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92_HB4901 LRB9211386SMdv 1 AN ACT concerning taxes. 2 Be it enacted by the People of the State of Illinois, 3 represented in the General Assembly: 4 Section 5. The Illinois Income Tax Act is amended by 5 changing Section 304 as follows: 6 (35 ILCS 5/304) (from Ch. 120, par. 3-304) 7 Sec. 304. Business income of persons other than 8 residents. 9 (a) In general. The business income of a person other 10 than a resident shall be allocated to this State if such 11 person's business income is derived solely from this State. 12 If a person other than a resident derives business income 13 from this State and one or more other states, then, for tax 14 years ending on or before December 30, 1998, for tax years 15 ending on or after December 31, 2002 and before December 31, 16 2007, and except as otherwise provided by this Section, such 17 person's business income shall be apportioned to this State 18 by multiplying the income by a fraction, the numerator of 19 which is the sum of the property factor (if any), the payroll 20 factor (if any) and 200% of the sales factor (if any), and 21 the denominator of which is 4 reduced by the number of 22 factors other than the sales factor which have a denominator 23 of zero and by an additional 2 if the sales factor has a 24 denominator of zero. For tax years ending on or after 25 December 31, 1998, and except as otherwise provided by this 26 Section, persons other than residents who derive business 27 income from this State and one or more other states shall 28 compute their apportionment factor by weighting their 29 property, payroll, and sales factors as provided in 30 subsection (h) of this Section. 31 (1) Property factor. -2- LRB9211386SMdv 1 (A) The property factor is a fraction, the 2 numerator of which is the average value of the person's 3 real and tangible personal property owned or rented and 4 used in the trade or business in this State during the 5 taxable year and the denominator of which is the average 6 value of all the person's real and tangible personal 7 property owned or rented and used in the trade or 8 business during the taxable year. 9 (B) Property owned by the person is valued at its 10 original cost. Property rented by the person is valued at 11 8 times the net annual rental rate. Net annual rental 12 rate is the annual rental rate paid by the person less 13 any annual rental rate received by the person from 14 sub-rentals. 15 (C) The average value of property shall be 16 determined by averaging the values at the beginning and 17 ending of the taxable year but the Director may require 18 the averaging of monthly values during the taxable year 19 if reasonably required to reflect properly the average 20 value of the person's property. 21 (2) Payroll factor. 22 (A) The payroll factor is a fraction, the numerator 23 of which is the total amount paid in this State during 24 the taxable year by the person for compensation, and the 25 denominator of which is the total compensation paid 26 everywhere during the taxable year. 27 (B) Compensation is paid in this State if: 28 (i) The individual's service is performed 29 entirely within this State; 30 (ii) The individual's service is performed 31 both within and without this State, but the service 32 performed without this State is incidental to the 33 individual's service performed within this State; or 34 (iii) Some of the service is performed within -3- LRB9211386SMdv 1 this State and either the base of operations, or if 2 there is no base of operations, the place from which 3 the service is directed or controlled is within this 4 State, or the base of operations or the place from 5 which the service is directed or controlled is not 6 in any state in which some part of the service is 7 performed, but the individual's residence is in this 8 State. 9 Beginning with taxable years ending on or after 10 December 31, 1992, for residents of states that impose a 11 comparable tax liability on residents of this State, for 12 purposes of item (i) of this paragraph (B), in the case 13 of persons who perform personal services under personal 14 service contracts for sports performances, services by 15 that person at a sporting event taking place in Illinois 16 shall be deemed to be a performance entirely within this 17 State. 18 (3) Sales factor. 19 (A) The sales factor is a fraction, the numerator 20 of which is the total sales of the person in this State 21 during the taxable year, and the denominator of which is 22 the total sales of the person everywhere during the 23 taxable year. 24 (B) Sales of tangible personal property are in this 25 State if: 26 (i) The property is delivered or shipped to a 27 purchaser, other than the United States government, 28 within this State regardless of the f. o. b. point 29 or other conditions of the sale; or 30 (ii) The property is shipped from an office, 31 store, warehouse, factory or other place of storage 32 in this State and either the purchaser is the United 33 States government or the person is not taxable in 34 the state of the purchaser; provided, however, that -4- LRB9211386SMdv 1 premises owned or leased by a person who has 2 independently contracted with the seller for the 3 printing of newspapers, periodicals or books shall 4 not be deemed to be an office, store, warehouse, 5 factory or other place of storage for purposes of 6 this Section. Sales of tangible personal property 7 are not in this State if the seller and purchaser 8 would be members of the same unitary business group 9 but for the fact that either the seller or purchaser 10 is a person with 80% or more of total business 11 activity outside of the United States and the 12 property is purchased for resale. 