Act or that would be governed by that Act if conducted in
22 this State; (iii) engaged in activities governed by the
23 Retail Installment Sales Act, including the making or
24 purchasing of retail installment contracts or retail
25 charge agreements for "goods" or "services" as defined in
26 that Act, or activities that would be governed by that
27 Act if conducted in this State; (iv) engaged in
28 activities governed by the Motor Vehicle Retail
29 Installment Sales Act or that would be governed by that
30 Act if conducted in this State; (v) engaged in commercial
31 finance activities governed by the Illinois Uniform
32 Commercial Code or that would be governed by that Code if
33 conducted in this State; or (vi) engaged in the finance
34 leasing of tangible personal property where "finance
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1 leasing" is activity that is the economic equivalent of
2 an extension of credit and for which a deduction for
3 depreciation under Section 167 of the Internal Revenue
4 Code of 1986 is not available to a lessor.
5 (D) Subparagraphs (B) and (C) of this
6 paragraph are declaratory of existing law and apply
7 retroactively, for all tax years beginning on or
8 before December 31, 1996, to all original returns,
9 to all amended returns filed no later than 30 days
10 after the effective date of this amendatory Act of
11 1996, and to all notices issued on or before the
12 effective date of this amendatory Act of 1996 under
13 subsection (a) of Section 903, subsection (a) of
14 Section 904, subsection (e) of Section 909, or
15 Section 912. A taxpayer that is a "financial
16 organization" that engages in any transaction with
17 an affiliate shall be a "financial organization" for
18 all purposes of this Act.
19 (E) For all tax years beginning on or before
20 December 31, 1996, a taxpayer that falls within the
21 definition of a "financial organization" under
22 subparagraphs (B) or (C) of this paragraph, but who
23 does not fall within the definition of a "financial
24 organization" under the Proposed Regulations issued
25 by the Department of Revenue on July 19, 1996, may
26 irrevocably elect to apply the Proposed Regulations
27 for all of those years as though the Proposed
28 Regulations had been lawfully promulgated, adopted,
29 and in effect for all of those years. For purposes
30 of applying subparagraphs (B) or (C) of this
31 paragraph to all of those years, the election
32 allowed by this subparagraph applies only to the
33 taxpayer making the election and to those members of
34 the taxpayer's unitary business group who are
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1 ordinarily required to apportion business income
2 under the same subsection of Section 304 of this Act
3 as the taxpayer making the election. No election
4 allowed by this subparagraph shall be made under a
5 claim filed under subsection (d) of Section 909 more
6 than 30 days after the effective date of this
7 amendatory Act of 1996.
8 (9) Fiscal year. The term "fiscal year" means an
9 accounting period of 12 months ending on the last day of
10 any month other than December.
11 (10) Includes and including. The terms "includes"
12 and "including" when used in a definition contained in
13 this Act shall not be deemed to exclude other things
14 otherwise within the meaning of the term defined.
15 (11) Internal Revenue Code. The term "Internal
16 Revenue Code" means the United States Internal Revenue
17 Code of 1954 or any successor law or laws relating to
18 federal income taxes in effect for the taxable year.
19 (12) Mathematical error. The term "mathematical
20 error" includes the following types of errors, omissions,
21 or defects in a return filed by a taxpayer which prevents
22 acceptance of the return as filed for processing:
23 (A) arithmetic errors or incorrect
24 computations on the return or supporting schedules;
25 (B) entries on the wrong lines;
26 (C) omission of required supporting forms or
27 schedules or the omission of the information in
28 whole or in part called for thereon; and
29 (D) an attempt to claim, exclude, deduct, or
30 improperly report, in a manner directly contrary to
31 the provisions of the Act and regulations thereunder
32 any item of income, exemption, deduction, or credit.
33 (13) Nonbusiness income. The term "nonbusiness
34 income" means all income other than business income or
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1 compensation.
2 (14) Nonresident. The term "nonresident" means a
3 person who is not a resident.
4 (15) Paid, incurred and accrued. The terms "paid",
5 "incurred" and "accrued" shall be construed according to
6 the method of accounting upon the basis of which the
7 person's base income is computed under this Act.
8 (16) Partnership and partner. The term
9 "partnership" includes a syndicate, group, pool, joint
10 venture or other unincorporated organization, through or
11 by means of which any business, financial operation, or
12 venture is carried on, and which is not, within the
13 meaning of this Act, a trust or estate or a corporation;
14 and the term "partner" includes a member in such
15 syndicate, group, pool, joint venture or organization.
16 Any entity, including a limited liability company
17 formed under the Illinois Limited Liability Company Act,
18 shall be treated as a partnership if it is so classified
19 for federal income tax purposes.
20 For purposes of the tax imposed at subsection (c) of
21 Section 201 of this Act, the term "partnership" does not
22 include a syndicate, group, pool, joint venture or other
23 unincorporated organization established for the sole
24 purpose of playing the Illinois State Lottery.