13 (B-1) Patents, copyrights, trademarks, and similar 14 items of intangible personal property. 15 (i) Gross receipts from the licensing, sale, 16 or other disposition of a patent, copyright, 17 trademark, or similar item of intangible personal 18 property are in this State to the extent the item is 19 utilized in this State during the year the gross 20 receipts are included in gross income. 21 (ii) Place of utilization. 22 (I) A patent is utilized in a state to 23 the extent that it is employed in production, 24 fabrication, manufacturing, or other processing 25 in the state or to the extent that a patented 26 product is produced in the state. If a patent 27 is utilized in more than one state, the extent 28 to which it is utilized in any one state shall 29 be a fraction equal to the gross receipts of 30 the licensee or purchaser from sales or leases 31 of items produced, fabricated, manufactured, or 32 processed within that state using the patent 33 and of patented items produced within that 34 state, divided by the total of such gross -5- LRB9211386SMdv 1 receipts for all states in which the patent is 2 utilized. 3 (II) A copyright is utilized in a state 4 to the extent that printing or other 5 publication originates in the state. If a 6 copyright is utilized in more than one state, 7 the extent to which it is utilized in any one 8 state shall be a fraction equal to the gross 9 receipts from sales or licenses of materials 10 printed or published in that state divided by 11 the total of such gross receipts for all states 12 in which the copyright is utilized. 13 (III) Trademarks and other items of 14 intangible personal property governed by this 15 paragraph (B-1) are utilized in the state in 16 which the commercial domicile of the licensee 17 or purchaser is located. 18 (iii) If the state of utilization of an item 19 of property governed by this paragraph (B-1) cannot 20 be determined from the taxpayer's books and records 21 or from the books and records of any person related 22 to the taxpayer within the meaning of Section 267(b) 23 of the Internal Revenue Code, 26 U.S.C. 267, the 24 gross receipts attributable to that item shall be 25 excluded from both the numerator and the denominator 26 of the sales factor. 27 (B-2) Gross receipts from the license, sale, or 28 other disposition of patents, copyrights, trademarks, and 29 similar items of intangible personal property may be 30 included in the numerator or denominator of the sales 31 factor only if gross receipts from licenses, sales, or 32 other disposition of such items comprise more than 50% of 33 the taxpayer's total gross receipts included in gross 34 income during the tax year and during each of the 2 -6- LRB9211386SMdv 1 immediately preceding tax years; provided that, when a 2 taxpayer is a member of a unitary business group, such 3 determination shall be made on the basis of the gross 4 receipts of the entire unitary business group. 5 (C) Sales, other than sales governed by paragraphs 6 (B) and (B-1), are in this State if: 7 (i) The income-producing activity is performed 8 in this State; or 9 (ii) The income-producing activity is 10 performed both within and without this State and a 11 greater proportion of the income-producing activity 12 is performed within this State than without this 13 State, based on performance costs. 14 (D) For taxable years ending on or after December 15 31, 1995, the following items of income shall not be 16 included in the numerator or denominator of the sales 17 factor: dividends; amounts included under Section 78 of 18 the Internal Revenue Code; and Subpart F income as 19 defined in Section 952 of the Internal Revenue Code. No 20 inference shall be drawn from the enactment of this 21 paragraph (D) in construing this Section for taxable 22 years ending before December 31, 1995. 23 (E) Paragraphs (B-1) and (B-2) shall apply to tax 24 years ending on or after December 31, 1999, provided that 25 a taxpayer may elect to apply the provisions of these 26 paragraphs to prior tax years. Such election shall be 27 made in the form and manner prescribed by the Department, 28 shall be irrevocable, and shall apply to all tax years; 29 provided that, if a taxpayer's Illinois income tax 30 liability for any tax year, as assessed under Section 903 31 prior to January 1, 1999, was computed in a manner 32 contrary to the provisions of paragraphs (B-1) or (B-2), 33 no refund shall be payable to the taxpayer for that tax 34 year to the extent such refund is the result of applying -7- LRB9211386SMdv 1 the provisions of paragraph (B-1) or (B-2) retroactively. 2 In the case of a unitary business group, such election 3 shall apply to all members of such group for every tax 4 year such group is in existence, but shall not apply to 5 any taxpayer for any period during which that taxpayer is 6 not a member of such group. 7 (b) Insurance companies. 8 (1) In general. Except as otherwise provided by 9 paragraph (2), business income of an insurance company 10 for a taxable year shall be apportioned to this State by 11 multiplying such income by a fraction, the numerator of 12 which is the direct premiums written for insurance upon 13 property or risk in this State, and the denominator of 14 which is the direct premiums written for insurance upon 15 property or risk everywhere. For purposes of this 16 subsection, the term "direct premiums written" means the 17 total amount of direct premiums written, assessments and 18 annuity considerations as reported for the taxable year 19 on the annual statement filed by the company with the 20 Illinois Director of Insurance in the form approved by 21 the National Convention of Insurance Commissioners or 22 such other form as may be prescribed in lieu thereof. 