25 (17) Part-year resident. The term "part-year
26 resident" means an individual who became a resident
27 during the taxable year or ceased to be a resident during
28 the taxable year. Under Section 1501 (a) (20) (A) (i)
29 residence commences with presence in this State for other
30 than a temporary or transitory purpose and ceases with
31 absence from this State for other than a temporary or
32 transitory purpose. Under Section 1501 (a) (20) (A) (ii)
33 residence commences with the establishment of domicile in
34 this State and ceases with the establishment of domicile
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1 in another State.
2 (18) Person. The term "person" shall be construed
3 to mean and include an individual, a trust, estate,
4 partnership, association, firm, company, corporation,
5 limited liability company, or fiduciary. For purposes of
6 Section 1301 and 1302 of this Act, a "person" means (i)
7 an individual, (ii) a corporation, (iii) an officer,
8 agent, or employee of a corporation, (iv) a member, agent
9 or employee of a partnership, or (v) a member, manager,
10 employee, officer, director, or agent of a limited
11 liability company who in such capacity commits an offense
12 specified in Section 1301 and 1302.
13 (18A) Records. The term "records" includes all
14 data maintained by the taxpayer, whether on paper,
15 microfilm, microfiche, or any type of machine-sensible
16 data compilation.
17 (19) Regulations. The term "regulations" includes
18 rules promulgated and forms prescribed by the Department.
19 (20) Resident. The term "resident" means:
20 (A) an individual (i) who is in this State for
21 other than a temporary or transitory purpose during
22 the taxable year; or (ii) who is domiciled in this
23 State but is absent from the State for a temporary
24 or transitory purpose during the taxable year;
25 (B) The estate of a decedent who at his or her
26 death was domiciled in this State;
27 (C) A trust created by a will of a decedent
28 who at his death was domiciled in this State; and
29 (D) An irrevocable trust, the grantor of which
30 was domiciled in this State at the time such trust
31 became irrevocable. For purpose of this
32 subparagraph, a trust shall be considered
33 irrevocable to the extent that the grantor is not
34 treated as the owner thereof under Sections 671
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1 through 678 of the Internal Revenue Code.
2 (21) Sales. The term "sales" means all gross
3 receipts of the taxpayer not allocated under Sections
4 301, 302 and 303.
5 (22) State. The term "state" when applied to a
6 jurisdiction other than this State means any state of the
7 United States, the District of Columbia, the Commonwealth
8 of Puerto Rico, any Territory or Possession of the United
9 States, and any foreign country, or any political
10 subdivision of any of the foregoing. For purposes of the
11 foreign tax credit under Section 601, the term "state"
12 means any state of the United States, the District of
13 Columbia, the Commonwealth of Puerto Rico, and any
14 territory or possession of the United States, or any
15 political subdivision of any of the foregoing, effective
16 for tax years ending on or after December 31, 1989.
17 (23) Taxable year. The term "taxable year" means
18 the calendar year, or the fiscal year ending during such
19 calendar year, upon the basis of which the base income is
20 computed under this Act. "Taxable year" means, in the
21 case of a return made for a fractional part of a year
22 under the provisions of this Act, the period for which
23 such return is made.
24 (24) Taxpayer. The term "taxpayer" means any person
25 subject to the tax imposed by this Act.
26 (25) International banking facility. The term
27 international banking facility shall have the same
28 meaning as is set forth in the Illinois Banking Act or as
29 is set forth in the laws of the United States or
30 regulations of the Board of Governors of the Federal
31 Reserve System.
32 (26) Income Tax Return Preparer.
33 (A) The term "income tax return preparer"
34 means any person who prepares for compensation, or
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1 who employs one or more persons to prepare for
2 compensation, any return of tax imposed by this Act
3 or any claim for refund of tax imposed by this Act.
4 The preparation of a substantial portion of a return
5 or claim for refund shall be treated as the
6 preparation of that return or claim for refund.
7 (B) A person is not an income tax return
8 preparer if all he or she does is
9 (i) furnish typing, reproducing, or other
10 mechanical assistance;
11 (ii) prepare returns or claims for
12 refunds for the employer by whom he or she is
13 regularly and continuously employed;
14 (iii) prepare as a fiduciary returns or
15 claims for refunds for any person; or
16 (iv) prepare claims for refunds for a
17 taxpayer in response to any notice of
18 deficiency issued to that taxpayer or in
19 response to any waiver of restriction after the
20 commencement of an audit of that taxpayer or of
21 another taxpayer if a determination in the
22 audit of the other taxpayer directly or
23 indirectly affects the tax liability of the
24 taxpayer whose claims he or she is preparing.