23 (2) Reinsurance. If the principal source of 24 premiums written by an insurance company consists of 25 premiums for reinsurance accepted by it, the business 26 income of such company shall be apportioned to this State 27 by multiplying such income by a fraction, the numerator 28 of which is the sum of (i) direct premiums written for 29 insurance upon property or risk in this State, plus (ii) 30 premiums written for reinsurance accepted in respect of 31 property or risk in this State, and the denominator of 32 which is the sum of (iii) direct premiums written for 33 insurance upon property or risk everywhere, plus (iv) 34 premiums written for reinsurance accepted in respect of -8- LRB9211386SMdv 1 property or risk everywhere. For purposes of this 2 paragraph, premiums written for reinsurance accepted in 3 respect of property or risk in this State, whether or not 4 otherwise determinable, may, at the election of the 5 company, be determined on the basis of the proportion 6 which premiums written for reinsurance accepted from 7 companies commercially domiciled in Illinois bears to 8 premiums written for reinsurance accepted from all 9 sources, or, alternatively, in the proportion which the 10 sum of the direct premiums written for insurance upon 11 property or risk in this State by each ceding company 12 from which reinsurance is accepted bears to the sum of 13 the total direct premiums written by each such ceding 14 company for the taxable year. 15 (c) Financial organizations. 16 (1) In general. Business income of a financial 17 organization shall be apportioned to this State by 18 multiplying such income by a fraction, the numerator of 19 which is its business income from sources within this 20 State, and the denominator of which is its business 21 income from all sources. For the purposes of this 22 subsection, the business income of a financial 23 organization from sources within this State is the sum of 24 the amounts referred to in subparagraphs (A) through (E) 25 following, but excluding the adjusted income of an 26 international banking facility as determined in paragraph 27 (2): 28 (A) Fees, commissions or other compensation 29 for financial services rendered within this State; 30 (B) Gross profits from trading in stocks, 31 bonds or other securities managed within this State; 32 (C) Dividends, and interest from Illinois 33 customers, which are received within this State; 34 (D) Interest charged to customers at places of -9- LRB9211386SMdv 1 business maintained within this State for carrying 2 debit balances of margin accounts, without deduction 3 of any costs incurred in carrying such accounts; and 4 (E) Any other gross income resulting from the 5 operation as a financial organization within this 6 State. In computing the amounts referred to in 7 paragraphs (A) through (E) of this subsection, any 8 amount received by a member of an affiliated group 9 (determined under Section 1504(a) of the Internal 10 Revenue Code but without reference to whether any 11 such corporation is an "includible corporation" 12 under Section 1504(b) of the Internal Revenue Code) 13 from another member of such group shall be included 14 only to the extent such amount exceeds expenses of 15 the recipient directly related thereto. 16 (2) International Banking Facility. 17 (A) Adjusted Income. The adjusted income of 18 an international banking facility is its income 19 reduced by the amount of the floor amount. 20 (B) Floor Amount. The floor amount shall be 21 the amount, if any, determined by multiplying the 22 income of the international banking facility by a 23 fraction, not greater than one, which is determined 24 as follows: 25 (i) The numerator shall be: 26 The average aggregate, determined on a 27 quarterly basis, of the financial 28 organization's loans to banks in foreign 29 countries, to foreign domiciled borrowers 30 (except where secured primarily by real estate) 31 and to foreign governments and other foreign 32 official institutions, as reported for its 33 branches, agencies and offices within the state 34 on its "Consolidated Report of Condition", -10- LRB9211386SMdv 1 Schedule A, Lines 2.c., 5.b., and 7.a., which 2 was filed with the Federal Deposit Insurance 3 Corporation and other regulatory authorities, 4 for the year 1980, minus 5 The average aggregate, determined on a 6 quarterly basis, of such loans (other than 7 loans of an international banking facility), as 8 reported by the financial institution for its 9 branches, agencies and offices within the 10 state, on the corresponding Schedule and lines 11 of the Consolidated Report of Condition for the 12 current taxable year, provided, however, that 13 in no case shall the amount determined in this 14 clause (the subtrahend) exceed the amount 15 determined in the preceding clause (the 16 minuend); and 17 (ii) the denominator shall be the average 18 aggregate, determined on a quarterly basis, of 19 the international banking facility's loans to 20 banks in foreign countries, to foreign 21 domiciled borrowers (except where secured 22 primarily by real estate) and to foreign 23 governments and other foreign official 24 institutions, which were recorded in its 25 financial accounts for the current taxable 26 year. 27 (C) Change to Consolidated Report of Condition 28 and in Qualification. In the event the Consolidated 29 Report of Condition which is filed with the Federal 30 Deposit Insurance Corporation and other regulatory 31 authorities is altered so that the information 32 required for determining the floor amount is not 33 found on Schedule A, lines 2.c., 5.b. and 7.a., the 34 financial institution shall notify the Department -11- LRB9211386SMdv 1 and the Department may, by regulations or otherwise, 2 prescribe or authorize the use of an alternative 3 source for such information. The financial 4 institution shall also notify the Department should 5 its international banking facility fail to qualify 6 as such, in whole or in part, or should there be any 7 amendment or change to the Consolidated Report of 8 Condition, as originally filed, to the extent such 9 amendment or change alters the information used in 10 determining the floor amount. 11 (d) Transportation services. Business income derived 12 from furnishing transportation services shall be apportioned 13 to this State in accordance with paragraphs (1) and (2): 14 (1) Such business income (other than that derived 15 from transportation by pipeline) shall be apportioned to 16 this State by multiplying such income by a fraction, the 17 numerator of which is the revenue miles of the person in 18 this State, and the denominator of which is the revenue 19 miles of the person everywhere. For purposes of this 20 paragraph, a revenue mile is the transportation of 1 21 passenger or 1 net ton of freight the distance of 1 mile 22 for a consideration. Where a person is engaged in the 23 transportation of both passengers and freight, the 24 fraction above referred to shall be determined by means 25 of an average of the passenger revenue mile fraction and 26 the freight revenue mile fraction, weighted to reflect 27 the person's 28 (A) relative railway operating income from 29 total passenger and total freight service, as 30 reported to the Interstate Commerce Commission, in 31 the case of transportation by railroad, and 32 (B) relative gross receipts from passenger and 33 freight transportation, in case of transportation 34 other than by railroad. -12- LRB9211386SMdv 1 (2) Such business income derived from 2 transportation by pipeline shall be apportioned to this 3 State by multiplying such income by a fraction, the 4 numerator of which is the revenue miles of the person in 5 this State, and the denominator of which is the revenue 6 miles of the person everywhere. For the purposes of this 7 paragraph, a revenue mile is the transportation by 8 pipeline of 1 barrel of oil, 1,000 cubic feet of gas, or 9 of any specified quantity of any other substance, the 10 distance of 1 mile for a consideration. 11 (e) Combined apportionment. Where 2 or more persons are 12 engaged in a unitary business as described in subsection 13 (a)(27) of Section 1501, a part of which is conducted in this 14 State by one or more members of the group, the business 15 income attributable to this State by any such member or 16 members shall be apportioned by means of the combined 17 apportionment method. 18 (f) Alternative allocation. If the allocation and 19 apportionment provisions of subsections (a) through (e) and 20 of subsection (h) do not fairly represent the extent of a 21 person's business activity in this State, the person may 22 petition for, or the Director may require, in respect of all 23 or any part of the person's business activity, if reasonable: 24 (1) Separate accounting; 25 (2) The exclusion of any one or more factors; 26 (3) The inclusion of one or more additional factors 27 which will fairly represent the person's business 28 activities in this State; or 29 (4) The employment of any other method to 30 effectuate an equitable allocation and apportionment of 31 the person's business income. 32 (g) Cross reference. For allocation of business income 33 by residents, see Section 301(a). 34 (h) Apportionment of income. For tax years ending on or -13- LRB9211386SMdv 1 after December 31, 1998, the apportionment factor of persons 2 who apportion their business income to this State under 3 subsection (a) shall be equal to: 4 (1) for tax years ending on or after December 31, 5 1998 and before December 31, 1999, 16 2/3% of the 6 property factor plus 16 2/3% of the payroll factor plus 7 66 2/3% of the sales factor; 8 (2) for tax years ending on or after December 31, 9 1999 and before December 31, 2000, 8 1/3% of the property 10 factor plus 8 1/3% of the payroll factor plus 83 1/3% of 11 the sales factor; 12 (3) for tax years ending on or after December 31, 13 2000 and before December 31, 2002, the sales factor; 14 (4) for tax years ending on or after December 31, 15 2002 and before December 31, 2007, as provided in 16 subsection (a); 17 (5) for tax years ending on or after December 31, 18 2007, the sales factor. 19 If, in any tax year ending on or after December 31, 1998 and 20 before December 31, 2000, the denominator of the payroll, 21 property, or sales factor is zero, the apportionment factor 22 computed in paragraph (1) or (2) of this subsection for that 23 year shall be divided by an amount equal to 100% minus the 24 percentage weight given to each factor whose denominator is 25 equal to zero. 26 (Source: P.A. 90-562, eff. 12-16-97; 90-613, eff. 7-9-98; 27 91-541, eff. 8-13-99.) 28 Section 99. Effective date. This Act takes effect upon 29 becoming law.
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