25 (27) Unitary business group. The term "unitary
26 business group" means a group of persons related through
27 common ownership whose business activities are integrated
28 with, dependent upon and contribute to each other. The
29 group will not include those members whose business
30 activity outside the United States is 80% or more of any
31 such member's total business activity; for purposes of
32 this paragraph and clause (a) (3) (B) (ii) of Section
33 304, business activity within the United States shall be
34 measured by means of the factors ordinarily applicable
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1 under subsections (a), (b), (c), (d), or (h) of Section
2 304 except that, in the case of members ordinarily
3 required to apportion business income by means of the 3
4 factor formula of property, payroll and sales specified
5 in subsection (a) of Section 304, including the formula
6 as weighted in subsection (h) of Section 304, such
7 members shall not use the sales factor in the computation
8 and the results of the property and payroll factor
9 computations of subsection (a) of Section 304 shall be
10 divided by 2 (by one if either the property or payroll
11 factor has a denominator of zero). The computation
12 required by the preceding sentence shall, in each case,
13 involve the division of the member's property, payroll,
14 or revenue miles in the United States, insurance premiums
15 on property or risk in the United States, or financial
16 organization business income from sources within the
17 United States, as the case may be, by the respective
18 worldwide figures for such items. Common ownership in
19 the case of corporations is the direct or indirect
20 control or ownership of more than 50% of the outstanding
21 voting stock of the persons carrying on unitary business
22 activity. Unitary business activity can ordinarily be
23 illustrated where the activities of the members are: (1)
24 in the same general line (such as manufacturing,
25 wholesaling, retailing of tangible personal property,
26 insurance, transportation or finance); or (2) are steps
27 in a vertically structured enterprise or process (such as
28 the steps involved in the production of natural
29 resources, which might include exploration, mining,
30 refining, and marketing); and, in either instance, the
31 members are functionally integrated through the exercise
32 of strong centralized management (where, for example,
33 authority over such matters as purchasing, financing, tax
34 compliance, product line, personnel, marketing and
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1 capital investment is not left to each member). In no
2 event, however, will any unitary business group include
3 members which are ordinarily required to apportion
4 business income under different subsections of Section
5 304 except that for tax years ending on or after December
6 31, 1987 this prohibition shall not apply to a unitary
7 business group composed of one or more taxpayers all of
8 which apportion business income pursuant to subsection
9 (b) of Section 304, or all of which apportion business
10 income pursuant to subsection (d) of Section 304, and a
11 holding company of such single-factor taxpayers (see
12 definition of "financial organization" for rule regarding
13 holding companies of financial organizations). If a
14 unitary business group would, but for the preceding
15 sentence, include members that are ordinarily required to
16 apportion business income under different subsections of
17 Section 304, then for each subsection of Section 304 for
18 which there are two or more members, there shall be a
19 separate unitary business group composed of such members.
20 For purposes of the preceding two sentences, a member is
21 "ordinarily required to apportion business income" under
22 a particular subsection of Section 304 if it would be
23 required to use the apportionment method prescribed by
24 such subsection except for the fact that it derives
25 business income solely from Illinois. If the unitary
26 business group members' accounting periods differ, the
27 common parent's accounting period or, if there is no
28 common parent, the accounting period of the member that
29 is expected to have, on a recurring basis, the greatest
30 Illinois income tax liability must be used to determine
31 whether to use the apportionment method provided in
32 subsection (a) or subsection (h) of Section 304. The
33 prohibition against membership in a unitary business
34 group for taxpayers ordinarily required to apportion
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1 income under different subsections of Section 304 does
2 not apply to taxpayers required to apportion income under
3 subsection (a) and subsection (h) of Section 304. The
4 provisions of this amendatory Act of 1998 apply to tax
5 years ending on or after December 31, 1998.
6 (28) Subchapter S corporation. The term
7 "Subchapter S corporation" means a corporation for which
8 there is in effect an election under Section 1362 of the
9 Internal Revenue Code, or for which there is a federal
10 election to opt out of the provisions of the Subchapter S
11 Revision Act of 1982 and have applied instead the prior
12 federal Subchapter S rules as in effect on July 1, 1982.
13 (b) Other definitions.
14 (1) Words denoting number, gender, and so forth,
15 when used in this Act, where not otherwise distinctly
16 expressed or manifestly incompatible with the intent
17 thereof:
18 (A) Words importing the singular include and
19 apply to several persons, parties or things;
20 (B) Words importing the plural include the
21 singular; and
22 (C) Words importing the masculine gender
23 include the feminine as well.
24 (2) "Company" or "association" as including
25 successors and assigns. The word "company" or
26 "association", when used in reference to a corporation,
27 shall be deemed to embrace the words "successors and
28 assigns of such company or association", and in like
29 manner as if these last-named words, or words of similar
30 import, were expressed.
31 (3) Other terms. Any term used in any Section of
32 this Act with respect to the application of, or in
33 connection with, the provisions of any other Section of
34 this Act shall have the same meaning as in such other
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1 Section.
2 (Source: P.A. 89-399, eff. 8-20-95; 89-711, eff. 2-14-97;
3 90-613, eff. 7-9-98.)
4 Section 99. Effective date. This Act takes effect on
5 January 1, 2000.